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May 01, 2001 Agenda-SC
d CITY OF DENTON CITY COLTNCIL ~genda Item * . - May 1, 2001 ')ate,__.__~ [//fl/ oSg Ager dete~ming that a quorum ~s present ~d convening ~n ~ open meeting, the City Co~ml wall convene m a Specml Called Meeting of~e City of Denton C~ty Counml on Tuesday, May 1, 2001 m 1 q30 p m in ~e City Co.cfi Chmbers of City H~I, 215 E McK~nney, Denton, Texas m whmh ~e following item will be considered 1 Receive ~d open bids reg~&ng C~ty of Denton Cemficmes of ObhgaUon Bonds, Series 20 1 2 C0ns~der adoption of ~ ordm~ce authormng ~e ~ssu~ce, sale, ~d dehveu of C~ty of Denton Ceafficates of Obligation Bonds, Series 2001, approwng ~d authormng ~ns~ments ~d procedures relating ~emto, ~d prow&ng ~ effective date 3 Receive ~d open bids reg~&ng C~ty of Demon General Obligation Bonds, Series 2001 4 Consider adoption of ~ ordm~ce anthonz~ng the lssu~ce, s~e, ~d dehve~ of City of Denton General Obhgat~on Bonds, Series 2001, levying the tax to pay sine, approwng ~d authorizing mstments ~d proced~es relating ~emto, ~d prow&ng ~ effective date CERTIFICATE I certify that the above not~ce of meellng was po,~Ied on l, he bulletin board at the City Hall of the (~Denton, Texas, on the 6~ r-/~t~ day of ~.~, 2001 at .~QgO o'clock (a m ) TARY NOTE THE CITY OF DENTON CITY COUNCIL CHAMBERS IS ACCESSIBLE IN ACCORII)ANCE WITH THE AMERICANS WITH DISABILITIES ACT THE CITY WILL PROVIDE SIGN LANGUAGE INTERPRETERS FOR THE HEARING IMPAIRED IF REQUESTED AT LEAST 48 HOURS IN ADVANCE OF THE SCHEDULED MEETING PLEASE CALL THE CITY SECRETARY'S OFFICE AT 349-8309 OR USE TELECOMMUNICATIONS DEVICES FOR THE DEAF (TDD) BY CALLING 1-800- RELAY-TX SO THAT A SIGN LANGUAGE INTERPRETER CAN BE SCHEDULED THROUGH THE CITY SECRETARY'S OFFICE AGENDA INFORMATION SHEET AGENDA DATE: May 1, 2001 DEPARTMENT' Fiscal Operations ACM: Kathy DuBose, Fiscal and Mumcipal Services ~) SUBJECT Receive and open bids regarding City of Denton Certificates of Obligation Bonds, Series 2001 BACKGROUND On May 1, 2001, David Medamch of First Southwest Company and Ted Bnzzolara ~I of McCall, Parkhurst and Horton, will deliver and open the bids regarding the City of Denton's Certificates of Obligation Bonds, Series 2001 The process of opening the bids and tabulating them before the City Council is reqmred by City Charter The Bonds will provide funding of $11,957,000 (plus cost of issuance) for the following projects and improvements $ 693,000 Faclhty Renovations 3,300,000 Central Fire Station 1,500,000 Motor Pool Additions/Replacements 2}450,000 Technology Plan 3,800,000 Sohd Waste 214,000 Transportatmn, Parks & Recreation, Planning/Development PRIOR ACTION/REVIEW (Councd~ Boards~ Commission) The projects were previously approved In 2000-2004 Capital Improvement Program (CIP) They were also reviewed by the Debt Management Committee at the March 2001 meeting FISCAL INFORMATION The Certificates of Obligation Bonds have an estimated average annual debt service requirement of $800,000 Respectfully submitted D~ana G Ortiz Director of Fiscal Operations o1-0 4 AGENDA INFOBATION SHEET AGENDA DATE: May 1, 2001 DEP~TMENT: Fmcal Opcratmns ACM: Kathy D~ose, F~scal ~d M~tctpal Se~mes ~ SUBJECT Consider adoption of an ordinance authorizing the issuance, sale and delivery of City of Denton Certfficates of Obhgatlon Bonds, Series 2001, and approwng and authonmng instruments and procedures relating thereto, and providing an effectzve date BACKGROUND On May 1, 2001, David Medanlch of First Southwest Company and Ted Bnzzolara Ili of McCall, Parkhurst and Horton, will deliver and open the bids regarding the City of Denton's Certfficates of ObhgaUon Bonds, Series 2001 The process of opemng the bids and tabulating them before the City Counml is reqmred by C~ty Charter The Bonds wall prowde funding of $11,957,000 (plus cost of ~ssuance) for the following projects and zmprovements $ 693,000 Facthty RenovaUons 3,300,000 Central Fire Station 1,500,000 Motor Pool Addmons/Replacements 2,450,000 Technology Plan 3,800,000 Solid Waste 214,000 Transportation, Parks & Recreation, Planmng/Development PRIOR ACTION/REVIEW (Councfi~ Boards~ Commission) The projects were prewously approved m the 2000-2004 Capital Improvement Program (CIP) They were also reviewed by the Debt Management Committee at the March 28, 2001 meeting FISCAL INFORMATION The Certfficates of Obhgatmn Bonds have an estimated average annual debt servme reqmrement of $800,000 Respectfully submttted D~ana G Ort~z D~rector of F~scal OperaUons ORDINANCE NO 2001- AN ORDINANCE AUTHORIZING THE ISSUANCE, SALE, AND DELIVERY OF CITY OF DENTON CERTIFICATES OF OBLIGATION, SERIES 200 I, APPROVING AND AUTHORIZING INSTRUMENTS AND PROCEDURES RELATING THERETO, AND PROVIDING AN EFFECTIVE DATE THE STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON WHEREAS, the Certificate of Obhgatlon Act of 1971, as amended and codified (the "Act") and Chapters 1207 and 1501 of the Texas Government Code, as amended, permit the City to issue and sell for cash the Certificates of Obligation hereinafter authorized, and WHEREAS, the City has duly caused not, ce of its intention to issue the Certificates of Obhgation hereinafter authorized to be published at the times and m the manner reqmred by the Act and no petitmn has been filed protesting the issuance thereof, NOW, THEREFORE THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS Section 1 AMOUNT AND PURPOSE OF THE CERTIFICATES The certificate or certificates of the City of Denton, Texas (the "Issuer") are hereby authorized to be issued and delivered in the aggregate principal amount of $12,120,000, for the purpose of paying all or a portion of the City's contractual obligations incurred pursuant to contracts for the purchase of certain real and personal property, to-wit (a) improvements at the City's airport, (b) equipment for the City's public parks, (c) construction and eqmppmg cfa new central fire station located at the comer of Bell Avenue and Hickory Street, Denton, Texas, (d) improvements to the City's solid waste disposal system, (e) vehicles for the City's motor pool, (f) computer and technology equipment and upgrades for the City's mformat~on technology systems, and (g) miscellaneous renovations and improvements to City owned facilities, and also for the purpose of paying all or a portion of the City's contractual obligations for professional services, including engineers, architects, attorneys, map makers, auditors, and financial advisors, in connection with the preparation of the City's Comprehensive Development Plan, Open Space Plan, Downtown ,Master Plan and Facility Space Study, and in connection with the above contracts and said Certificates of Obligation Section 2 DESIGNATION OF THE CERTIFICATES Each certificate issued pursuant to this Ordinance Shall be designated "CITY OF DENTON CERTIFICATE OF OBLIGATION, SERIES 2000", and initially there shall be issued, sold, and delivered hereunder a single fully registered certificate, without interest coupons, payable in installments of principal (the "Initial Certificate"), but the Initial Certificate may be assigned and transferred and/or converted into and exchanged for a like aggregate principal amount of fully registered certificates, without interest coupons, having serial maturities, and in the denomination or denommations of $5,000 or any integral multiple of $5,000, all in the manner herein- after provided The term "Certificates" as used m this Ordinance shall mean and include collectively the Initial Certificate and all substitute certificates exchanged therefor, as well as all other substitute certificates land replacement certificates issued pursuant hereto, and the term "Certificates" shall mean any of the Certificates Section 3 INITIAL DATE, DENOMINATION, NUMBER, MATURITIES, INITIAL REGISTERED OWNER, AND CHARACTERISTICS OF THE INITIAL CERTIFICATE (a) The Imtml Certificate ts hereby authorized to be ~ssued, sold, and dehvered hereunder as a single full~ registered Cemfieate, wathout interest coupons, dated May 1, 2001, in the denomination and aggregate pnncapal amount of $12,120,000, numbered R-l, payable m annual tnstallments of prlnctpal to the mmal registered owner thereof, to-wit or to the r~gistered assignee or assignees of said Ce~ficate or any portton or porttons thereof (in each ease, the "t'egtstered owner"), wath the annual installments of pnnc~pal of the Inttial Cemfieate to be payable on the dates, respectively, and in the pnncapal amounts, respecttvely, stated in the FOR.M OF INITIAL (~ERTIFICATE set forth m tins Ordinance (b)l The Imtaal Certificate (t) may be asstgned and transferred, (n) may be converted and exchanged,forl other Certificates, (iii) shall have the eharactensttcs, and (tv) shall be signed and sealed, and the principal of and interest on the Imt~al Certificate shall be payable, all as prowded, and tn the manner required or indicated, ~n the FORM OF INITIAL CERTIFICATE set forth tn this Ordinance Seetaon4 INTEREST TheunpaadprmctpalbalaneeofthelmtlalCert~fieateshallbearmterest from the date of the Initial Certificate to the respective scheduled due dates of the installments of pnnctpal of the Inatlal Cemfieate, and said anterest shall be payable, all in the manner prowded and at the rates and og the dates stated an the FORM OF INITIAL CERTIFICATE set forth m this Ordmance Section 5 FORM OF INITIAL CERTIFICATE The form of the Initial Certificate, tncludlng the form o~' Reg~strataon Ce~ficate of the Comptroller of Pubhc Accounts of the State of Texas to be endorsed on the Initial Cemficate, shall be substantially as follows FORM OF INITIAL CERTIFICATE NO R-I $12,120,000 UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON CERTIFICATE OF OBLIGATION SERIES 2001 TIlE CITY OF DENTON, in Denton County, Texas (the "Issuer"), beang a political subdlwslon of the State of Texas, hereby promises to pay to or to the r~g~stered assagnee or assignees ofth~s Certificate or any portion or port~ons hereof (~n each case, the "registered owner") the aggregate pnncapal amount of $12,120,000 (TWELVE MILLION ONE HUNDRED TWENTY THOUSAND DOLLARS) tn annual installments of prmctpal due and payable on February 15 in each of the years, and in the respecttvelprmetpal amounts, as set forth in the following schedule, and to pay interest, from the date of tins Certificate hereinafter stated, on the balance of each such mstallment of prme~pal, respeettvely, from ttme to ttme remaining unpaid, at the rates per annum as follows PRINCIPAL INTEREST PRINCIPAL INTEREST YEAR AMOUNT RATE(%) YEAR AMOUNT RATE(%) 2002 $1,365,000 2012 $ 245,000 2003 1,360,000 2013 245,000 2004 1,360,000 2014 245,000 2005 1,360,000 2015 245,000 2006 1,360,000 2016 245,000 2007 580,000 2017 245,000 2008 575,000 2018 245,000 2009 570,000 2019 245,000 2010 570,000 2020 245,000 2011 570,000 2021 245,000 Interest shall first be due and payable on February 15, 2002, and semiannually on each February 15 and August 15 thereafter wh~le th~s Bond or any po~on hereof~s outstanding and unpmd Smd interest shall be calculated on the bas~s of a 360-day year composed of twelve 30-day months THE INSTALLMENTS OF PRINCIPAL OF AND THE INTEREST ON this Certificate are payable ~n lawful money of the Umted States of America, without exchange or collecuon charges The ~nstallments of pnnclpal and the interest on this Certfficate are payable to the registered owner hereof through the sermces of BANK ONE, NA, DALLAS, TEXAS, which ~s the "Paying Agent/Registrar" for th~s Certfficate Payment of all pnnc~pal of and interest on this Cemficate shall be made by the Paying Agent/Registrar to the registered owner hereof on each pnnc~pal and/or interest payment date by check dated as of such date, drawn by the Paying Agent/Reglstrer on, and payable solely from, funds of the Issuer required by the ordinance authorizing the ~ssuance of this Certfficate (the "Certificate Ordinance") to be on depom w~th the Paying Agent/Regnstrar for such purpose as hereinafter proxnded, and such check shall be sent by the Paying Agent/Registrar by United States mall, first-class postage prepmd, on each such pnnclpal and/or interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared at the close of business on the last day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described The Issuer covenants with the registered owner of this Certfficate that on or before each principal and/or ~nterest payment date for th~s Ce~ficate it w~ll make available to the Paying Agent/Registrar, from the "Interest and Stoking Fund" created by the Certfficate Ordinance, the amounts reqmred to prowde for the payment, m ~mmedmtely available funds, of all pnnclpal of and ~nterest on th~s Cemficate, when due IN THE EVENT of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "Specml Record Date") will be estabhshed by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the Issuer Notice of the Specml Record Date and of the scheduled payment date of the past due interest ("Specml Payment Date", which shall be fifteen (15) days after the Specml Record Date) shall be sent at least five (5) business days prior to the Specml Record Date by Umted States mall, first class postage prepaid, to the address of each Holder of a Certfficate appemng on the registration books of the Paying Agent/Registrar at the close of business on the 15th bus~ness day next precedmg the date of mmhng of such notme IF THE DATE for the payment of the pnnc~pal of or interest on this Certificate shall be a Saturday, Sunday, a legal hohday, or a day on which bankang ~nst~tut~ons ~n the C~ty where the Paying Agent/Registrar ~s located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which ~s not such a Saturday, Sunday, legal hohday, or day on whmh banking ~nst~tutlons are authorized to close, and payment on such date shall have the same force and effect as ffmade on the original date payment was due 3 THIS CERTIFICATE has been authorized in accordance w~th the Constitution and laws of the State of Texas m the prmclpal amount of $12,120,000 for the purpose ofpay~ng all or a port~on of the C~ty's contractual obligations incurred pursuant to contracts for the purchase of certain real and personal property, to-w~t (a) ~mprovements at the C~ty's airport, (b) eqmpment for the City's pubhc parks, (c) construction and eqmppmg cfa new central fire station located at the comer of Bell Avenue and Hickory Street, Denton, Texas, (d) improvements to the City's solid waste disposal system, (e) vehicles for the C~ty's motor pool, (f) computer and technology eqmpment and upgrades for the City's information technology systems, and (g) maseellaneous renovations and improvements to City owned facilities, and also for the purpose of paying all or a po~on of the C~ty's contractual obhgat~ons for professional services, ~neludmg engineers, architects, attorneys, map makers, auditors, and financial adwsors, ~n connectlon,w~th the preparation of the C~ty's Comprehensive Development Plan, Open Space Plan, Downtown Master Plan and Facility Space Study, and ~n connection w~th the above contracts and smd Cemficates of Obhgatton ON FEBRUARY 15,2011, or on any date whatsoever thereafter, the unpaid ~nstallments of pnnc~pal of this Certificate of Obhgatlon may be prepaid or redeemed prior to their scheduled due dates, at the option of the Issuer, with funds derived from any available source, as a whole, or in part, and, part, the part~anlar port,on of this Certffieate of Obhgation to be prepmd or redeemed shall be selected and designated by the Issuer (promded that a portion of this Certfficate of Obhgat~on may be redeemed only in an integral multiple of $5,000), at the prepayment or redemption price of the par or prmcipal amount thereof, plus accrued interest to the date fixed for prepayment or redemption THE CERTIFICATES of th~s Series scheduled to mature on FEBRUARY 15, are subject to mandatory redemption prmr to their scheduled maturities, and shall be redeemed by the Issuer, in part, prior to their scheduled mammies, w~th money from the Mandatory Redemptaon Account of the Interest and S~nlang Fund, w~th the pamanlar CerOfieates or po~on thereof to be redeemed to be selected by the Paying AgenffReg~strar, by lot or other customary method (provided that a portion of a Certfficate may be redeemed only m an integral multiple of $5,000), at a redemption price equal to the par or prmmpal amount thereof and accrued interest to the date of redemption, on the dates, and in the pnnmpal amounts, respectively, as shown in the following schedule February 15, Maturity Mandatory Pnnmpal Redemption Dates Amounts $ (matunty) $ The pnncipal amount of the Certificates required to be redeemed on the Mandatory Redemption Dates pursuant to the foregomg shall be reduced, at the option of the Issuer by the pnnmpal amount of any Certfficates out of the maturity scheduled for February 15, which, at least 45 days prior to the aforesmd appropriate redemption date (1) shall have been acquired by the Issuer at a price not exceeding the principal amount of such CerOficates plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, or (2) as shall have been redeemed pursuant to the optional redemption proxasions hereof and not prewously credited to the mandatory sinking fund redemption During any period m whmh ownership of the Certificates is determined by a book entry at a securities depository for the Certfficates, ~f fewer than all of the Certificates of the same maturity and bearing such interest rate shall be selected m accordance w~th the arrangements between the Issuer and the securmes depository AT LEAST 30 days prior to the date fixed for any such prepayment or redemption a written notme of such prepayment or redemption shall be mailed by the Paying Agent/Registrar to the registered owner hereof By the date fixed for any such prepayment or redemption due prowsion shall be made by 4 the Issuer wath the Paymg Agent/Regastrar for the payment of the reqmred prepayment or redemptaon price for this Certlficate or the po~on hereof which as to be so prepmd or redeemed, plus accrued mterest thereon to the date fixed for prepayment or redemption If such written notace of prepayment or redemp- tion ls g~ven, and af due prows~on for such payment as made, all as prowded above, thas Certaficate, or the portaon thereof which ~s to be so prepaad or redeemed, thereby automatically shall be treated as prepaid or redeemed prior to 1ts scheduled due date, and shall not bear interest after the date fixed for ars prepayment or redemption, and shall not be regarded as beang outstandang except for the right of the regastered owner to receive the prepayment or redemptmn prate plus accrued anterest to the date fixed for prepayment or redemptaon from the Paying Agent/Regastrar out of the funds provtded for such payment The Paying Agent/Registrar shall record an the Registration Books all such prepayments or redemptaons of pnnc~pal of thas Cerlaficate or any port~on hereof THIS CERTIFICATE, to the extent of the unpaid pnneapal balance hereof, or any unpaid portaon hereof m any antegral multlple of $5,000, may be assagned by the ~mtaal regastered owner hereof and shall be transferred only m the Reg~strataon Books of the Issuer kept by the Paying Agent/Registrar actmg ~n the capacity of regnstrar for the Certificates, upon the terms and condataons set forth ~n the Cemfieate Ordanance Among other reqmrements for such transfer, thas Certaficate must be presented and surrendered to the Paying Agent/Registrar for cancellation, together w~th proper anstmments of asslgn- ment, m form and w~th guarantee of s~gnatures satisfactory to the Paying Agent/Reglstrar, ewdencmg assagnment by the anataal regastered owner of th~s Certaficate, or any portmn or portaons hereof an any antegral mtllt~ple of $5,000, to the assignee or assignees m whose name or names thas Ce~ficate or any such portaon or port~ons herenf as or are to be transferred and regastered Any instrument or instruments of assignment satisfactory to the Paying Agent/Registrar may be used to exndence the asstgnment of thas Certificate or any such portaon or portions hereof by the mmal regastered owner hereof A new certificate or certificates payable to such assignee or assignees (whach then will be the new regastered owner or owners of such new Certaficate or Certificates) or to the amtaal regastered owner as to any portaon of thas Certaficate ,which ~s not beang asmgned and transferred by the m~tlal regastered owner, shall be dehvered by the Paying AgenffReg~strar an conversion of and exchange for thas Certaficate or any port,on or portions hereof, but solely m the form and manner as prowded an the next paragraph hereof for the conversion, and exchange of thas Certaficate or any portaon hereof The regastered owner of th~s Ce~ficate shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, lncludang payment and d~scharge of habthty upon thas Certificate to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notate to the contra~ AS PROVIDED above and m the Certaficate Ordinance, thas Certificate, to the extent of the unpaad prntc~pal balance hereof, may be converted into and exchanged for a lake aggregate prmclpal amount of fully registered certaficates, wnthout mterest coupons, payable to the assagnee or assagnees duly des~gnatedlm wrmng by the m~t~al reglstered owner hereof, or to the mmal registered owner as to any po~on of th~s Certificate which as not being asslgned and transferred by the anataal registered owner, m any denommataon or denommataons m any antegral multaple of $5,000 (subject to the reqmrement here- mafter stated that each substitute certificate lssued m exchange for any portaon of th~s Certdicate shall have a single stated principal maturity date), upon surrender of thls Certificate to the Paymg Agen~- Regastrar for cancellation, all m accordance w~th the form and procedures set forth m the Ce~ficate Ordinance, If th~s Certaficata or any portxon hereof as assagned and transferred or converted each certafl- cate assued m exchange for any po~on hereof shall have a single stated pnncapal maturaty date corresponding to the due date of the installment of prmcapal of th~s Certaficate or portaon hereof for whach the substlt~te certaficate as being exchanged, and shall bear interest at the rate apphcable to and borne by such installment ofprmcapal or portaon thereof No such certaficate shall be payable m installments, but shall have only one stated prmcapal maturity date AS PROVIDED IN THE CERTIFICATE ORDINANCE, THIS CERTIFICATE IN ITS PP~ESENT FORM MAY BE ASSIGNED AND TRANSFERRED OR. CONVERTED ONCE ONLY, and to one or more assagnees, but the certafieates assued and,dehvered m exchange for thas Cemficate or any portaon hereof may be assagned and transferred, and converted, subsequently, as provided tn the Certificate Ordinance The Issuer shall pay the Paymg Agent/Reglstrar's standard or customary fees and charges for transfernng, convemng, and exchanging this Cemflcate or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid w~th respect thereto The Paying Agent/Registrar shall not be required to make any such assignment, conversion, or exchange dunng the period commencing with the close of business on any Record Date and ending with the opening of business on the next following prmmpal or interest payment date IN THE EVENT any Paying Agent/Registrar for this Cemficate is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted ~n the Certificate Ordinance that it promptly will appoint a competent and legally qualified submtute therefor, and promptly will cause written notice thereof to be mailed to the registered owner of this Certificate IT IS HEREBY certified, recited, and covenanted that this Cemficate has been duly and validly authorized, issued, and delivered, that all acts, conditions, and things reqmred or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Certificate have been performed, erasted, and been done in accordance with law, that th~s Certificate is a general obhgation of the Issuer, issued on the full froth and credit thereof, and that annual ad valorem taxes sufficient to promde for the payment of the interest on and pnnmpal ofth~s Certificate, as such interest comes due and such pnnmpal matures, have been levaed and ordered to be levied against all taxable property in the Issuer, and have been pledged ~rrevocably for such payment, within the hm~t prescribed by law, and that, together with other panty obligations, this Certificate additionally is payable from and secured by certain surplus revenues (not to exceed $10,000 m aggregate amount) derived by the Issuer fi.om the ownership and operation of the C~ty's Utthty System (consisting of the City's combined waterworks system, sanitary sewer system, and electric hght and power system), all as provided in the Certfficate Ordinance THE ISSUER has reserved the right to issue, m accordance wuth law, and m accordance w~th the Certificate Orchnance, other and additional obhgat~ons, and to enter into contracts, payable fi.om ad valorem taxes end/or revenues of the C~ty's Utahty System, on a panty with, or with respect to said revenues, superior m lien to, this Cemficate BY BECOMING the registered owner of this Cemficate, the registered owner thereby acknowledges all of the terms and prov~sions of the Certificate Ordmance, agrees to be bound by such terms and prowslons, acknowledges that the Certificate Ordinance is duly recorded and available for inspection m the official minutes and records of the govermng body of the Issuer, and agrees that the terms and provlsaons of this Cemfieate and the Certificate Ordinance constitute a contract between the registered owner hereof and the Issuer IN WITNESS WHEREOF, the Issuer has caused th~s Certfficate to be signed w~th the manual or facsimile signature of the Mayor of the Issuer and countersigned and attested w~th the manual or facslmde signature of the City Secretary of the Issuer, has caused the officml seal of the Issuer to be duly impressed, or placed in facsimile, on this Certificate, and has caused thru Certificate to be dated May 1, 2001 ATTEST CITY OF DENTON, TEXAS By By_ Jennifer Walters Euhne Brock City Secretary, City of Denton, Texas Mayor, City of Denton, Texas (CITY SEAL) (INSERT BOND INSURANCE LEGEND, IF ANY) FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS COMPTROLLER'S REGISTRATION CERTIFICATE REGISTER NO I hereby ee~fy that this Certificate has been examined, cemfied as to validity, and approved by the Attorney General of the State of Texas, and that this Certfficate has been registered by the Comptroller of Public Accounts of the State of Texas Wimess my signature and seal this Comptroller of Public Accounts of the State of Texas (COMPTROLLER'S SEAL) Section 6 ADDITIONAL CHARACTERISTICS OF THE CERTIFICATES Remstratlon and Transfer (a) The Issuer shall keep or cause to be kept at the pnnclpal corporate trust office of BANK ONE, NA, DALLAS, TEXAS (the "Paying Agent/Registrar") books or records of the registration and transfer of the Certfficates (the "Registration Books"), and the Issuer hereby appoints the Paying Agent/Registrar as 1ts registrar and transfer agent to keep such books or records and make such transfers and registrations under such reasonable regulations as the Issuer and Paying Agent/Registrar may prescribe, and the Paying Agent/Registrar shall make such transfers and registrations as here~n provided The Paying AgenffReg~strar shall obtain and record ~n the Registration Books the address of the registered owner of each Certificate to which payments with respect to the Certificates shall be mailed, as here~n provided, but ~t shall be the duty of each registered owner to notify the Paying Agent/Registrar m writing of the address to which payments shall be mmled, and such interest payments shall not be marled unless such notice has been g~ven The Issuer shall have the right to inspect the Regtstrat~on Books dunng regular business hours of the Paying AgenffReg~strar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwme reqmred by law, shall not permit their ~nspectlon by any other entity Regmtrat~on of each Certificate may be transferred ~n the Reg~stration 7 Books only upon presentation and surrender of such Certificate to the Paying Agent/Registrar for transfer of registration and cancellation, together wtth proper written instruments of assignment, m form and with guarantee of signatures satisfactory to the Paymg Agent/Registrar, (0 evidencing the assignment of the Certificate, or any portion thereof m any antegral multiple of $5,000, to the assagnee or assignees thereof, and (n) the right of such assignee or assxgnees to have the Certificate or any such portaon thereof registered m the name of such assignee or assagnees Upon the assignment and transfer of any Certificate or any porttan thereof, a new substitute Cemflcate or Certaficates shall be issued in conversaon and exchange therefor m the manner herein prowded The lmtaal Certaficate, to the extent of the unpaid pnncapal balance thereof, may be assigned and transferred by the initial registered owner thereof once only, and to one or more assignees desxgnated m writing by the initial regastered owner thereof All Cemfieates assued and delivered m conversxon of and exchange for the Imtaal Certificate shall be in any denomination or denominations of any integral multaple of $5,000 (subJect to the requirement hereinafter stated that each subsUtute Certaficate shall have a single stated prmcipal maturity date), shall be an the form prescribed In the FORM OF SUBSTITUTE CERTIFICATE set forth in this Ordinance, and shall have the characterxstlcs, and may be assxgned, transferred, and converted as hereinafter provided Ifthe Initial Certificate or any portaon thereof is assigned and transferred or converted the ImUal Certaficate must be surrendered to the Paying Agent/Registrar for cancellation, and each Certificate tssued an exchange for any portxon of the Inmal Cemficate shall have a single stated pnncapal maturity date, and shall not be payable an installments, and each such Cemficate shall have a prmcapal maturity date corresponding to the due date of the anstallment of prmcapal or portaon thereof for which the substatute Certificate ~s being exchanged, and each such Certificate shall bear anterest at the single rate applicable to and borne by such installment of prme~pal or portion thereof for whach it as beang exchanged If only a portion of the Imtml Certificate is assigned and transferred, there shall be delivered to and registered an the name of the initial registered owner substitute Certificates in exchange for the unassigned balance of the Inltml Certaficate m the same manner as if the mttaal registered owner were the assagnee thereof If any Certafieate or portion thereof other than the Initial Certificate is assagned and transferred or converted each Certificate assued in exchange therefor shall have the same prlncapal maturity date and bear interest at the same rate as the Certaficate for which it ~s exchanged A form of assignment shall be printed or endorsed on each Certaficate, excepting the Imtml Cemficate, which shall be executed by the registered owner or Its duly authorized attorney or representative to evidence an assagnment thereof Upon surrender of any Cemficates or any portaon or portaons thereof for transfer of registrataon, an authorized representative of the Paying Agent/Regxstrar shall make such transfer m the Regtstrataon Books, and shall deliver a new fully regnstered substitute Certaficate or Certificates, having the characteristics herein described, payable to such assagnee or assxgnees (which then will be the registered owner or owners of such new Certificate or Certificates), or to the previous regastered owner in case only a portion of a Cert- Ificate as being assigned and transferred, all in conversion of and exchange for said assigned Certificate or Certificates or any portaon or portions thereof, an the same form and manner, and with the same effect, as provided m Section 6(d), below, for the conversion and exchange of Certificates by any registered owner of a Certificate The Issuer shall pay the Paying AgentJReglstrar's standard or customary fees and charges for makang such transfer and delivery of a substitute Certificate or Certificates, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto The Paying Agent/Registrar shall not be required to make transfers of registration of any Certaflcate or any pomon thereof during the period commencing w~th the close of business on any Record Date and ending with the opemng of busmess on the next followang prlncapal or interest payment date (b) Ownershxp of Cemfieates The entity in whose name any Certificate shall be registered an the Regastration Books at any time shall be deemed and treated as the absolute owner thereof for all purposes of this Ordananee, whether or not such Cemficate shall be overdue, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary, and payment of, or on account of, the pnnclpal of, premium, if any, and interest on any such Certafleate shall be made only to such registered owner All such payments shall be valid and effectual to satisfy and discharge the liability upon such Certificate to the extent of the sum or sums so paid 8 (c) Payment of Certificates and Interest The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and ~nterest on the Certificates, and to act as its agent to convert and exchange or replace Certificates, all as prowded in this Ordanance The Paying Agent/Registrar shall keep proper records of all payments made by the Issuer and the Paying Agent/Registrar wxth respect to the Certificates, and of all conversions and exchanges of Certificates, and all replacements of Certfficates, as prowded in thls Ordinance However, m the event of a nonpayment of interest on a scheduled payment date, and for thirty (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 paymant of such interest have been received from the Issuer Notme of the Special Record Date and of the scheduled payment date of the past due interest ("Spemal Payment Date", which shall be fifteen (15) days after the Special Record Date) shall be sent at least five (5) busaness days prior to the Spemal Record Date by United States mall, first class postage prepaid, to the address of each Holder of a Certificate appeanng on the registration books of the Paying Agent/Registrar at the close of business on the 15th business day next preceding the date of mailing of such notace (d) Conversion and Exchange or Renlacement~ Authentication Each Certificate issued and dehvered pursuant to this Ordinance, to the extent of the unpaid principal balance or principal amount thereof, may, upon surrender of such Certificate at the pnnmpal corporate trust office of the Paying Agent/Registrar, together wath a written request therefor duly executed by the registered owner or the assignee or assignees thereof, or its or their duly authorized attorneys or representatives, with guarantee of signatures satisfactory to the Paying Agent/Registrar, may, at the option of the registered owner or such assignee or assignees, as appropriate, be converted into and exchanged for fully registered certificates, without ~nterest coupons, m the form prescribed m the FORM OF SUBSTITUTE CERTIFICATE set forth an this Ordinance, in the denomination of $5,000, or any integral multiple of $5,000 (subJect to the reqmrement hereinafter stated that each substitute Certificate shall have a single stated maturity date), as requested in writing by such registered owner or such assignee or assignees, in an aggregate pnnmpal amount equal to the unpaid principal balance or pnnmpal amount of any Certificate or Certificates so surrendered, and payable to the appropriate registered owner, assagnee, or assignees, as the case may be If the Imual Certificate ~s assigned and transferred or converted each substitute Cemficate assued in exchange for any portion of the lmtlal Certfficate shall have a single stated pnncipal maturity date, and shall not be payable ~n installments, and each such Certificate shall have a pnnclpal maturity date corresponding to the due date of the installment of principal or portion thereof for which the submtute Certificate is being exchanged, and each such Certificate shall bear anterest at the single rate apphcable to and borne by such installment of principal or portion thereof for whmh ~t is being exchanged Ifany Certificate or portion thereof (other than the Initial Ce~ficate) ~s assigned and transferred or converted, each Cemficate issued m exchange therefor shall have the same pnnmpal maturity date and bear interest at the same rate as the Ce~ficate for which it is bemg exchanged Each substitute Certificate shall bear a letter and/or number to distinguish it from each other Certificate The Paying Agent/Registrar shall convert and exchange or replace Cemficates as prowded hereto, and each fully registered cemficate de- hvered ~n conversion of and exchange for or replacement of any Certificate or pomon thereof as permitted or required by any prowslon of this Ordinance shall constitute one of the Certificates for all purposes of this Ordinance, and may agam be converted and exchanged or replaced It as specifically promded that any Cemfieate authentmated m conversion of and exchange for or replacement of another Certificate on or prior to the first scheduled Record Date for the Imtml Certificate shall bear interest from the date of the Initial Certificate, but each substitute Certificate so authenticated after such first scheduled Record Date shall bear interest from the interest payment date next preceding the date on which such substitute Ce~ficate was so authentacated, unless such Certificate is authenticated after any Record Date but on or before the next following interest payment date, in whmh case it shall bear interest from such next following interest payment date, prowded, however, that ~f at the t~me of delivery of any substitute Cemficate the interest on the Certificate for which it is being exchanged is due but has not been paid, then such Certfficate shall bear interest from the date to which such interest has been paid in full THE INITIAL CERTIFICATE issued and dehvered pursuant to this Ordinance is not reqmred to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Cemficate issued m conver- 9 sion of and exchange for or replacement of any Certificate or Certificates ~ssued under this Ordinance there shall be printed a certificate, ~n the form substantially as follows "PAYI~qG AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE It is hereby certified that this Certificate has been issued under the provisions of the Certificate Ordinance described on the face of this Certificate, and that this Certificate has been issued m conversion of and exchange for or replacement ora ce~ficate, certificates, or a portion ora certificate or certificates of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas BANK ONE, NA, Dallas, Texas Paying Agent/Registrar Dated By. Authorized Representative" An authorized representative of the Paying AgentYReglstrar shall, before the delivery of any such Certificate, date and manually sign the above Certificate, and no such Certificate shall be deemed to be issued or outstanding unless such Certificate is so executed The Paying Agent/Registrar promptly shall cancel all Certificates surrendered for conversion and exchange or replacement No additional ordinances, orders, or resolutions need be passed or adopted by the govemmg body of the Issuer or any other body or person so as to accomplish the foregoing conversion and exchange or replacement of any Certificate or portion thereof, and the Pa3nng Agent/Registrar shall prowde for the pnntmg, execution, and delivery of the substitute Certificates m the manner prescribed herein, and said Certificates shall be of type composmon printed on paper w~th hthographed or steel engraved borders of customary weight and strength Pursuant to Chapter 1201, Texas Government Code, the duty of cnnversion and exchange or replacement of Certificates as aforesaid is hereby imposed upon the Paying AgentJRegtstrar, and, upon the execution of the above Paying AgentJReglstrar's Authentication Certificate, the converted and exchanged or replaced Certificate shall be vahd, mcnntestable, and enforceable m the same manner and with the same effect as the Initial Certificate which originally was issued pursuant to this Ordinance, ap- proved by the Attorney General, and registered by the Comptroller of Pubhc Accounts The Issuer shall pay the Paling Agent/Reg~strar's standard or customary fees and charges for transfemng, converting, and exchanging any Certificate or any portion thereof, but the one requesting any such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such prlwlege of conversion and exchange The Paying Agent/Registrar shall not be required to make any such conversion and exchange or replacement of Certificates or any portion thereof during the period commencing with the close of bustness on any Record Date and ending with the opening of business on the next following principal or interest payment date (e) In General All Certificates issued in conversion and exchange or replacement of any other Certificate or posen thereof, 0) shall be issued m fully registered form, without interest coupons, with the principal of and interest on such Certificates to be payable only to the registered owners thereof, (ii) may be transferred and assigned, (iii) may be converted and exchanged for other Certificates, 0v) shall have the characteristics, (v) shall be signed and sealed, and (vi) the pnnclpal of and interest on the Ce~ficates shall be payable, all as prowded, and in the manner reqmred or indicated, m the FORM OF SUBSTITUTE CERTIFICATE set forth m this Ordinance (f) Payment of Fees and Char~es The Issuer hereby covenants with the registered owners of the Certificates that it will 0) pay the standard or customary fees and charges of the Paying Agent/Registrar for its serwces with respect to the payment of the principal of and interest on the Certificates, when due, 10 and 0a) pay the fees and charges of the Paying Agent/Rcgastrar for services *nth respect to the transfer of regastrat~or~ of Certfficates, and *nth respect to the conversaon and exchange of Certfficates solely to the extent above proxaded m this Ordinance (g), Substatute Paym~ Aaent/Remstrar The Issuer covenants wath the registered owners of the Certaficates that at all t~mes whale the Certfficates are outstandang the Issuer wall proxade a competent and legally quahfied bank, trust company, finanmal mmtutlon, or other agency to act as and perform the serwces of Paying Agent/Registrar for the cemficates under thas Ordinance, and that the Payang AgentA/eglstrar will be one entity The Issuer reserves the right to, and may, at its optaon, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next pnnmpal or anterest payment date after such notace In the event that the entity at any tame acting as Paying Agent/Regtstrar (or ~ts successor by merger, acqms~tlon~ or other method) should resign or othervase cease to act as such, the Issuer covenants that at *nil promptly appoint a competent and legally quahfied bank, trust company, financml mstatut~on, or other agency to act as Paying Agent/Registrar under thas Ordinance Upon any change m the Paying Agent/Registrar, the previous Paying AgantfRegistrar shall promptly transfer and dehver the Registration Books (or a copy thereof), along *nth all other pertmant books and records relatang to the Cemficates, to the new Paying AgentJReg~strar designated and appointed by the Issuer Upon any change tn the Paytng Agent/Registrar, the Issuer promptly will cause a written notme thereof to be sent by the new Paying Agant/Regnstrar to each registered owner of the Certfficates, by Umted States mall, first-class postage prepmd, whmh not, ce also shall give the address of the new Paytng Agent/Regmtrar By acceptang the postt~on and performing as such, each Pa3nng AgenffRegnstrar shall be deemed to have agreed to the provlsaons,of thts Ordinance, and a cemfied copy of thas Ordinance shall be dehvered to each Payang Agent/Registrar Section 7 FORM OF SUBSTITUTE CERTIFICATES The form of all Cemficates assued in conversmn and exchange or replacement of any other Certffieate or pomon thereof, including the form of Paying Agent/Reglstrar's Certificate to be pnnted on each of such Certtfieates, and the Form of Assagnment to be pnnted on each of the Cemficates, shall be, respeetavely, substantmlly as follows, *nth such appropriate vanattons, omasstons, or msemons as are permitted or reqmred by this Ordanance 11 FORM OF SUBSTITUTE CERTIFICATE (Book-Entry Only Legend, if appropriate) NO UNITED STATES OF AMERICA PRINCIPAL AMOUNT STATE OF TEXAS $ COUNTY OF DENTON CITY OF DENTON CERTIFICATE OF OBLIGATION SERIES 2001 INTEREST RATE MATURITY DATE DATED DATE CUSIP NO % ON THE MATURITY DATE specified above the CITY OF DENTON, in Denton County, Texas (the "Issuer"), being a poht~eal subdlwslon of the State of Texas, hereby promises to pay to or to the registered assignee hereof (either being heremafter called the "registered owner") the pnnmpal amount of and to pay,interest thereon, calculated on the basis of a 360-day year composed of twelve 30-day months, from May 1, 2001, to the maturity date specified above, at the interest rate per annum specified above, w~th interest bemg first due and payable on February 15, 2002, and semiannually on each August 15 and February 15 thereafter, except that if the date of authentication of this Certificate is later than the first Record Dale (hereinafter defined), such pnnclpal mount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date (hereinafter defined) but on or before the next followmg interest payment date, in which case such pnnmpal amount shall bear interest from such next following interest payment date TIlE PRINCIPAL OF AND INTEREST ON this Certificate are payable in lawful money of the Umted Stales of America, without exchange or collealion charges The pnnclpal of thru Cemficate shall be paid to the registered owner hereof upon presentation and surrender of this Certificate at maturity, at the pnnclpal corporate trust office of BANK ONE, NA, DALLAS, TEXAS, which is the "Paying Agent/Regastrar" for this Certfficale The payment of interest on this Certlfieale shall be made by the Paying AgenffReglstrar to the regqstered owner hereof on each mterest payment date by check dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordmance authorizing the issuance of the Certificates (the "Certificate Ordinance") to be on deposit w~th the Paying Agent/Registrar for such purpose as hereinafter provided, and such check shall be sent by the Paying Agent/Regastrar by United States mall, first-class postage prepmd, on each such interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared at the close of business on the last day of the month next preceding each such date (the "Record Date") on the Regnstratlon Books kept by the Paying Agent/Registrar, as heremafter described However, the payment of such interest may be made by any other method acceptable to the Paying Agent/Registrar and requested by, and at the risk and expense of, the registered owner hereof The Issuer covenants with the registered owner of this Cemficate that on or before each pnnclpal payment date, interest payment date, and accrued interest payment date for this Certificate it wilt make available to the Paymg Agent/Regmtrar, from the "Interest and Sinking Fund" created by the Certificate Ordinance, the amounts required to provide for the payment, in immediately available funds, of all pnn¢lpal of and mterest on the Certificates, when due 12 IN ~THE EVENT of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "Special Record Date") wall be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the Issuer Notice of the Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Date", which shall be fifteen (15) days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mall, first class postage prepaid, to the address of each Holder of a Certificate appeanng on the registration books of the Paying AgenttReg~strar at the close of business on the 15th business day next preceding the date of mathng of such notice IF THE DATE for the payment of the pnnclpal of or interest on this Certificate shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where the Paying Agent/Registrar ~s located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banlang institutions are 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 THIS CERTIFICATE is one of an issue of Certfficates initially dated May 1,2001, authorized ~n accordance with the Constitution and laws of the State of Texas in the principal amount of $12,120,000, for the purpose of paying all or a portion of the City's contractual obligations incurred pursuant to contracts for the purchase of certain real and personal property, to-wit (a) ~mprovements at the C~ty's airport, (b) equipment for the C~ty's public parks, (c) construction and equipping cfa new central fire station located at the comer of Bell Avenue and Hickory Street, Denton, Texas, (d) improvements to the City's solid waste disposal system, (e) vehicles for the City's motor pool, (0 computer and technology equipment and upgrades for the City's information technology systems, and (g) miscellaneous renovations and improvements to C~ty owned facflmes, and also for the purpose of paying all or a portion of the C~ty's contractual obhgatlons for professional sermces, including engineers, architects, attorneys, map makers, auditors, and financml advisors, in connection vath the preparation of the City's Comprehensive Development Plan, Open Space Plan, Downtown Master Plan and Facility Space Study, and ~n connection vath the above contracts and said Certificates of Obligation ON FEBRUARY 15,2011, or on any date whatsoever thereafter, the Certificates of this Series may be redeemed prior to their scheduled maturities, at the option of the Issuer, with funds derived from any available and lawful source, as a whole, or in part, and, if in part, the particular Certificates, or portions thereof, to be redeemed shall be selected and designated by the Issuer (provided that a portion of a Cemficate may be redeemed only m an integral multiple of $5,000), at the redemption price of the par or principal amount thereof, plus accrued mterest to the date fixed for redemption THE CERTIFICATES of this Series scheduled to mature on FEBRUARY 15, __ are subject to mandatory redemption prior to their scheduled matuntles, and shall be redeemed by the Issuer, ~n part, prior to their scheduled maturities, with money from the Mandatory Redemption Account of the Interest and Slnlang Fund, with the particular Certificates or portion thereof to be redeemed to be selected by the Paying Agent/Registrar, by lot or other customary method (provided that a portion of a Certificate may be redeemed only ~n an integral multiple of $5,000), at a redemption price equal to the par or pnnmpal amount thereof and accrued interest to the date of redemption, on the dates, and in the pnnmpal amounts, respectuvely, as shown in the following schedule February 15, Maturity Mandatory Principal Redemntton Dates Amounts $ (maturity) 13 The prtnctpal amount of the Certfficates reqmred to be redeemed on the Mandatory RedempUon Dates pursuant to the foregomg shall be reduced, at the optton of the Issuer by the pnnmpal amount of any Cemfieates out of the maturity scheduled for February 15, whmh, at least 45 days prior to the aforesatd appropriate redemptton date (1) shall have been acqmred by the Issuer at a price not exceeding the pnnctpal amount of such Cerhficates plus accrued interest to the date of purchase thereof, and dehvered tO the Paying Agent/Regmtrar for cancellation, or (2) as shall have been redeemed pursuant to the optional redemptton prowstons hereof and not prevtously credtted to the mandatory stnkmg fund redemptton Dunng any period m whmh ownership of the Certfficates ts determmed by a book entry at a secunttes deposttory for the Certtficates, ff fewer than all of the Certificates of the same maturity and bearing such interest rate shall be selected m accordance wtth the arrangements between the Issuer and the securmes deposttory AT LEAST 30 days prior to the date fixed for any redemption of cemficates or porttons thereof prior to maturity a written notme of such redemption shall be sent by the Paymg Agent/Registrar by Umted States mad, first-class postage prepatd, to the regmtered owner of each Certtficate to be redeemed at tts address as tt appeared on the 45th day prior to such redemptton date, prowded, however, that the failure to send, mall, or receive such not, ce, or any defect therein or m the sending or mathng thereof, shall not affect the vahdtty or effecttveness of the proceedmgs for the redemptton of any Certfficate By the date fixed for any such redemption due prows~on shall be made wtth the Paytng Agent/Regmtrar for the payment of the reqmred redemptton price for the Certfficates or porttons thereof whtch are to be so redeemed, plus accrued interest thereon to the date fixed for redemption If such written notme of redemption ts gtven and ff due promslon for such payment is made, all as provided above, the Certfficates or portions thereof whmh are to be so redeemed thereby automatically shall be treated as redeemed prior to thetr scheduled matunttes, and they shall not bear interest after the date fixed for redemptton, and they shall not be regarded as bemg outstanding except for the right of the registered owner to recetve the redempttoa price plus accrued interest from the Paytng Agent/Regtstrar out of the funds provtded for such payment If a port~on of any Certfficate shall be redeemed a substttute Certfficate or Certfficates hawng the same maturity date, beanng interest at the same rate, tn any denomination or denormnattons m any tntegral multiple of $5,000, at the written request of the regtstered owner, and ~n aggregate pnnctpal amount equal to the unredeemed po~on thereof, will be tssued to the registered owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provtded in the Bond Ordtnance THIS CERTIFICATE OR ANY PORTION OR PORTIONS HEREOF IN ANY INTEGRAL MULTIFLE OF $5,000 may be asstgned and shall be transferred only ~n the Reg~stratton Books of the Issuer kept by the Paymg Agent/Regtstrar achng tn the capamty of regtstrar for the Certificates, upon the terms and condtt~ons set forth tn the Ce~ficate Ordinance Among other reqmrements for such asstgnment and transfer, thts Certfficate must be presented and surrendered to the Paying Agent/Regtstrar, together with proper mstmments of asstgnment, m form and wtth guarantee of sxgnatures sattsfactory to the Paytng Agent?Regtstrar, exndencmg asstgnment of thts Certificate or any portton or pomons hereof tn any integral multtple of $5,000 to the assignee or assignees tn whose name or names thts Certfficate or any such po~on or po~ons hereofls or are to be transferred and regmtered The form of Assignment printed or endorsed on this Certfficate shall be executed by the regtstered owner or tts duly authorized attorney or representattve, to evtdence the asstgnment hereof A new Certfficate or Certfficates payable to such assignee or asstgnees (whtch then wall be the new regtstered owner or owners of such new Certtficate or Certfficates), or to the prevtous regtstered owner tn the case of the assignment and transfer of only a po~on of thts Certtficate, may be dehvered by the Paying Agent/Regtstrar mconverston of and exchange for thts Certfficate, all m the form and manner as promded m the next paragraph hereof for the conversto¢ and exchange of other Certfficates The Issuer shall pay the Paytng Agent/Regtstrar's standard or customary fees and charges for makmg such transfer, but the one requesting such transfer shall pay any taxes or other governmental charges reqmred to be prod wtth respect thereto The Paying Agent/Regtstrar shall not be reqmred to make transfers of regtstratton of thts Certificate or any portton hereof durtng the period commencing wtth the close of business on any Record Date and ending w~th the openmg of 14 business on the next following pnnclpal or interest payment date The registered owner of this Certificate shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of hablhty upon this Cemficate to the extent of such payment, and the Issuer and the Paying Agent/P, eg~strar shall not be affected by any notice to the contrary ALL CERTIFICATES OF THIS SERIES are lssuable solely as fully registered certificates, without Interest coupons, in the denomination of any integral multiple of $5,000 As provided m the Cemfieate Ordinance, this Certificate, may, at the request of the registered owner or the assignee or as- signees hereof, be converted into and exchanged for a lake aggregate principal amount of fully registered certificates, without interest coupons, payable to the appropriate registered owner, assignee, or assignees, as the case may be, having the same maturity date, and bearing interest at the same rate, in any denomina- tion or denommataons in any integral multiple of $5,000 as requested in writing by the appropriate registered owner, assignee, or assignees, as the case may be, upon surrender of this Certificate to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Certificate Ordinance The Issuer shall pay the Paying Agent/Reglstrar's standard or customary fees and charges for transferring, converting, and exchanging any Certificate or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be prod w~th respect thereto as a conchtlon precedent to the exercise of such prlwlege of conversion and exchange The Paymg AgenffReglstrar shall not be required to make any such conversion and exchange during the period commencing with the close of business on any Record Date and ending with the opening of busaness on the next following pnnmpal or interest payment date IN THE EVENT any Paying Agent?Registrar for the Certfficates is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted m the Certificate Ordinance that ~t promptly will appoint a competent and legally qualified substitute therefor, and w~ll promptly cause written not, ce thereof to be mailed to the registered owners of the Certificates IT IS HEREBY certified, recited, and covenanted that this Certfficate has been duly and validly authorized, issued, and dehvered, that all acts, conditions, and things required or proper to be performed, ex, st, and be done precedent to or m the authorization, issuance, and dehvery of this Certificate have been performed, existed, and bean done in accordance with law, that this Certificate is a general obligation of the Issuer, Issued on the full faith and eredat thereof, and that annual ad valorem taxes sufficient to provide for the payment of the interest on and pnnclpal of this Certificate, as such interest comes due and such pnnctpal matures, have been lexned and ordered to be lewed against all taxable property m the Issuer, and have been pledged irrevocably for such payment, wath~n the limit prescribed by law, and that, together with other parity obhgataons, this Certificate, and the other Certificates of this Series, additionally are payable from and secured by certain surplus revenues (not to exceed $10,000 in aggregate amount) derived by the Issuer from the ownership and operation of the City's Utility System (consamng of the City's combaned waterworks system, sanitary sewer system, and electric light and power system), all as provided in the Certificate Ordinance THE ISSUER has reserved the right to issue, in accordance with law, and ~n accordance with the Certificate Ordinance, other and additional obhgatlons, and to enter ~nto contracts, payable from ad valorem taxes and/or revenues of the City's Utility System, on a panty with, or with respect to smd revenues, superior m lien to, this Certificate BY BECOMING the registered owner of this Certificate, the registered owner thereby acknowledges all of the terms and provisions of the Certificate Ordinance, agrees to be bound by such terms and prowslons, acknowledges that the Certificate Ordinance ~s duly recorded and available for inspection m the official minutes and records of the governing body of the Issuer, and agrees that the terms and proxns~ons of this Certificate and the Certificate Ordinance constitute a contract between each registered owner hereof and the Issuer 15 IN WITNESS WHEREOF, the Issuer has caused this Certificate to be signed with the manual or facsimile signature of the Mayor of the Issuer and countersigned and attested w~th the manual or facsimile signature of the City Secretary of the Issuer, and has caused the official seal of the Issuer to be duly impressed, or placed m facsimile, on this Ce~fieate ATTEST CITY OF DENTON, TEXAS By By Jennifer Walters Euhne Brock City Secretary, C~ty of Denton, Texas Mayor, City of Denton, Texas (CITY SEAL) FORM OF PAYING AGENTfREGISTRAR'S AUTHENTICATION CERTIFICATE PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE It ls hereby ee~fied that this Certificate has been issued under the promslons of the Certificate Ordinance described on the face of this Certfficate, and that this Certificate has been issued m conversion of and exchange for or replacement of a certificate, certificates, or a portion of a cemficate or certificates of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas BANK ONE, NA, DALLAS, TEXAS Paying Agent/Registrar Dated By Authorized Representative (INSERT BOND INSURANCE LEGEND, IF ANY) FORM OF ASSIGNMENT ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered owner of this Certificate, or duly authorized representative or attorney thereof, hereby assigns this Cemficate to / / (Assignee's Social (print or typewrite Assignee's name and Security or Taxpayer address, ~nclud~ng zip code) 16 Identfficatlon Number and hereby,~rrevocably constitutes and appoints attorney to ~transfer the registration of this Certificate on the Paying Agent/Reglstrar's Registration Books with full power of substitution m the premises Dated Signature Guaranteed NOTICE Signature(s) must be guaranteed by Registered Owner an ehglble guarantor restitution partlclpatmg in NOTICE This slgnatore must correspond a securities transfer association recognized w~th the name of the Registered Owner signature guarantee program appearmg on the face of this Certfficate m every particular w~thout alteration or enlargement or any change whatsoever Section 8 TAX LEVY A special Interest and Sinking Fund (the "Interest and Stoking Fund") is hereby created solely for the benefit of the Certificates, and the Interest and S~nking Fund shall be estabhshed and maintained by the Issuer at an official depository bank of the Issuer The Interest and Sinking Fund shall be kept separate and apart fi.om all other funds and accounts of the Issuer, and shall be used only for paymg the ~nterest on and pnnclpal of the Certificates AIl ad valorem taxes levied and collected for and on account of the Certfficates shall be deposited, as collected, to the credit of the Interest and Sinking Fund Dunng each year while any of the Certificates or interest thereon are outstandmg and unpaid, tho govemmg body of the Issuer shall compute and ascertan a rate and amount of ad valorem tax which wllllbe sufficient to rase and produce the money required to pay the Interest on the Certificates as such lnter~st becomes due, and to pro,ade and ma~ntan a s~nking fund adequate to pay the principal of its Certlficate~ as such principal matures (but never less than 2% of the ongmal principal amount of the Certificates as a smlang fund each year) Said tax shall be based on the latest approval tax rolls of the Issuer, w~th full allowance being made for tax delmquencles and the cost of tax collection Sad rate and amount of ad valorem tax is hereby levied, and is hereby ordered to be levied, against all taxable property in the Issuer for each year while any of the Certificates or mterest thereon are outstandmg and unpad, and said tax shall be assessed and collected each such year and deposited to the credit of the aforesad Interest and Slnlmlg Fund Said ad valorem taxes sufficient to provide for the payment of the mterest on and prmclpal of the Certificates, as such interest comes due and such pnnclpal matures, are hereby pledged for such payment, w~thm the hm~t prescribed by law Section 9 SURPLUS REVENUES The Certfficates additionally shall be payable from and secured by surplus revenues, to the extent heremafter permitted, derived by the Issuer from the ownership and opera,ton of the Issuer's Ut~hty System (consisting of its combined waterworks system, sanitary sewer system, and electric light and power system) rema~mng after (a) payment of all amounts constitut~rig operation and maintenance expenses of smd Utthty System, and (b) payment of all debt sermce, reserve, and other reqinrements and amounts required to be paid under all orduiances heretofore or hereafter authorlzmg 0) all bonds and (n) all other obhgat~ons not on a panty w~th the Certificates, winch are payable fi.om and secured by any Utthty System revenues, and (c) payment of all amounts payable from any Utlhty System revenues pursuant to contracts heretofore or hereafter entered ~nto by the Issuer in accordance with law (the "Surplus Revenues") If, for any reason, the Issuer falls to deposit ad valorem taxes levied pursuant to Section 8 hereof to the credit of the Interest and Sinking Fund in an 17 amount sufficient to pay, when due, the pnnmpal of and interest on the Certfficates, then Surplus Revenues, to the extent hereinafter permatted, shall be deposited to the credat of the Interest and Stoking Fund and used to pay such pnnclpal and/or mterest A maximum aggregate of $10,000 of Smplus Revenues may be used to pay pnnmpal and/or interest on the Certificates and any obhgatlons on a panty therewith The Certfficates and any obhgataons on a paraty therewith are not, and shall not be deemed to be, payable from or secured by any Surplus Revenues m excess of an aggregate of $10,000 Untd and unless an aggregate of $10,000 of Surplus Revenues actually is used to pay any such pnnmpal and/or anterest, add~taonal obhgataons, payable from end secured by all or any remmnmg unused part of smd aggregate of $10,000 of Surplus Revenues, may be issued by the Issuer on a paraty wath the Certfficates and any other then outstanding panty obhgat~ons, with the Cemficates and all such additional panty obhgataons to be payable from and secured equally and ratably by all or any remaining unused part of said aggregate The Issuer reserves, end shall have, the right to ~ssue bonds, and other obhgataons not on a panty with the Certfficates, and to enter into contracts, ~n accordance wath applicable laws, to be payable from and secured by any Utdaty System revenues other than the aggregate of $ I0,000 of Surplus Reve- nues as described above The Certaficates are on a panty w~th those ~ssues of Ctty of Denton Certaficates of Obllgatton, Series 1993, Series 1993-A, Ser~es 1994, Series 1995, Series 1996, Series 1998, Series 1999 and Series 2000 (the "Outstandtng Certfficates"), as penurtted tn the Ordanances authorizing same, and at is hereby found and detanmned that none of the above defined Surplus Revenues have ever been used to pay any pnnmpal and/or ~nterest on the Outstanding Certfficates Sectaon 10 DEFEASANCE OF CERTIFICATES (a) Any Certfficate and the interest thereon shall be deemed to be pard, retired, and no longer outstanding (a "Defeased Certfficate") wathan the meamng of thts Ordtnance, except to the extent provaded in subsectaon (d) of thas Section, when payment of the pnnc~pal of such Cemfieate, plus mterest thereon to the due date etther 0) shall have been made or caused to be made m accordance wtth the terms thereof, or (u) shall have been provtded for on or before such due date by trrevocably depositing w~th or making available to the Paying Agent/Regastrar for such payment (1) lawful money of the Umted States of America sufficaent to make such payment or (2) Government Obllgat~ons which mature as to pnnc~pal and tnterest m such amounts and at such times as wall ansure the avaflabthty, without remvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer wath the Paying Agent/Regastrar for the payment of ~ts services until all Defeased Certificates shall have become due and payable At such time as a Certificate shall be deemed to be a Defeased Certffieate hereunder, as aforesaid, such Certtficate and the anterest thereon shall no longer be secured by, payable from, or entatled to the benefits of, the ad valorem taxes hereto lewed and pledged as provtded m thas Ord~nence, and such pnnmpal and interest shall be payable solely from such money or Government Obhgatlons (b) Any moneys so deposited wtth the Paytng Agent/Registrar may at the written d~rectaon of the Issuer also be anvested m Government Obhgatlons, maturing in the amounts and tames as hereinbefore set forth, and all income from such Government Obhgatlons received by the Paying Agent/Registrar which ts not reqmred for the payment of the Certtficates and tnterest thereon, wath respect to whach such money has been so deposited, shall be tamed over to the Issuer, or deposited as d~rected m writing by the Issuer (c) The term "Government Obhgatlons" as used in thas Sectaon shall mean direct obhgattons of the Umted States of America, mcludlng obhgatlons the principal of and interest on which are uncondltaonally guaranteed by the Umted States of America, whmh may be Umted States Treasury obhgat~ons such as its State and Local Government Series, whtch may be m book-entry form (d) Untd all Defeased Certtficates shall have become due and payable, the Paying Agent/Registrar shall perform the servaees of Paying Agent/Registrar for such Defeased Certfficates the same as af they had not been defeased, and the Issuer shall make proper arrangements to prowde and pay for such serwces as reqmred by this Ordmanee 18 Seotlon 11 DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED CERTIFICATES (a) Replacement Ce~ficates In the event any outstanding Certificate is damaged, mutalated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new ce~ficate of the same pnnclpal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Certificate, m replacement for such Certificate in the manner hereinafter ~provldad (b) Apphcat~on for Renlacement Certificates Application for replacement of damaged, mutilated, lost, stolen, or destroyed Certaficates shall be made by the registered owner thereof to the Paying Agent/Registrar In every case of loss, theft, or destruction of a Certificate, the registered owner applying for a replacement certificate shall furnish to the Issuer and to the Paying Agent/Registrar such security or lndemmty as may be required by them to save each of them harmless from any loss or damage with respect thereto Also, in every case of loss, theft, or destruction of a Certificate, the registered owner shall furnish to the Issuer and the Paying Agent/Registrar ewdenee to their satisfact~on of the loss, theft, or destruction of such Certificate, as the ease may be In every case of damage or mulalat~on of a Certificate; the registered owner shall surrender to the Paying AgentJReglstrar for cancellation the Certificate 'so damaged or mu'alated (e) No Default Occurred Notwithstanding the foregoing provisions of this Section, in the event of any such Certificate shall have matured, and no default has occurred which is then continuing in the payment of the principal of, or interest on the Certificate, the Issuer may authorize the payment of the same (without surrender thereof except m the case of a damaged or mutilated Ce~ficate) instead of issuing a replacement Certificate, provided security or mdemmty is furnished as above provided m this Section (d) Charge for Issuing Renlacement Certificates Prior to the issuance of any replacement certificate, the Paying Agent/Registrar shall charge the registered owner of such Certificate with all legal, printing, and other expenses m connection therewith Every replacement certificate issued pursuant to the prowslons of this Section by virtue of the fact that any Certificate is lost, stolen, or destroyed shall constitute a contractual obhgatlon of the Issuer whether or not the lost, stolen, or destroyed Certificate shall be fo0nd at any time, or be enforceable by anyone, and shall be entitled to all the benefits of tins Ordinance iequally and proportionately wth any and all other Certificates duly issued under this Ordinance (e) Authority for Issmn~ Replacement Certificates In accordance with Chapter 1201, Texas Government Code, this Section of this Ordinance shall constitute authority for the issuance of any such replacement certificate without necessity of further action by the governing body o£the Issuer or any other body or person, and the duty of the replacement of such certificates is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agen~Registrar shall anthent~cate and deliver such Certificates in the form and manner and with the effect, as provided m Section 5(d) of this Ordinance] for Certificates issued in conversion and exchange for other Certificates Section 12 CUSTODY, APPROVAL, AND REGISTRATION OF CERTIFICATES, CERTIFICATE COUNSEL'S OPINION, CUSIF NLrMBERS, PREAMBLE AND INSURANCE The Mayor of the Issuer is hereby authorized to have control of the Initial Certificate issued hereunder and all necessary records and proceedings pertaining to the Initial Certificate pending its delivery and its inves- tigation, exammatlnn, and approval by the Attorney General of the State of Texas, and its registration by the Comptroller of Pubhc Accounts of the State of Texas Upon reg~stration of the Imtlal Certificate smd Comptroller of Pubhc Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate on the Initial Certificate, and the seal of said Comptroller shall be ~mpressed, or placed in facsimile, on the Initial Certffieate The approving legal opinion ot~ the Issuer's Bond Counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the In~tlal Certificate or on any Certificates issued and delivered in conversion of and exchange or replacement of any Certfficate, but netther shall have any legal effect, and shall be solely for the convemence and mformatxon of the regtstered owners of the Certtficates The preamble to thxs Ordtnance is hereby adopted and made a part hereof for all pu~oses If insurance ts obtamed on any of the Certtficates, the lmtml Certificate and all other Certificates shall bear an appropriate legend concemmg insurance as provided by the msurer Section 13 COVENANTS REGARDING TAX-EXEMPTION OF INTEREST ON THE CERTII~ICATES BONDS (a) ~Covenants The Issuer covenants to take any action necessary to assure, or refrmn from any action whtch would adversely affect, the treatment of the Bonds as obhgattons described m sectton 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the tnterest on whtch ns not mcludable tn the "gross mcome" of the holder for purposes of federal tncome taxatton In furtherance thereof, the Issuer covenants as follows (1) to take any actton to assure that no more than 10 percent of the proceeds of the Bonds or the projects financed therewtth (less amounts depostted to a reserve fund, tf any) are used for any "private bustness use," as defined m section 141(b)(6) of the Code or, t f more than 10 percent of the proceeds or the projects financed therevath are so used, such amounts, whether or not recexved by the Issuer, w~th respect to such private bustness use, do not, under the terms of thts Order or any underlying arrangement, d~rectly or tndtrectly, secure or proxnde for the payment of more than 10 pemant of the debt service on the Bonds, tn contraventton of sectton 141 (b)(2) of the Code, (2) to take any actton to assure that m the event that the "private business use" described m subsection (1) hereof exceeds 5 percent of the proceeds of the Bonds or the projects financed therewtth (less amounts depomted into a reserve fund, tf any) then the amount in excess of 5 percent ns used for a "private busmess use" whtch ns "related" and not "dtsproportionate," wtthtn the meamng of sectton 141(b)(3) of the Code, to the governmental use, (3) to take any action to assure that no amount which ~s greater than the lesser of $5,000,000, or 5 pement of the proceeds of the Bonds (less amounts depostted mto a reserve fund, tf any) xs dtrectly or mdtrectly used to finance loans to persons, other than state or local governmental un~ts, tn contraventxon of sectton 141 (c) of the Code, (4) to refrain from talang any action which would otherwtse result tn the Bonds being treated as "prtvate act~wty bonds" wtthm the meamng of section 141 (b) of the Code, (5) to refrmn from talang any action that would result in the Bonds bmng "federally guaranteed" wtth~n the meamng of sectton 149(b) of the Code, (6) to refrain from usmg any portton of the proceeds of the Bonds, dtrectly or md~rectly, to acqmre or to replace funds whmh were used, dtrectly or tndlrectly, to acqmre tnvestment property (as defined tn section 148(b)(2) of the Code) which produces a materially htgher yield over the term of the Bonds, other than mvestment property acquired wtth -- (A) proceeds of the Bonds tnvested for a reasonable temporary period of 3 years or less or, tn the case of a refunding bond, for a period of 30 days or less unttl such proceeds are needed for the purpose for whtch the bonds are tssued, (B) amounts invested tn a bona fide debt service fund, wtthtn the meantng of sectton 1 148-1 (b) of the Treasury Regulattons, and (C) amounts depostted m any reasonably reqmred reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Bonds, 2O (7) to otherwise restrict the use oftha proceeds of the Bonds or amounts treated as proceeds of the Bonds, as may be necessary, so that the Bonds do not otherwise contravene the requirements of section 148 of the Code (relating to arbitrage) and, to the extent applicable, section 149(d) of the Code (relating to advance refundings), and (8) to pay to the United States of America at least once during each five-year period (begmnmg on the date of delivery of the Bonds) an amount that is at least equal to 90 percent of the "Excess Earnings," w~thm the meaning of section 148(f) of the Code and to pay to the United States of America, not later than 60 days after the Bonds have been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under section 148(f) of the Code (b) Rebate Fund In order to facilitate eomphance with the above covenant (a) (8), a "Rebate Fund" is hereby established by the Issuer for the sole benefit of the United States of America, and such fund shall not be sub.leet to the claim of any other person, including without limitation the bondholders The Rebate Fund is established for the adcht~onal purpose of compliance w~th section 148 of the Code (c) Proceeds The Issuer understands that the term "proceeds" includes "disposlUon proceeds" as defined in the Treasury Regulations and, m the case of refunding bonds, transferred proceeds 0f any) and proceeds of the refunded bonds expended prior to the date of Issuance of the Bonds It is the understanding of the Issuer that the covenants contained harem are intended to assure comphance with the Code and any regulations or rulmgs promulgated by the U S Department of the Treasury pursuant thereto Inl the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Bonds, the Issuer will not be required to comply with any covenant contained herein to the extent that such failure to comply, m the opinion of nationally recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Bonds under sectmn 103 of the Code In the event that regulations or rulings are hereafter promulgated winch impose additional requirements which are appheable to the Bonds, the Issuer agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Bonds under section 103 of the Code In furtherance of such intention, the Issuer hereby authorizes and directs the Mayor to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, which may be permitted by the Code as are consistent with the purpose for the issuance of the Bonds (d) Allocation Of. and Llrmtatlon On. Exnenditures for the Prolect The Issuer covenants to account for the expenditure of sale proceeds and mvestment earnings to be used for the purposes described m Section 1 of this Order (the "Project'~) on its books and records in accordance with the requiremer~ts of the Code The Issuer recogmzes that m order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures w~tinn 18 months of the later of the date that (1) the expenditure is made, or (2) the Project is completed, but in no event later than three years after the date on which the original expenditure is paid The foregoing notwithstanding, the Issuer recognizes that in order for proceeds to be expended under the Code, the sale proceeds or investment earnings must be expended no more than 60 days after the earlier of (1) the fifth anniversary of the delivery of the Bonds, or (2) the date the Bonds are retired The Issuer agrees to obtain the adwee of nat~onally-xecogmzed bond counsel if such expenditure fails to comply w~th the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Bonds For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains an oplmon that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest 21 (e) Daspostt~on of Protect The Issuer covenants that the property constituting the Project wall not be sold or otherwase disposed m a transaction resulting m the receapt by the Issuer of cash or other compensation, unless the Issuer obtains an oplmon of nattonally-recogmzed bond counsel that such sale or other dmposltion w~ll not adversely affect the tax-exempt status of the Bonds For purposes of the foregomg, the portion of the property comprising personal property and disposed an the ordanary course shall not be treated as a transaction resulting m the receapt of cash or other compensataon For purposes hereof, the Issuer shall not be obligated o comply w~th this covenant if ~t obtains an oplmon that such failure to comply will not adversely affect the excludabdlty for federal mcome tax purposes from gross income of the interest Section 14 SALE OF INITIAL CERTIFICATE The Imt~al Certfficate is hereby sold and shall be dehvered to ., for cash for the par value thereof and accrued interest thereon to date of dehvety, plus a cash premium of $ Such premium shall, upon receipt, be deposated into the Interest and Sankang Fund It is hereby officially found, deter- mined, and declared that the Initial Ce~ficate has been sold at public sale to the Indder offenng the lowest interest cost, after receavmg sealed b~ds pursuant to an Officml Nottce of Sale and Btddang Instructions and Official Statement dated April __, 2001, prepared and dmtnbuted in counect~on with the sale of the Imtlal Certfficate Said Official Notace of Sale and Btdd~ng lnstmctaons and Officml Statement, and any addenda, supplement, or amendment thereto have been and are hereby approved by the Issuer, and their use m the offer and sale of the Certfficates is hereby approved It is further officially found, determined, and declared that the statements and representations contmned m saad Officml Notice of Sale and Offimal Statement are tree and correct m all material respects, to the best knowledge and belief of the C~ty Couned and the Issuer Section 15 ALLOCATION OF, AND LIMITATION ON, EXPENDITURES FOR THE PROJECT, The Issuer covenants to account for the expenditure of sale proceeds and ~nvestment earnings to be used for the purposes described ~n Section 1 ofth~s Ordinance (the "ProJect") on its books and records in accordance with the requ~remants of the Internal Revenue Code The Issuer recogmzes that ~n order for the proceeds to be consadered used for the reambursement of costs, the proceeds must be allocated to expenditures w~tinn 18 months of the later of the date that (1) the expendature is made, or (2) the Project as completed, but ~n no event later than three years after the date on which the original expendamre is prod The foregomg notwathstandmg, the Issuer recogmzes that an order for proceeds to be expended under the Internal Revenue Code, the sale proceeds or investment earmngs must be expended no more than 60 days after the earher of(l) the fifth anmversary of the delivery of the Cemficates, or (2) the date the Cemficates are rettred The Issuer agrees to obtain the adwse ofnataonally-recogmzed bond counsel ~f such expendature fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Certfficates For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludabthty for federal income tax purposes from gross ~ncome of the interest Sect~onl6 DISPOSITION OF PROJECT The lssuer covenants that the property constatutmg the ProJect will not be sold or otherwise d~sposed an a transaction resulting an the receipt by the Issuer of cash or other compensation, unless the Issuer obtmns an op~mon of nat~onally-recogmzed bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Certfficates For purposes hereof, the Issuer shall not be obhgated to comply w~th th~s covenant ~f ~t obtains a legal opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the mterest Sect~onl7 1NTEREST EARNINGS ON CERTIFICATE PROCEEDS Interesteamings derived from the investment of proceeds from the sale of the Imtaal Certfficate shall be used along w~th other proceeds for the purposes for winch the Certaficates are tssued, provaded that after completion of such purposes, ~f any of such interest earmngs remain on hand, such ~nterest earnings shall be deposited in the Interest and Sinking Fund It is further promded, however, that any anterest earmngs on certificate 22 proceeds which are reqmred to be rebated to the United States of America pursuant to Section 13 hereof in order to ~revent the Certificates from being "arbitrage bonds" within the meaning of the Code shall be so rebated and not considered as interest earnings for the purposes of this Section Section 18 DTC REGISTRATION The Certificates initially shall be issued and delivered in such manner that no physical dismbutton of the Cemficates will be made to the public, and The Deposi- tory Trust Company ("DTC"), New York, New York, initially wall act as depository for the Certificates DTC has r~presented that it is a hrmted purpose trust company incorporated under the laws of the State of New York,[ a member of the Federal Reserve System, a "cleanng corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered under Section 17A of the federal Securities Exchange Act of 1934, as amended, and the Issuer accepts, but in no way verifies, such representations The Initial Certificate anthonzed by this Ordinance shall be delivered to and registered in the name of the Purchaser However, tt is a condition of dehvery and sale that the Purchaser, immediately after such delivery, shall cause the Paying Agent/Registrar, as provided for in this Ordinance, to cancel said Initial[Certificate and deliver m exchange therefor a substitute Cemficate for each maturity of such Initial Certificate, w~th each such substitute Certificate to be registered in the name of CEDE & CO, the nominee of DTC, and tt shall be the duty of the Paying Agent/Registrar to take such action It is expected that DTC Will hold the Certificates on behalf of the Purchaser and/or the DTC Part~mpants, as defined and described ih the Official Statement referred to and approved m Section 14 hereof (the "DTC Partlclpant~") So long as each Ce~ficate is registered in the name of CEDE & CO, the Paying Agent/Registrar shall treat and deal with DTC in all respects the same as if it were the actual and beneficial owner thereof It is expected that DTC will maintain a book entry system which will identify beneficial ownership of the Certfficates by DTC Participants in integral amounts of $5,000, w~th transfers of ownership being effected on the records of DTC and the DTC Partmlpants pursuant to rules and regulations established by them, and that the substitute Certificates mttlally deposited with DTC shall be immobilized and not be further exchanged for substitute Cemflcates except as hereinafter proxaded The Issuer is not responsible or liable for any functions of DTC, will not be responsible for paying any fees or charges with respect to its serwces, will not be responsible or liable for maintaining, supervising, or rewewmg lhe records of DTC or the DTC Participants, or protecting any interests or rights of the benefimal owners of the Certificates It shall be the duty of the Purchaser and the DTC Pamclpants to make all arrangements with DTC to establish this book-entry system, the beneficial ownership of the Cemficate~;, and the method of paying the fees and charges of DTC The Issuer does not represent, nor does it m any way covenant that the initial book-entry system established with DTC w~ll be malntmned in the future, The Issuer reserves the right and option at any time in the future, in its sole discretion, to terminate llhe DTC (CEDE & CO ) book-entry only registration requirement described above, and to permit the iCertfficates to be registered m the name of any owner If the Issuer exercises tis right and option to terrmnate such requirement, it shall g~ve written notice of such termination to the Paying Agent/Registrar and to DTC, and thereafter the Paying Agent/Registrar shall, upon presentation and proper request, register any Ce~ficate in any name as provided for in this Ordinance Notwithstanding the initial establishment of the foregoing book-entry system with DTC, if for any reason any of the originally dehvered substitute Certificates is duly filed with the Paying Agent/Registrar wtth proper request fo~ transfer and substitution, as prowded for in this Ordinance, substitute Certificates will be duly delivered as promded in this Ordinance, and there will be no assurance or representation that any book- entry system will be maintained for such Certificates S~ct~on 19 CONTINUING DISCLOSURE (a) Annual Reports (0 The Issuer shall provide annually tO each NRMSIR and any SID, within six months after the end of each fiscal year ending in or after 2000i f'manmal information and operating data with respect to the Issuer of the general type included in the final Official Statement anthonzed by Section 14 of this Ordinance, being the reformation described In Exhzbtt A hereto, which Exhibit is attached to and incorporated in this Ordinance as if written word for word herein Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit A hereto, or such other accounting principles[as the Issuer may be required to employ from time to time pursuant to state law or regulation, 23 and (2) audited, if the Issuer commissions an audit of such statements and the audit is completed withm the period dunng which they must be prowded If the audit of such financial statements is not complete wathln sucl~ period, then the Issuer shall provtde tmaud~ted financial statements by the reqmred time and wall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if the audit report on such statements become available (n) If the Issuer changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the~date of the new fiscal year end) prior to the next date by which the Issuer otherwise would be reqmred tol promde financial mformat~on and operatmg data pursuant to this Section The finanmal lnformatiola and operating data to be promdad pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offenng document, if it as available from the MSRB) that theretofore has been prowded to each NRMSIR and any SID or filed with the SEC (b) Material Event Notices The Issuer shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Certificates, if such event is material within the meaning of the federal securities laws 1 Principal and interest payment delinquencies, 2 Non-payment related defaults, 3 Unscheduled draws on debt service reserves reflecting financml d~fficultles, 4 Unscheduled draws on credit enhancements reflecting finanmal difficulties, 5 Substitut~on of credit or hqmdlty provtders, 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 Certfficates, 8 Certificate calls, 9 Defeasances, 10 Release, substitution, or sale of property securing repayment of the Certificates, and 11 Rating changes The Issuer shall notify any SID and e~ther each NRMSIR or the MSRB, in a timely manner, of any failure by the Issuer to provtde finanmal mformat~on or operating data in accordance with subsection (a) of this Section by the time required by such subsection (c) Lmaitations. Disclaimers. and Amendments (0 The Issuer shall be obligated to observe and perform the covenants specified m this Section for so long as, but only for so long as, the Issuer remmns an "obhgated person" w~th respect to the Certificates within the meaning of the Rule, except that the Issuer in a~ay event wall give the notme required by Subsection (b) hereof of any Certificate calls and defeasance that cause the Issuer to no longer be such an "obligated person" 00 The prows~ons of this Sectaon are for the sole benefit of the registered owners and beneficial owners oflthe Certificates, and nothing m this Section, express or implied, shall give any benefit or any 24 legal or equitable right, remedy, or claim hereunder to any other person The Issuer undertakes to prowde only the financial mformatiun, operating data, financial statements, and not, ecs which it has expressly agreed to prowde pursuant to this Section and does not hereby undertake to prowde any other information that may be relevant or material to a complete presentation of the Issuer's financial results, condition, or prospects or hereby undertake to update any reformation provided in accordance with this Section or otherwise, except as expressly provided herein The Issuer does not make any representation or warranty eoncernmg such mformation or its usefulness to a decision to invest m or sell Certificates at any future date (m) UNDER NO CIRCUMSTANCES SHALL THE ISSUER, ITS OFFICERS, AGENTS AND EMPLOYEES, BE LIABLE TO THE REGISTERED OWNER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN Yv~IOLE OR IN PART FROM ANY BREACH BY THE ISSUER, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION,, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIIVIITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORIvIANCE (iv) No default by the Issuer m obserwng or performing its obligations under this Section shall comprise a breach of or default under the Ordinance for purposes of any other provision of this Ordinance Nothing m this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the Issuer under federal and state securities laws (v) The prowslons of this Section may be amended by the Issuer from time to time to adapt to changed c~reumstances that arise from a change m legal requirements, a change in law, or a change in the ~dentity, nature, status, or type of operat~uns of the Issuer, but only if (1) the prowsions of this Section, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offenng of the Cemficates m compliance with the Rule, tahng into account any amendments or interpretations of the Rule since such offenng as well as such changed circumstances and (2) either (a) the registered owners ora majority m aggregate principal amount (or any greater amount required by any other provision of this Ordinance that anthonzes such an amendment) of the outstanding Certificates consent to such amendment or (b) a person that Is unaffiliated with the Issuer (such as nationally reeogmzed bond counsel) determined that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Certificates If the Issuer so amends the prows~ons of this Section, it shall include with any amended financial mformat~on or operating data next provided m accordance w~th subsection (a) of this Section an explanation, m narrative form, of the reason for the amendment and of the impact,of any change m the type of financial reformation or operating data so provided The Issuer may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals th~ applicable provision of the Rule or a court of final jurisdiction enters judgment that such prows~ons~of the Rule are invalid, but only if and to the extent that the provisions of th~s sentence would not prevent an underwriter from lawfully purchasing or selling Certificates in the primary offenng of the Certificates (d) Definitions As used m this Sectmn, the following terms have the meanings ascribed to such terms below "MSRB" means the Mumeipal Securities Rulemakmg Board "NRMSIR'' means each person whom the SEC or ~ts staff has determined to be a nationally recognized mumeipal securities reformation repository w~thm the meaning of the Rule from time to time "Rule" means SEC Rule 15c2-12, as amended from time to time "SEC" means the Umted States SecurlUes and Exchange Commission "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and detenmned by the SEC or ~ts staff to be, a state information depository within the meanmg of the Rule from t~me to time Section 20 FURTHER PROCEDURES The Mayor of the Issuer, the C~ty Secretary of the Issuer, and all other officers, employees, and agents of the Issuer, and each of them, shall be and they are hereby expressly authorized, empowered, and directed from time to time and at any time to do and perform all such acts and things and to execute, acknowledge, and dehver m the name and under the corporate seal and on behalf of the Issuer all such instruments, whether or not herein mentioned, as may be necessary or desirable m order to carry out the terms and provisions of th~s Certificate Ordmance, the CerUfieates, the sale of the Certificates, and the Notice of Sale and Official Statement, and the Assistant City Manager/Fmance of the City shall cause the expenses of ~ssuance of the Certificates to be pa~d from the proceeds of sale of the Inmal Certificate or from other lawfully available funds of the Issuer Incase any officer whose signature shall appear on any Certificate shall cease to be such officer before the dehvery of such Cemficate, such signature shall nevertheless be vahd and sufficient for all purposes the same as if such officer had remained m office until such delivery Section 21 OPEN MEETINGS The C~ty Council has found and determined that the meeting at which this Ordinance is considered is open to the pubhc and that notice thereof was given m accordance with the prowsmns of the Texas Open Meetings, Law, Tex Gov't Code, Chapter 551, as amended Section 22 EFFECTIVE DATE This Ordinance shall become effective ~mmediately upon ~ts passage and approval PASSED AND APPROVED this the 1st day of May, 2001 Euhne Brock, Mayor ATTEST Jennifer Walters, City Secretary APPROVED AS TO LEGAL FORM Herbert L Prouty, City Attorney By 27 EXIHBIT A DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The followmg information is referred to in Section 19 of this Ordinance Annual Financial Statements and Operating Data The financial lnforrnat~on and operating data with respect to the Issuer to be provided annually in accordance with such Section are as specified (and mcluded in the Appendix or under the tables of the Official Statement referred to) below Tables numbered 1 through 15, mclus~ve, under the captions "Tax Information", "Debt Service Requirements" and "Fmancial Information" in the Official Statement Appendix B in the Official Statement Accounting Principles The accounting principles referred to in such Section are the accounting pr~nciples described m the notes to the financml statements referred to in the paragraph above S \Our Documents\Ordinances\01 ~Ser~es 2001 Certificates of Obhgatlon Ord doc 28 AGENDA INFORMATION SHEET AGENDA DATE: May 1, 2001 DEPARTMENT: Fiscal Operations ACM: Kathy DuBose, Fiscal and Municipal Services SUBJECT Receive and open b~ds regarding City of Denton General Obligation Bonds, Series 2001 BACKGROUND On May 1, 2001, David Medanlch of First Southwest Company and Ted Bnzzolara 1II of McCall, Parkhurst and Horton, will deliver and open the b~ds regarding the City of Denton's General Obhgat~on Bonds, Senes 2001 The process of opening the bids and tabulating them before the City Council is reqmrcd by City Charter These[ bonds will provide funding of $14,245,000 for the following projects and improvements $7,320,000 Transportation (mrport, highways, traffic signals, s~dewalks) 4,600,000 Library Services (North Branch design and construction) 2,325,000 Parks and Recreation/Beautification PRIO~ ACTION/REVIEW (Couned~ Boards~ Commission) The pTojects were previously approved in the 2000-2004 Capital Improvement Program and bond election on January 15, 2000 They were also revmwed by the Debt Management Committee at the March 28, 2001 meeting FISCAL INFORMATION Thc General Obhgat~on Bonds have an estimated average annual debt service payment of $1,000,000 Respectfully submitted D~ana G Ortlz D~rector of F~scal Operations AGENDA INFORMATION SHEET AGENDA DATE: May 1, 2001 DEPARTMENT' Fiscal Operations ACM: Kathy DuBose, Fiscal and MUmclpal Servmes SUBJECT Consider approval of an ordinance authonzmg the issuance, sale, and delivery of City of Denton General Obligation Bonds, Series 2001, and approving and authorizing instruments and procedures relating thereto, and providing an effectwe date BACKGROUND On May 1, 2001, David Medamch of First Southwest Company and Ted Bnzzolara III of McCall, Parkhurst and Horton, will deliver and open the bids regarding the City of Denton's General Obligation Bonds, Series 2001 The process of opening the bids and tabulating them before the City Council is required by City Charter These bonds will provide fundang of $14,245,000 for the following prolects and improvements $7,320,000 Transportation (airport, highways, traffic signals, sidewalks) 4,600,000 Library Services (North Branch design and construcUon) 2,325,000 Parks and ReereaUon/Beautffication PRIQR ACTION/REVIEW (Counell~ Boards~ Commission} The projects were previously approved in the 2000-2004 Capital Improvement Program and bond election on January 15, 2000 They were also reviewed by the Debt Management Committee at the March 28, 2001 meeting FISCAL INFORMATION The General Obligation Bonds have an estimated average annual debt service payment of $1,000,000 Respectfully submitted Diana G Orhz Director of Fiscal Operations ORDINANCE NO 2001- AN ORDINANCE AUTHORIZING THE ISSUANCE, SALE, AND DELIVERY OF CITY OF DENTON GENERAL OBLIGATION BONDS, SERIES 2001, LEVYING THE TAX TO PAY SAME, APPROVING AND AUTHORIZING INSTRUMENTS AND PROCEDURES RI~LATING THERETO, AND PROVIDING AN EFFECTiVE DATE THE STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON WHEREAS, an electaon was held on January 15, 2000 at which the Caty Council was authorized to assue certain of the bonds hereinafter anthonzed, and WHEREAS, at smd elect~on the following bonds were authorized to be issued Amount Prop Amount Amount Being Premously Voted No Auth0nzed Issued Issued But Umssued 1 $17,045,000 $7,320,000 $2,100,000 $7,625,000 2 6,800,000 4,600,000 1,000,000 1,200,000 3 10,175,000 2,325,000 650,000 7,200,000 WHEREAS, the bonds hereinafter authorized and desagnated were voted and are to be assued, sold, and delivered pursuant to Chapter 133 l, Texas Government Code, and Amcle IX of the City's Home Rule Charter, and other appheable laws, and WHEREAS, at as considered to be an the best anterest of the Caty that smd anterest beanng bonds be assued, NOW, THEREFORE THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS Section 1 AMOUNT AND PURPOSE OF THE BONDS The bond or bonds of the Caty of Denton, Texas (the "Issuer") are hereby authorized to be issued and dehvered an the aggregate pnnmpal amount of $14,245,000, FOR THE PURPOSE OF THE ACQUISITION OF PROPERTY AND MAKING IMPROVEMENTS FOR PUBLIC PURPOSES IN SAID CITY, TO-WIT STREET AND TRAFFIC CONTROL IMPROVEMENTS, PUBLIC LIBRARY IMPROVEMENTS AND PARK IMPROVEMENTS Sectmn 2 DESIGNATION OF THE BONDS Each bond issued pursuant to thas Ordinance shall be desagnated "CITY OF DENTON GENERAL OBLIGATION BOND, SERIES 2001, and matmlly there shall be assued, sold, and dehvered hereunder a single fully regastered bond, without anterest coupons, payable in installments of pnnmpal (the "Imtml Bond"), but the Inmal Bond may be assagned and transferred and/or converted into and exchanged for a lake aggregate prmmpal amount of fully regastered bonds, w~thout anterest coupons, having serml maturates, and an the denommataon or denom~- nataons of $5,000 or any antegral multiple of $5,000, all m the manner hereanafter prowded The term "Bonds" as used in thas Ordinance shall mean and include collectavely the Inmal Bond and all substamte bonds exohanged therefor, as well as all other substitute bonds and replacement bonds assued pursuant hereto, and the term "Bonds" shall mean any of the Bonds Section 3 INITIAL DATE, DENOMINATION, NUMBER, MATURITIES, INITIAL REGISTERED OWNER, AND CHARACTERISTICS OF THE INITIAL BOND (a) The Initial Bond is hereby anthonzed to be tssued, sold, and dehvered hereunder as a single fully regtstered Bond, w~thout mterest coupons, dated May 1, 2001, in the denomtnatton and aggregate prmmpal amount of $14,245,000, numbered R-l, payable tn annual installments of prmctpal to the lnmal regtstered owner thereof, to-wtt or to the regtstered assignee or asstgnees of satd Bond or any portion or pomons thereof 0n each case, the "regtstered owner"), w~th the annual installments of pnnmpal of the Initial Bond to be payable on the dates, respecttvely, and m the pnnmpal amounts, respectively, stated m the FORM OF INITIAL BOND set forth m thts Ordinance (b) The Inmal Bond (1) may be prepatd or redeemed prior to the respecttve scheduled due dates of tnstallments of pnnmpal thereof, (n) may be asstgned and transferred, (tit) may be convened and exchanged, for other Bonds, 0v) shall have the characteristics, and (v) shall be stgned and sealed, and the pnnctpal of and interest on the Imtaal Bond shall be payable, all as provided, and m the manner reqmred or mdtcated, m the FORM OF INITIAL BOND set forth m thts Ordinance Section 4 INTEREST The unpmd principal balance of the Imt~al Bond shall bear interest fi.om the date of the Imttal Bond to the respective scheduled due dates, or to the respective dates of prepayment or redemptton, of the mstallments of prmmpal of the Imtial Bond, and smd mterest shall be payable, all tn the manner proxaded and at the rates and on the dates stated in the FORM OF INITIAL BOND set forth in this Orchnance Sectton 5 FORM OF INITIAL BOND The form of the Imtlal Bond, tncludtng the form of Reglstratmn Certffieate of the Comptroller of Pubhc Accounts of the State of Texas to be endorsed on the Imnal Bond, shall be substantially as follows FORM OF INITIAL BOND NO R-1 $14,245,000 UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON GENERAL OBLIGATION BOND SERIES 2001 THE crrY OF DENTON, m Denton County, Texas (the "Issuer"), betng a polmcal subdtvlston of the State of Texas, hereby promtses to pay to or to the regtstered assignee or assignees ofthts Bond or any portton or pontons hereof (in each case, the "regtstered owner") the aggregate pnnctpal amount of $14,245,000 (FOURTEEN MILLION TWO HUNDRED FORTY FIVE THOUSAND DOLLARS) in annual installments of pnnmpal due and payable on February 15 in each of the years, and m the respective pnnclpal mounts, as set forth in the following schedule, and to pay interest, from the date of this Bond hereinafter stated, on the balance of each such installment of principal, respectively, from time to time rer0ammg unpaid, at the rates per annum as follows PRINCIPAL INTEREST PRINCIPAL INTEREST YEAR AMOUNT RATE(%~ YEAR AMOUNT RATE(%) 2002 $710,000 2012 $710 000 2003 710,000 2013 715 000 2004 710,000 2014 715 000 2005 710,000 2015 715 000 2006 71(I ,000 2016 715 000 2007 71(1,000 2017 715 000 2008 710,000 2018 715 000 2009 71(3,000 2019 715 000 2010 71 (3,000 2020 715 000 2011 71(3,000 2021 715 000 Interest shall first be due and payable on February 15, 2002, and semiannually on each February 15 and August 15 thereafter whale this Bond or any portion hereof is outstanding and unpaid Said interest shall be calculated on the basis of a 360-day year composed of twelve 30-day months THE INSTALLMENTS OF PRINCIPAL OF AND THE INTEREST ON this Bond are payable in lawful money of the Umted States of America, wuthout exchange or collection charges The install- ments of pnnclpal and the interest on this Bond are payable to the registered owner hereof through the services of BANK ONE, NA, DALLAS, TEXAS, which is the "Paying Agent/Registrar" for this Bond Payment of all pnnclpal of and interest on this Bond shall be made by the Paying AgentdRegistrar to the registered owner hereof on each pnnc~pal and/or interest payment date by check, dated as of such date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of this Bond (the "Bond Ordinance") to be on deposit w~th the Paying Agent/Registrar for such purpose as hereinafter provaded, and such check shall be sent by the Paying Agent/Registrar by United States mall, first-class postage prepaid, on each such pnnclpal and/or interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared at the close of business on the last day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described The Issuer covenants with the registered owner of this Bond that on or before each pnnmpal and/or interest payment date for this Bond it will make available to the Pasnng Agant/Registrar, from the "Interest and Slnlong Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available fhnds, of all prmmpal of and interest on this Bond, when due IN THE EVENT of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, ~f and when funds for the payment of such interest have been received from the Issuer Notice of the Special Record Date end of the scheduled payment date of the past due interest ("Special Payment Date", which shall be fifteen (15) days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mall, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the 15th business day next preceding the date of mafimg of such notme IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking restitutions m the City where the Paying Agent/Registrar ~s located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which ~s not such a Saturday, Sunday, legal holiday, or day on which banking restitutions are authorized to close, and payment on such date shall have the same force and effect as if made on the ongmal date payment was due THIS BOND has been anthonzed in accordance with the Constitution and laws of the State of Texas FOR THE PURPOSE OF THE ACQUISITION OF PROPERTY AND MAKING IMPROVEMENTS FOR PUBLIC PURPOSES IN SAID CITY, TO-WIT STREET AND TRAFFIC CONTROL IMPROVEMENTS, PUBLIC LIBRARY IMPROVEMENTS AND PARK IMPROVEMENTS ON FEBRUARY 15, 2011, or on any date whatsoever thereafter, the unpaid installments of principal of this Bond may be prepaid or redeemed prior to their scheduled due dates, at the option of the Issuer, with funds derived from any available source, as a whole, or in part, and, if in part, the particular portion of this Bond to be prepmd or redeemed shall be selected and designated by the Issuer (provided that a portion of this Bond may be redeemed only in an ~ntegral multiple of $5,000), at the prepayment or redemption price of the par or pnnmpal amount thereof, plus accrued ~nterest to the date fixed for prepayment or redemption THE BONDS of this Series scheduled to mature on FEBRUARY 15, __ are subject to mandatory redemption prior to their scheduled maturities, and shall be redeemed by the Issuer, in part, prior to their scheduled maturities, with money from the Mandatory Redemption Account of the Interest and Sinking Fund, with the partmular Bonds or portaon thereof to be redeemed to be selected by the Paying Agent/Registrar, by lot or other customary method (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or pnnmpal amount thereof and accrued mterest to the date of redemption, on the dates, and ~n the pnnmpal amounts, respectively, as shown m the following schedule February 15, MamnW Mandatory Pnnmpal Redemption Dates Amounts (maturity) The principal amount of the Bonds required to be redeemed on the Mandatory Redemption Dates pursuant to the foregoing shall be reduced, at the option of the Issuer by the principal amount of any Bonds out of the maturity scheduled for February 15, whmh, at least 45 days prior to the aforesmd appropriate redemption date (1) shall have been acquired by the Issuer at a price not exceeding the prmc~pal amount of such Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, or (2) as shall have been redeemed pursuant to the optional redemption prowsxons hereof and not previously credited to the mandatory sinking fund redemption Dunng any period m wh;eh ownership of the Bonds ~s determined by a book entry at a securmes depository for the Bonds, af fewer than all of the Bonds of the same maturity and bearing the same interest rate are to be redeemed, the particular Bonds of such maturity and bearing such interest rate shall be selected ln,accordence w~th the arrangements between the Issuer and the securities depository AT LEAST 30 days prior to the date fixed for any such prepayment or redemption a written not~ee of such prepayment or redemption shall be marled by the Paying Agent/Registrar to the registered owner hereof By the date fixed for any such prepayment or redemption due prowston shall be made by the Issuer w~th the Paying Agent/Registrar for the payment of the reqmred prepayment or redemption price for this Bond or the port~on hereof which ~s to be so prepaid or redeemed, plus accrued ~nterest thereon to the date fixed for prepayment or redemption If such written not~ce of prepayment or redemp- tion ~s g~ven, and ff due prows~on for such payment ~s made, all as provided above, th~s Bond, or the port,on thereof which ~s to be so prepaid or redeemed, thereby automatically shall be treated as prepaid or redeemed prior to ~ts scheduled due date, and shall not bear ~nterest after the date fixed for ~ts prepayment or redemption, and shall not be regarded as being outstanding except for the right of the regtstered owner to receive the prepayment or redemption price plus accrued ~nterest to the date fixed for prepayment or redemption from the Paying Agent/Registrar out of the funds provided for such payment The Paying AgentfReg~strar shall record ~n the Registration Books all such prepayments or redemptions of pnnc~pal of th~s Bond or any portton hereof THIS BOND, to the extent of the unpaid or unredeemed pnncipal balance hereof, or any unpaid and unredeemed port~on hereof in any integral multiple of $5,000, may be assigned by the m~tml registered owner hereof and shall be transferred only m the Registration Books of the Issuer kept by the Paying Agent/Registrar acting m the capacity of registrar for the Bonds, upon the terms and conditions set forth m the Bond Ordinance Among other reqmrements for such transfer, th~s Bond must be presented and surrendered to the Paying Agent/Registrar for cancellation, together w~th proper instruments of assignment, m form and w~th guarantee of s~gnatures satisfactory to the Paying Agent/Registrar, ewdenctng ass~gument by the ~nmal registered owner of th~s Bond, or any port,on or pomons hereof ~n any integral multiple of $5,000, to the ass~guee or assignees ~n whose name or names th~s Bond or any such portion or port~ons hereof ~s or are to be transferred and registered Any instrument or instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the asslgument of th~s Bond or any such port, on or port~ons hereof by the lmt~al registered owner hereof A new bond or bonds payable to such assignee or ass~guees (which then will be the new registered owner or owners of such new Bond or Bonds) or to the lmt~al registered owner as to any portion of this Bond which ~s not being ass~gued and transferred by the initial registered owner, shall be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond or any portion or portions hereof, but solely m the form and manner as prowded m the next paragraph hereof for the conversion and exchange of th~s Bond or any port~on hereof The registered owner of th~s Bond shall be deemed and treated by the Issuer and the Paying AgentJReg~strar as the absolute owner hereof for all purposes, ~ncluding payment and d~seharge of hablhty upon th~s Bond to the extent of such payment, and the Issuer and the Paying AgenffReg~strar shall not be affected by any not,ce to the contrary AS PROVIDED above and m the Bond Ordinance, this Bond, to the extent of the unpaid or unredeemed pnne~pal balance hereof, may be converted ~nto and exchanged for a hke aggregate pnnclpal amount of fully registered bonds, w~thout interest coupons, payable to the ass~guee or ass~guees duly designated in writing by the m~tml registered owner hereof, or to the m~t~al regtstered owner as to any port~on of th~s Bond which ~s not being assigned and transferred by the ~mual registered owner, ~n any denomtnat~on or denominations ~n any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute bond ~ssued m exchange for any port~on of th~s Bond shall have a single stated principal maturity date), upon surrender of th~s Bond to the Paying Agent/Registrar for cancellation, all ~n accordance w~th the form and procedures set forth ~n the Bond Ordinance If th~s Bond or any port,on hereof ~s asstgned and transferred or converted each bond ~ssued ~n exchange for any port~on hereof shall have a single stated principal maturity date corresponding to the due date of the ~nstallment of principal of th~s Bond or portion hereof for which the substitute bond ~s being exchanged, and shall bear interest at the rate applicable to and borne by such installment of pnnctpal or portion thereof Such bonds, respectively, shall be subject to redemption prior to maturity on the same dates and for the same prices as the corresponding Installment of principal of th~s Bond or portion hereof for which they are being exchanged No such bond shall be payable ~n ~nstallments, but shall have only one stated principal maturity date 6 AS PROVIDED IN THE BOND ORDINANCE, THIS BOND IN ITS PRESENT FORM MAY BE ASSIGNED AND TRANSFERRED OR CONVERTED ONCE ONLY, and to one or more assignees, but the bonds issued and delivered in exchange for this Bond or any portion hereof may be assigned and transferredl and converted, subsequently, as prowded m the Bond Ordinance The Issuer shall pay the Paying Agent~egmrar's standard or customary fees and charges for transfe~rlng, converting, and exchanging tbas Bond or any portmn thereof, but the one requesting such transfer, conversion, and exchange s~all pay any taxes or governmental charges required to be paid w~th respect thereto The Paying Agent/Registrar shall not be reqmred to make any such assignment, conversion, or exchange 0) during the period commencing vnth the close of business on any Record Date and ending with the opemng of business on the next following prmmpal or interest payment date, or, (n) w~th respect to any Bond or portmn thereof called for prepayment or redemption prior to maturity, within 45 days prior to Its prepayment or redemption date IN THE EVENT any Paying Agent/Registrar for this Bond is changed by the Issuer, resigns, or otherwise Ceases to act as such, the Issuer has covenanted in the Bond Ordmanee that it promptly will appoint a ~ompetent and legally quahfied substttute therefor, and promptly will cause written nonce thereof to be mailed to the registered owner of this Bond ITIIS HEREBY ce~fied, feinted, and covenanted that this Bond has been duly and vahdly voted, authorized, Issued, sold, and dehvered, that all acts, eondlnons, and thmgs reqmred or proper to be performed, exist, and be done precedent to or an the authorization, ISSUance, and delivery of this Bond have been performed, existed, and been done m accordance with law, that this Bond as a general obhgatmn of the Issuer, Issued on the full froth and credit thereof, and that annual ad valorem taxes sufficient to provide for the payment of the interest on and pnneipal of this Bond, as such mterest comes due and such pnnmpal matures, have been lewed and ordered to be lev~ed agamst all taxable property m the Issuer, ,and have been pledged irrevocably for such payment, within the hmtt prescribed by law BY BECOMING the registered owner of thru Bond, the registered owner thereby acknowledges all of the terms and prowslons of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance ~s duly recorded and available for inspection m the offieml minutes arid records of the gnvernmg body of the Issuer, and agrees that the terms and prowslons of this Bond and the Bond Ordinance constitute a contract between the registered owner hereof and the Issuer IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the manual or facsimile Signature of the Mayor of the Issuer and countersigned and attested with the manual or facsimile signature of the Caty Secretary of the Issuer, has caused the official seal of thc Issuer to be duly impressed, or placed in faesamile, on this Bond and has caused this Bond to be dated May 1, 2001 ATTEST CITY OF DENTON, TEXAS By By Jennifer Walters Euhne Brock City Secretary, Caty of Denton, Texas Mayor, City of Denton, Texas (CITY SEAL) (INSERT BOND INSURANCE LEGEND, IF ANY) FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS (To be attached to Inlnal Bond only) COMPTROLLER'S REGISTRATION CERTII~ICATE REGISTER NO I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas Witness my signature and seal this Comptroller of Public Accounts of the State of Texas (COMPTROLLER'S SEAL) Section 6 ADDITIONAL CHARACTERISTICS OF THE BONDS (a) Remstratlon and Transfer The Issuer shall keep or cause to be kept at the principal corporate trust office of BANK ONE, NA, DALLAS, TEXAS (the "Paying Agent/Registrar") books or records of the registration and transfer of the Bonds (the "Registration Books"), and the Issuer hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such transfers and registrations under such reasonable regulations as the Issuer and Paying Agent/Registrar may prescribe, and the Paying Agent/Registrar shall make such transfers and registrations as herein promded The Paying Agent/Registrar shall obtain and record m the Registration Books the address of the registered owner of each Bond to which payments with respect to the Bonds shall be mailed, as herem provided, but it shall be the duty of each registered owner to notify the Paying AgenffRegistrar in writing of the address to which payments shall be mailed, and such ~nterest payments shall not be mailed unless such notice has been given The Issuer shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwse required by law, shall not permit their inspection by any other entity Registration of each Bond may be transferred m the Registration Books only upon presentation and surrender of such Bond to the Pa}nng Agent/Registrar for transfer ofreglstranon and cancellation, together with proper written instruments of assignment, in form and with guarantee of signatures satis- factory to the Paying Agent/Registrar, (1) evidencing the assignment of the Bond, or any portion thereof in any integral multiple of $5,000, to the assignee or assignees thereof, and (ii) the right of such assignee or assignees to have the Bond or any such portion thereof registered in the name of such assignee or assignees Upon the assignment and transfer of any Bond or any portion thereof, a new substitute Bond or Bonds shall be issued in conversion and exchange therefor in the manner herein provided The Initial Bond, to the extent of the unpaid or unredeemed principal balance thereof, may be assigned and transferred by the mmal registered owner thereof once only, and to one or more assignees designated m wrmng by the initial registered owner thereof All Bonds issued and dehvered in conversion of and exchange for the Initial Bond shall be m any denomination or denominations of any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Bond shall have a single stated principal matonty date), shall be in the form prescribed in the FORM OF SUBSTITUTE BOND set forth in this Ordinance, and shall have the characteristics, and may be assigned, transferred, and converted as hereinafter promded If the Imtlal Bond or any portion thereof is assigned and transferred or converted the Initial Bond must be surrendered to the Paying Agent/Registrar for cancellation, and each Bond issued in exchange for any portion of the Initial Bond shall have a single stated principal maturity date, and shall not be payable m installments, and each such Bond shall have a principal maturity date corresponding to the due date of the installment ofprmmpal or portion thereof for which the substitute Bond is being ex- changed, and each such Bond shall bear interest at the single rate applicable to and borne by such install- ment of pnnclpal or portion thereof for which it is being exchanged If only a portion of the Initial Bond is assigned and transferred, there shall be delivered to and registered in the name of the initial registered owner substitute Bonds in exchange for the unassigned balance of the Initial Bond m the same manner as if the initial registered owner were the assignee thereof If any Bond or pomon thereof other than the Initial Bond is assigned and transferred or converted each Bond issued in exchange therefor shall have the 8 same principal maturity date and bear interest at the same rate as the Bond for which it is exchanged A form of assignment shall be printed or endorsed on each Bond, excepting the Imtlal Bond, which shall be executed by the registered owner or its duly authorized attorney or representative to evidence an assignment thereof Upon surrender of any Bonds or any portion or portions thereof for transfer of registration, an authorized representative of the Paymg Agent/Registrar shall make such transfer m the Registration Books, and shall dehver a new fully registered substitute Bond or Bonds, hawng the charac- tenstms hereto described, payable to such assignee or assignees (which then will be the registered owner or owners of such new Bond or Bonds), or to the prewous registered owner in case only a portion of a Bond ~s being assigned and transferred, all m conversion of and exchange for sard assigned Bond or Bonds or any portion or portions thereof, in the same form and manner, and with the same effect, as provaded m Section 6(d), below, for the conversion and exchange of Bonds by any registered owner of a Bond The Issuer shall pay the Paying Agent/Reglstrar's standard or customary fees and charges for maktng such transfer and dehvery of a substitute Bond or Bonds, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto The Paying Agent/Registrar shall not be reqmred to make transfers of regtstratlon of any Bond or any portion thereof 0) during the period eommenemg with the close ofbusmess on any Record Date and ending with the opemng of business on the next following pnnelpal or mterest payment date, or, (n) with respect to any Bond or any portion thereof called for redemption prior to maturity, wlthm 45 days prior to Its redemption date (b) Ownershln of Bonds The entity ~n whose name any Bond shall be registered m the Registration Books at any time shall be deemed and treated as the absolute owner thereof for all purposes of this Ordinance, whether or not such Bond shall be overdue, and the Issuer and the Paying Agent/Registrar shall not be affected by any notme to the contrary, and payment of, or on account of, the prmclpal of, premium, if any, and interest on any such Bond shall be made only to such registered owner All such payments shall be vahd and effectual to satisfy and discharge the habfllty upon such Bond to the extent of the sum or sums so prod (c) Payment of Bonds and Interest The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the pnnmpal of and interest on the Bonds, and to act as its agent to convert and exchange or replace Bonds, all as prowded in tins Ordinance The Paying Agent/Registrar shall keep proper records of all payments made by the Issuer and the Paying Agent/Registrar with respect to the Bonds, and of all conversions and exchanges of Bonds, and all replacements of Bonds, as proxnded ~n th~s Ordmance However, in the event of a nonpayment of ~nterest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such mterest payment (a "Spemal Record Date") will be estabhshed by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the Issuer Notme of the Special Record Date and of the scheduled payment date of the past due ~nterest ("Special Payment Date", which shall be fifteen (15) days after the Spemal Record Date) shall be sent at least five (5) business days prior to the Special Record Date by Umted States mall, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of bus~ness on the 15th busmess day next preceding the date of mailing of such notice (d) Conversion and Exchange or Replacement. Authenttcat~on Each Bond ~ssued and dehvered pursuant to this Ordinance, to the extent of the unpaid or unredeemed pnnmpal balance or prmmpal amount thereof, may, upon surrender of such Bond at the pnnmpal corporate trust office of the Paying Agent/Registrar, together v~th a written request therefor duly executed by the registered owner or the assignee or assignees thereof, or 1ts or their duly authorized attorneys or representatives, with guarantee of s~gnatures,satlsfactory to the Paying Agent,'Reg~strar, may, at the option of the registered owner or such assignee or assignees, as appropriate, be converted mto and exchanged for fully registered bonds, without interest coupons, m the form prescribed m the FORM OF SUBSTITUTE BOND set forth m this Ordinance, in the denomination of $5,000, or any ~ntegral multiple of $5,000 (subject to the reqmrement hereinafter stated that each substitute Bond shall have a single stated maturity date), as requested in 9 writing by such registered owner or such assignee or assignees, m an aggregate principal amount equal to the unpmd or unredeemed pnncipal balance or principal amount of any Bond or Bonds so surrendered, and payable to the appropriate registered owner, assignee, or assignees, as the case may be If the Imtial Bond is assigned and transferred or converted each substitute Bond issued in exchange for any portion of the Initial Bond shall have a single stated pnnclpal maturity date, and shall not be payable m installments, and each such Bond shall have a principal raatunty date corresponding to the due date of the installment of principal or portion thereof for which the substitute Bond is being exchanged, and each such Bond shall hear Interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged If a portion of any Bond (other than the Imtlal Bond) shall be redeemed prior to its scheduled maturity as prowded herein, a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, in the denomination or denominations of any integral multiple of $5,000 at the request of the registered owner, and in aggregate pnnclpal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon surrender thereof for cancellation If any Bond or portion thereof (other than the Imtlal Bond) is assigned and transferred or converted, each Bond issued m exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is being exchanged Each substitute Bond shall bear a letter and/or number to distinguish it fi.om each other Bond The Paying Agent/Registrar shall convert and exchange or replace Bonds as provided herein, and each fully registered bond delivered m conversion of and exchange for or replacement of any Bond or portion thereof as permitted or required by any provi- sion of this Ordinance shall constitute one of the Bonds for all purposes of this Ordinance, and may again be converted and exchanged or replaced It is specifically prowded that any Bond authenticated in conversion of and exchange for or replacement of another Bond on or prior to the first scheduled Record Date for the Initial Bond shall bear interest fi.om the date of the Imtlal Bond, but each substitute Bond so authenticated after such first scheduled Record Date shall bear interest fi.om the interest payment date next preceding the date on which such substitute Bond was so authenticated, unless such Bond is authenticated after any Record Date but on or before the next following interest payment date, in which case it shall bear interest fi.om such next following interest payment date, provided, however, that if at the time of delivery of any substitute Bond the interest on the Bond for which it is being exchanged is due but has not been paid, then such Bond shall bear interest fi.om the date to which such interest has been paid in full THE INITIAL BOND issued and delivered pursuant to this Ordinance is not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Bond issued in conver- sion of and exchange for or r~lacement of any Bond or Bonds issued under this Ordinance there shall be printed a bond, in the form substantially as follows 10 "PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE It is hereby eerUfied that this Bond has been issued under the prowsions of the Bond Ordinance described m this Bond, and that this Bond has been issued in conversion of and exchange for or replacement of a bond, bonds, or a portion of a bond or bonds of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Pubhc Accounts of the State of Texas BANK ONE, NA, DALLAS, TEXAS, Paying Agent/Registrar Dated By Authorized Representative" An authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, date and manually sign the above Bond, and no such Bond shall be deemed to be issued or outstan&ng unless such Bond is so executed The Paying Agent/Registrar promptly shall cancel all Bonds surren- dered for conversion and exchange or replacement No additional ordinances, orders, or resolutions need be passed or adopted by the governing body of the Issuer or any other body or person so as to accomplish the foregoing eonvemon and exchange or replacement of any Bond or portion thereof, and the Paying AgentYReglstrar shall provide for the pnntmg, execution, and delivery of the substitute Bonds in the manner prescribed herein, and said Bonds shall be of type composition pnnted on paper with hthographed or steel engraved borders of customary weight and strength Pursuant to Chapter 1201, Texas Government Code, the duty of eonvemon and exchange or replacement of Bonds as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of the above Paying Agent/Registrar's Authentication Certificate, the converted and exchanged or replaced Bond shall be valid, incontestable, and enforceable in the same manner and w~th the same effect as the Initial Bond which originally was issued pursuant to this Or&nanee, approved by the Attorney General, and registered by the Comptroller of Pubhe Accounts The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transfernng, converting, and exchanging any Bond or any portion thereof, but the one re- questing any such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange The Paying Agent/Registrar shall not be required to make any such conversion and exchange or replacement of Bonds or any portion thereof 0) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next followmg principal or mterest payment date, or, (n) vath respect to any Bond or portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date (e) In General All Bonds issued m conversion and exchange or replacement of any other Bond or portion thereof, (0 shall be issued in fully registered form, without interest coupons, with the pnneipal of and interest on such Bonds to be payable only to the registered owners thereof, (ii) may be redeemed prior to their scheduled maturities, (iii) may be transferred and assigned, (iv) may be converted and ex- changed for other Bonds, (v) shall have the characteristics, (w) shall be signed and sealed, and (vii) the principal of and mterest on the Bonds shall be payable, all as provided, and in the manner required or indicated, in the FORM OF SUBSTITUTE BOND set forth in this Or&nanee (f) Payment of Fees and Char~es The Issuer hereby covenants with the registered owners of the Bonds that it will (0 pay the standard or customary fees and charges of the Paying Agent/Registrar for its services with respect to the payment of the principal of and interest on the Bonds, when due, and (ii) pay the fees and charges of the Paying AgentdReg~strar for services with respect to the transfer of registration 11 of Bonds, and with respect to the conversion and exchange of Bonds solely to the extent above proxaded ~n this Ordinance (g) Substitute Pavln~ A,,ent~emstrar The Issuer covenants with the registered owners of the Bonds that at all times while the Bonds are outstanding the Issuer will promde a competent and legally qualified bank, trust company, financial institution, or other agency to act as and perform the services of Paying Agent/Registrar for the Bonds under this Ordinance, and that the Paying Agent/Registrar will be one entity The Issuer reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying AgenffReglstrar, to be effective not later than 60 days prior to the next pnnmpal or interest payment date after such notice In the event that the entity at any time acting as Paying Agent/Registrar (or ~ts successor by merger, acqmsit~on, or other method) should resign or otherwise cease to act as such, the Issuer covenants that it will promptly appoint a competent and legally quahfied bank, trust company, financial lnst~tution, or other agency to act as Paying AgenffReglstrar under this Ordinance Upon any change m the Paying Agent/Registrar, the previous Paying Agent/Registrar shall promptly transfer and dehver the Registration Books (or a copy thereof), along with all other pertinent hooks and records relating to the Bonds, to the new Paying Agent/Registrar designated and appointed by the Issuer Upon any change in the Paying Agent/Registrar, the Issuer promptly w~ll cause a written notice thereof to be sent by the new Paying Agent/Registrar to each registered owner of the Bonds, by United States mall, first-class postage prepaid, which notice also shall give the address of the new Paying AgenffReglstrar By accepting the posit~on and performing as such, each Paying Agent/Registrar shall be deemed to have agreed to the provisions of this Ordinance, and a certified copy of this Ordmance shall be delivered to each Paying Agent/Registrar Sectaon 7 FORM OF SUBSTITUTE BONDS The form of all Bonds ~ssued ~n conversion and exchange or replacement of any other Bond or portion thereof, including the form of Paying Agent/Reglstrar's Bond to be pnnted on each of such Bonds, and the Form of Assignment to be pnnted on each of the Bonds, shall be, respectively, substantaally as follows, w~th such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance FORM OF SUBSTITUTE BOND (Book-Entry Only Legend, if appropriate) NO UNITED STATES OF AMERICA PRINCIPAL AMOUNT STATE OF TEXAS $ COUNTY OF DENTON CITY OF DENTON GENERAL OBLIGATION BOND SERIES 2001 INTEREST RATE MATURITY DATE DATED DATE CUSIP NO % ON THE MATLrRITY DATE specified above the CITY OF DENTON, m Denton County, Texas (the "Issuer"), being a poht~cal subdlwslon of the State of Texas, hereby promises to pay to ., or to the registered assignee hereof (either being hereinafter called the "registered owner") the pnnclpal amount of and to pay Interest thereon, calculated on the basis of a 360-day year composed of twelve 30-day months, from May 1, 2001, to the maturity date specified above, or the date of redemption prior to maturity, at the interest rate per annum specified above, with interest being first due and payable on February 15, 2002, 12 and semiannually on each August 15 and February 15 thereafter, except that if the date of authen~cation of this Bond is later than the first Record Date (hereinafter defined), such pnnclpal amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authent~ca~xon is after any Record Date (hereinafter defined) but on or before the next following interest payment date, m which case such prmclpal amount shall bear interest from such next following interest payment date THE PRINCIPAL OF AND INTEREST ON this Bond are payable in lawful money of the United States of America, without exchange or collection charges The pnnclpal of this Bond shall be paid to the registered owner hereof upon presentation and surrender of tins Bond at maturity or upon the date fixed for its redampt~on prior to maturity, at the principal corporate trust office of BANK ONE, NA, DALLAS, TEXAS, which is the "Pa3nng Agent/Registrar" for this Bond The payment of interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each interest payment date by check, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authonzmg the issuance of the Bonds (the "Bond Ordmance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter prowded, and such check shall be sent by the Paying Agent/Registrar by United States mall, first-class postage prepaid, on each such interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared at the close of business on the last day of the month next preceding each such date (the "Record Date") on the Registrat~on Books kept by the Paying Agent/Registrar, as hereinafter described However, the payment of such interest may be made by any other method acceptable to the Paying Agent/Registrar and requested by, and at the risk and expense of, the registered owner hereof Any accrued mterest due upon the redemption of this Bond prior to maturity as prowded herem shall be paid to the registered owner at the pnnclpal corporate trust office of the Paying Agent/Refiustrar upon presentation and surrender of thls Bond for redemption and payment at the pnncipal corporate trust office of the Paying Agent/Registrar The Issuer covenants with the registered owner of this Bond that on or before each principal payment date, interest payment date, and accrued interest payment date for th~s Bond it will make available to the Paying Agent/Registrar, from the "Interest and Smkang Fund" created by the Bond Ordinance, the amounts required to pro'ode for the payment, in immediately available funds, of all pnncxpal of and interest on the Bonds, when due IN THE EVENT of a nonpayment of mterest on a scheduled payment date, and for thirty (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 Issuer Not,ce of the Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Date", which shall be fifteen (15) days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mall, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying AgentfReglstrar at the close of business on the 15th business day next preceding the date of mailing of such notice IF THE DATE for the payment of the pr~ncipal of or interest on this Bond shall be a Saturday, Sunday, a,legal hohday, or a day on which banking mstitutlons in the City where the Paying Agent/Regustrar is located are anthonzed by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banlong institutions are authorized to close, and payment on such date shall have the same force and effect~as ffmada on the original date payment was due THIS BOND is one of an issue of Bonds tmtlally dated May 1,2001, authorized m accordance with the Constitution and laws of the State of Texas m the pnnclpal amount of $14,245,000, FOR THE PURPOSE OF THE ACQUISITION OF PROPERTY AND MAKING IMPROVEMENTS FOR PUBLIC PURPOSES IN SAID CITY, TO-WIT STREET AND TRAFFIC CONTROL IMPROVEMENTS, PUBLIC LIBRARY IMPROVEMENTS AND PARK IMPROVEMENTS 13 ON FEBRUARY 15,2011, or on any date whatsoever thereafter, the Bonds of this Series may be redeemed prior to their scheduled maturities, at the option of the Issuer, with funds danved from any available and lawful source, as a whole, or m part, and, if in part, the particular Bonds, or portions thereof, to be redeemed shall be selected and designated by the Issuer (provided that a portion of a Bond may be redeemed only m an integral multiple of $5,000), at the redemption price of the par or pnnclpal amount thereof, plus aecrued interest to the date fixed for redemption THE BONDS of this Series scheduled to mature on FEBRUARY 15, are subject to mandatory redemption prior to their scheduled maturities, and shall be redeemed by the Issuer, m part, prior to their scheduled maturities, w~th money from the Mandatory Redemption Account of the Interest and S~nkmg Fund, with the partmular Bonds or pomon thereof to be redeemed to be selected by the Paying Agent/Registrar, by lot or other customary method (provided that a portion of a Bond may be redeemed only m an integral multiple of $5,000), at a redemption price equal to the par or pnncipal amount thereof and accrued interest to the date of redemption, on the dates, and m the pnncipal amounts, respectively, as shown ~n the following schedule February 15. MatunW Mandatory Pnnclpal Redemntion Dates Amounts (maturity) The pnn¢~pal amount of thc Bonds required to be redeemed on the Mandatory Redemption Dates pursuant to the foregomg shall be reduced, at the option of the Issuer by the principal amount of any Bonds out of the maturity scheduled for February 15, which, at least 45 days prior to the aforesaid appropriate redemption date (1) shall have bean acquired by the Issuer at a price not exceeding the pnnc~pal amount of such Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying AgentA/egqstrar for cancellation, or (2) as shall have been redeemed pursuant to the optional redemption prov~sions hereof and not prewously credited to the mandatory sinking fund redemption Dunng any period m which ownership of the Bonds is determined by a book entry at a securities depository for the Bonds, ~f fewer than all of the Bonds of the same maturity and bearing the same interest rate are to be redeemed, the particular Bonds of such maturity and bearing such interest rate shall be selected m accordance with the arrangements between the Issuer and the securities depository AT LEAST 30 days prior to the date fixed for any redemptton of Bonds or portions thereof prior to maturity a written not~¢e of such redemption shall be sent by the Paying Agent/Registrar by Umted States marl, first-class postage prepaid, to the registered owner of each Bond to be redeemed at ~ts address as ~t appeared on the 45th day prior to such redemption date, provided, however, that the failure to send, mall, or receive such notice, or any defect therein or in the sending or maihng thereof, shall not affect the vahd~ty or effectiveness of the proceedings for the redemption of any Bond By the date fixed for any such redemptton due provis~on shall be made with the Paying Agent/Registrar for the payment of the reqmred redemption price for the Bonds or portions thereof whmh are to be so redeemed, plus accrued interest thereon to the date fixed for redemption If such written notice of redemption is g~ven and if due provtslon for such payment is made, all as provided above, the Bonds or portions thereof which are to be so redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the right of the registered owner to receive the redemption price plus accrued interest fr0m the Paying Agent/Registrar out of the funds provided for such payment If a portion of any Bond shall be redeemed a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, m any denomination or denominations m any integral multiple of $5,000, at the written request of the registered owner, and in aggregate pnnc~pal amount equal to the unredeemed portion thereof, will 14 be ~ssued to the regtstered owner upon the surrender thereof for cancellatton, at the expense of the Issuer, all as provided m the Bond Ordmance THIS BOND OR ANY PORTION OR PORTIONS HEREOF IN ANY INTEGRAL MULTIPLE OF $5,000 may be assigned and shall be transferred only m the Registration Books of the Issuer kept by the Paytng Agent/Registrar acting m the capacity ofregtstrar for the Bonds, upon the terms and conditions set forth m the Bond Ordinance Among other requirements for such assignment and transfer, thts Bond must be presented and surrendered to the Paytng AgenffReglstrar, together with proper mstm- ments of asstgnment, m form and wtth guarantee of stgnatures sattsfactory to the Paying Agent/Registrar, evtdencmg assignment of this Bond or any portton or porttons hereof in any ~ntegral multtple of $5,000 to the asstgnee or asstgnees m whose name or names th~s Bond or any such portton or pomons hereof ts or are to be transferred and regtstered The form ofAsstgnment pnnted or endorsed on thts Bond shall be executed by the regtstered owner or tts duly authorized attorney or representattve, to evtdence the asstgnment hereof A new Bond or Bonds payable to such assignee or asstgnees (whmh then wtll be the new registered owner or owners of such new Bond or Bonds), or to the previous regtstered owner in the case of the assignment and transfer of only a portion of thts Bond, may be dehvered by the Paytng Agent/Registrar m conversion of and exchange for this Bond, all tn the form and manner as provided m the next paragraph hereof for the converston and exchange of other Bonds The Issuer shall pay the Paying Agent/Regtstrar's standard or customary fees and charges for making such transfer, but the one requesttng such transfer shall pay any taxes or other governmental charges required to be pard wtth respect thereto The Paying Agent/Registrar shall not be reqmred to make transfers of registration of thts Bond or any pomon hereof 0) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following prmctpal or tnterest payment date, or, (n) with respect to any Bond or any portion thereof called for redemptton prior to maturity, wtthm 45 days prior to its redemption date The regtstered owner of this Bond shall be deemed and treated by the Issuer and the Paling Agent/Registrar as the absolute owner hereof for all purposes, xncludtng payment and dtscharge of habthty upon th~s Bond to the extent of such payment, and the Issuer and the Paymg Agent/Registrar shall not be affected by any notme to the contrary ALL BONDS OF THIS SERIES are lssuable solely as fully registered bonds, wtthout mterest coupons, in the denommatton of any integral multtple of $5,000 As proxnded tn the Bond Ordinance, thts Bond, or any unredeemed portion hereof, may, at the request of the registered owner or the assignee or assignees hereof, be converted into and exchanged for a hke aggregate pnnmpal amount of fully regtstered bonds, without tnterest coupons, payable to the appropriate regtstered owner, assignee, or asstgnees, as the case may be, hawng the same maturity date, and bearing interest at the same rate, tn any denomination or denormnat~ons in any integral multiple of $5,000 as requested tn writing by the appropriate registered owner, asstgnee, or asmgnees, as the case may be, upon surrender of thts Bond to the Paying Agent/Registrar for cancellation, all tn accordance with the form and procedures set forth m the Bond Ordmance The Issuer shall pay the Paying Agent/Regtstrar's standard or customary fees and charges for transfemng, converting, and exchanging any Bond or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange The Paying Agent/Regtstrar shall not be required to make any such conversion and exchange 0) during the period commencing with the close of business on any Record Date and ending wtth the opemng of business on the next following pnnmpal or tnterest payment date, or, (n) wath respect to any Bond or portion thereof called for redemption prior to maturity, wtthtn 45 days prior to tts redemptton date IN THE EVENT any Paying Agent/Registrar for the Bonds ts changed by the Issuer, resigns, or otherwtse ceases to act as such, the Issuer has covenanted tn the Bond Ordtnance that it promptly wtll appoint a competent and legally quahfied substitute therefor, and wall promptly cause written notice thereof to be marled to the regtstered owners of the Bonds 15 IT IS HEREBY ce~fied, recited, and covenanted that th~s Bond has been duly and vahdly voted, authorized, issued, sold, and dehvered, that all acts, conditions, and th~ngs reqmred or proper to be performed, exist, and be done precedent to or m the anthonzatton, ~ssuance, and delivery of th~s Bond have been performed, existed, and been done m accordance with law, that th~s Bond is a general obhgatlon of the Issuer, issued on the full faith and credit thereof, and that annual ad valorem taxes sufficient to promde for the payment of the interest on and prmmpal ofth~s Bond, as such interest comes due and such principal matures, have been levied and ordered to be levied against all taxable property m the Issuer, and have been pledged ~rrevocably for such payment, wtth~n the limit prescribed by law BY BECOMING the registered owner of th~s Bond, the registered owner thereby acknowledges all of the terms and promslons of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for ~nspect~on in the officml minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of th~s Bond and the Bond Ordinance constitute a contract between each registered owner hereof and the Issuer IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the manual or facsimile signature of the Mayor of the Issuer and countersigned and attested with the manual or facsimile signature of the City Secretary of the Issuer, and has caused the offimal seal of the Issuer to be duly ~mpressed, or placed m facsimile, on th~s Bond ATTEST CITY OF DENTON, TEXAS By By Jennifer Walters Eulme Brock C~ty Secretary, C~ty of Denton, Texas Mayor, C~ty of Denton, Texas (CITY SEAL) 16 FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE (To be executed ffthis Bond is not accompanied by an executed Registration Ce~ficate of the Comptroller of Public Accounts of the State of Texas) It is hereby certified that this Bond has been issued under the provisions of the Bond Ordinance described in this Bond, and that this Bond has been ~ssued in conversion of and exchange for or replacement of a bond, bonds, or a portion of a bond or bonds of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas BANK ONE, NA, DALLAS, TEXAS, Paying AgentYReglstrar Dated By. Authorized Representative (INSERT BOND INSURANCE LEGEND, IF ANY) FORM OF ASSIGNMENT ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered owner of this Bond, or duly authorized representative or attorney thereof, hereby assigns th~s Bond to / / (Asslgnee's Social (print or typewrite Assignee's name and Security or Taxpayer address, including zip code) Identfficat~on Number) and hereby ~rrevocably constitutes and appoints attorney to transfer the registration ofth~s Bond on the Paying Agent/Reglstrar's Registration Books with full power of substitution in the prenuses Dated Signature Guaranteed NOTICE Signature(s) must be guaranteed by Registered Owner an eligible guarantor restitution participating in NOTICE This signature must correspond a securities transfer association recognized with the name of the Registered Owner s~gnature guarantee program appearing on the face of this Certificate in every particular without alteration or enlargement or any change whatsoever Section 8 TAX LEVY A special Interest and Sinking Fund (the "Interest and Sinking Fund") is hereby created solely for the benefit of the Bonds, and the Interest and Sinking Fund shall be established and maintained by the Issuer at an official depository bank of the Issuer The Interest and Slnlang Fund 17 shall be kept separate and apart from all other funds and accounts of the Issuer, and shall be used only for paymg the interest on and prmmpal of the Bonds All ad valorem taxes levied and collected for and on account of the Bonds shall be deposited, as collected, to the credit of the Interest and S~nkang Fund During each year while any of the Bonds or interest thereon are outstandmg and unpmd, the governing body of the Issuer shall compute and ascertam a rate and amount of ad valorem tax which wall be suffiment to raise and produce the money required to pay the interest on the Bonds as such interest becomes due, and to prowde and maintain a slnl~ng fund adequate to pay the pnnmpal of its Bonds as such pnncipal matures (but never less than 2% of the ortglnal prlnmpal amount of the Bonds as a smk~ng fund each year) Smd tax shall be based on the latest approved tax rolls of the Issuer, with full allowance bemg made for tax delmquenctes and the cost of tax collection Smd rate and amount of ad valorem tax is hereby lev~ed, and ~s hereby ordered to be lev~ed, agmnst all taxable property ~n the Issuer for each year while any of the Bonds or mterest thereon are outstanding and unpaid, and said tax shall be assessed and collected each such year and deposited to the credit of the aforesmd Interest and Slnl~ng Fund Smdad valorem taxes sufficient to prowde for the payment of the interest on and pnnmpal of the Bonds, as such ~nterest comes due and such pnnclpal matures, are hereby pledged for such payment, w~thm the limit prescrthed by law Section 9 DEFEASANCE OF BONDS (a) Any Bond and the ~nterest thereon shall be deemed to be prod, retired, and no longer outstanding (a "Defeased Bond") w~th~n the meamng of this Ordmance, except to the extent promded in subsection (d) of this Sectton 9, when payment of the pnnclpal of such Bond, plus Interest thereon to the due date (whether such due date be by reason of maturity, upon redemption, or otherwise) e~ther 0) shall have been made or caused to be made m accordance with the terms thereof (including the glwng of any reqmred notice of redemption), or (n) shall have been proxaded for on or before such due date by irrevocably depos~tmg w~th or making avadable to the Paying Agant/Reg~strar for such payment (1) lawful money of the Umted States of America sufficient to make such payment or (2) Government Obhgat~ons which mature as to pnnmpal and interest m such amounts and at such t~mes as will insure the avmlabfl~ty, w~thout remvestment, of suffiment money to provide for such payment, and when proper arrangements have been made by the Issuer w~th the Paymg Agunt/Reg~strar for the payment of its servxces untal all Defeased Bonds shall have become due and payable At such t~me as a Bond shall be deemed to be a Defeased Bond hereunder, as aforesmd, such Bond and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes herem levied and pledged as provided in th~s Ordinance, and such pnnctpal and ~nterest shall be payable solely from such money or Government Obllgat~ons (b) Any moneys so deposited w~th the Paying Agent/Registrar may at the written d~rectlon of the Issuer also be invested in Government Obhgat~ons, matunng in the amounts and t~mes as hereinbefore set forth, and all mcome from such Government Obhgat~ons received by the Paying Agent/Registrar which ~s not reqmred for the payment of the Bonds and interest thereon, with respect to winch such money has been so deposited, shall be turned over to the Issuer, or deposited as directed ~n wrmng by the Issuer (c) The term "Government Obhgat~ons" as used ~n th~s Section shall mean d~rect obhgat~ons of the Umted States of America, mcludmg obhgat~ons the pnnmpal of and interest on which are unconditionally guaranteed by the Umted States of America, which may be United States Treasury obhgat~ons such as its State and Local Government Series, which may be in book-entry form (d) Until all Defeased Bonds shall have become due and payable, the Paying Agent/Registrar shall perform the servmes of Paying Agent/Registrar for such Defeased Bonds the same as if they had not been defeased, and the Issuer shall make proper arrangements to provide and pay for such services as reqmred by th~s Ordinance Section 10 DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED BONDS (a) Replacement Bonds In the event any outstanding Bond is damaged, mutdated, lost, stolen, or destroyed, 18 the Paytng Agent/Registrar shall cause to be pnnted, executed, and dehvered, a new bond of the same pnnmpal amount, matumy, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Bond, tn replacement for such Bond m the manner hereinafter prowded (b) Apphcatmn for Replacement Bonds Apphcatmn for replacement of damaged, mutilated, lost, stolen, or destroyed Bonds shall be made by the regtstered owner thereof to the Paying AgentfReg~strar In every case of loss, theft, or destruction of a Bond, the regtstered owner applying for a replacement bond shall furmsh to the Issuer and to the Paying Agent/Registrar such security or ~ndemmty as may be reqmred by them to save each of them harmless from any loss or damage wtth respect thereto Also, m every case of loss, theft, or destmctton ora Bond, the regtstered owner shall furmsh to the Issuer and the Paying Agent/Regtstrar ewdence to their sat~sfactmn of the loss, theft, or destmetton of such Bond, as the case may be In every ease of damage or mutflatmn of a Bond, the regtstered owner shall surrender to the Paying Agent/Registrar for cancellation the Bond so damaged or mutilated (c) No Default Occurred Notwtthstandmg the foregoing provts~ons of th~s Seeuon, tn the event of any such Bond shall have matured, and no default has occurred whmh ts then contmmng ~n the payment of the prmclpal of, redemption premaum, ffany, or interest on the Bond, the Issuer may authorize the payment of the same (w~thout surrender thereof except m the case of a damaged or mutilated Bond) instead of ~ssmng a replacement Bond, provtded security or mdemmty ts fumtshed as above prowded tn thts Sectton (d) Charge for Issuing Renlacement Bonds Prior to the tssuance of any replacement bond, the Paymg Agent/Registrar shall charge the regtstered owner of such Bond with all legal, pnntmg, and other expenses m conneetton therewtth Every replacement bond tssued pursuant to the provtstons of thts Sectmn by wrme of the fact that any Bond ~s lost, stolen, or destroyed shall constitute a contractual obhgatmn of the Issuer whether or not the lost, stolen, or destroyed Bond shall be found at any ttme, or be enforceable by anyone, and shall be enttfled to all the benefits of thts Ordtnanee equally and proporttonately w~th any and all other Bonds duly tssued under th~s Ordinance (e) Authority for Issum~ Renlacement Bonds In accordance wtth Chapter 1201, Texas Government Code, th~s Seetlun of th~s Ordinance shall constttute authority for the ~ssuance of any such replacement bond w~thout necessity of further action by the governing body of the Issuer or any other body or person, and the duty of the replacement of such bonds ts hereby anthonzed and ~mposed upon the Paying Agent/Regnstrar, and the Paying AgentfReg~strar shall authentmate and dehver such Bonds tn the form and manner and w~th the effect, as provtded m Sectmn 6(d) ofth~s Ordtnance for Bonds tssued m cunverston and exchange for other Bonds Section 11 COVENANTS REGARDING TAX-EXEMPTION The Issuer covenants to refram from taktng any aetton whach would adversely affect, or to take such actmn to assure, the treatment of the Bonds as obhgatmns described msectton 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the mterest on whmh ts not tncludable in the "gross tncome" of the holder for purposes of federal tneome taxation In furtherance thereof, the Issuer covenants as follows (a) to take any aetton to assure that no more than 10 percent of the proceeds of the Bonds or the projects financed therewith (less amounts depostted to a reserve fund, ff any) are used for any "private business use", as defined ~n sectmn 141(b)(6) of the Code, or tf more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not reeetved by the Issuer, w~th respect to such private business use, do not, under the terms of th~s Orthnance or any underlytng arrangement, dtrectly or tndtrectly, secure or provtde for the payment of more than 10 percent of the debt servme on the Bonds, tn contraventton of sectmn 141(b)(2) of the Code, 19 Co) to take any action to assure that in the event that the "private business use" described m subsection (a) hereof exceeds five percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount m excess of five percent is used for a "private business use" which is "related" and not "dlsproportionate", within the meaning of sectmn 141(b)(3) of the Code, to the governmental use, (c) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or five percent of the proceeds of the Bonds (less amounts deposited into a reserve fund, if any) is, directly or indirectly, used to finance loans to persons, other than state or local governmental units, in contravention of section 141 (c) of the Code, (d) to refrain from taking any action which would otherwise result in the Bonds being treated as "private activity bonds" within the meaning of section 141 (b) of the Code, (e) to refrain from taking any action that would result m the Bonds being "federally guaranteed" within the meaning of section 149(b) of the Code, (f) to refrain from using any portion of the proceeds of the Bonds, directly or mfl~rectly, to acqmre or to replace funds which were used, directly or indirectly, to acquire investment property (as defined m section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Bonds, other than investment property acquired with -- (1) proceeds of the Bonds invested for a reasonable temporary period of 3 years or less, or m the case of a refunding bonds, for a period of 30 days or less until such proceeds are needed for the purpose for which the Bonds are issued, (2) amounts invested in a bona fide debt service fund, within the meaning of section 1 148-1(b) of the Treasury Regulations, and (3) amounts deposited m any reasonably required reserve or replacement fund to the extent such amounts do not exceed l0 percent of the stated pnn¢lpal amount (or, m the case ora discount, the issue price) of the Bonds, (g) to otherwise resmct the use of the proceeds of the Bonds or amounts treated as proceeds of the Bonds, as may be necessary, so that the Bonds do not otherwise contravene the requirements of section 148 of the Code (relating to arbitrage), section 149(g) of the Code (relating to hedge bonds), and, to the extent eppheable, section 149(d) of the Code (relating to advance refundings), and (h) to pay to the United States of America at least once during each five-year period (beginning on the date of delivery of the Bonds) an amount that is at least equal to 90 percent of the "Excess Earnings", within the meaning of section 148(0 of the Code and to pay to the United States of America, not later that 60 days after the Bonds have been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under section 148(f) of the Code For purposes of the foregoing (a) and (b), the Issuer understands that the term "proceeds" includes "dlsposlt~0n proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (al any) and proceeds of the refunded bonds expended prior to the date of issuance of the Bonds, It is the understanding of the Issuer that the eovanants contained herein are intended to assure eomphanee with the Code and any regulations or rulings promulgated by the U S Department of the Treasury pursuant thereto In the event that regulations or rulings are hereafter promulgated which modify, or expand provisions of the Code, as applicable to the Bonds, the Issuer will not be required to comply wlth any covenant contained herein to the extent that such failure to comply, in the opinion of 2O nat~onally-recogmzed bond counsel, will not adversely affect the exemption from federal income taxation of mterest on the Bonds under section 103 of the Code In the event that regulations or rulings ere hereaf- ter promulgated which ~mpose additional requirements which are applicable to the Bonds, the Issuer agrees to comply w~th the additional requirements to the extent necessary and reasonably possible, in the opinion ofnat~onally-reeogmzed bond counsel, to preserve the exemption from federal ~neome taxatmn of interest on the Bonds under sectmn 103 of the Code In furtherance of such mtent~on, the Issuer hereby authorizes and d~rects the Mayor to exeeuta any documents, certificates or reports reqmred by the Code and to make such elect~ons, on behalf of the Issuer, which may be peruntted by the Code as are consistent with the purpose for the ~ssuance of the Bonds The Issuer covenants to comply with the covenants m this section after defeasance of the Bonds In order to facilitate eomphanee w~th the above covenant (h), a "Rebate Fund" is hereby estabhshed by the Issuer for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including w~thout hmItatIon, the bondholders The Rebate Fund is established for the addmonal purpose of comphance with section 148 of the Code Section 12 ALLOCATION OF, AND LIMITATION ON, EXPENDITURES FOR THE PROJECT Tha Issuer covenants to account for the expenditure of sale proceeds and ~nvestment earnings to be used for the purposes described m Seetton 1 ofth~s Ordinance (the "Project") on ~ts books and records ~n accordance w~th the requirements of the Internal Revenue Code The Issuer recogmzes that m order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures within 18 months of the later of the date that (1) the expenditure is made, or (2) the ProJect ~s completed, but in no event later than three yeers after the date on which the original expenditure is paid The foregoing notwithstanding, the Issuer recogmzes that In order for proceeds to be expended under the Internal Revenue Code, the sale proceeds or investment earnings must be expended no more than 60 days after the later of(l) the fifth anmversary of the delivery of the Bonds, or (2) the date the Bonds ere retired The Issuer agrees to obtain the adwce of natlonally-recoguIzed bond counsel ff such expenditure fails to comply w~th the foregoing to assure that such expend;rare will not adversely affect the tax-exempt status of the Bonds For purposes hereof, the Issuer shall not be obhgated to comply w~th th~s covenant if~t obtains an opmlon that such failure to comply will not adversely affect the excludabthty for federal ~ncome tax purposes from gross ~ncome of the interest Section 13 DISPOSITION OF PROJECT The Issuer covenants that the property constnutmg the Project will not be sold or otherwise dxsposed ~n a transaction resulting m the receipt by the Issuer of cash or other compensation, unless the Issuer obtains an opimon of nat;unally-reeogmzed bond counsel that such sale or other d~sposltion will not adversely affect the tax-exempt status of the Bunds For purposes hereof, the Issuer shall not be obhgated to comply w~th th~s covenant ff it obtains a legal opunon that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest Section 14 CUSTODY, APPROVAL, AND REGISTRATION OF BONDS, BOND COUNSEL'S OPINION, CUSIP NUMBERS, PREAMBLE AND INSURANCE The Mayor of the Issuer is hereby authorized to have control of the In,tail Bond ~ssued hereunder and all necessary records and proceedmgs pertaining to the Imtaal Bond pending its delivery and ~ts ~nvestigataon, exammat~on, and approval by the Attorney General of the State of Texas, and its registration by the Comptroller of Pubhe Accounts of the State of Texas Upon registration of the In~tml Bond sa~d Comptroller of Pubhc Accounts (or a deputy desxgnated in writing to act for said Comptroller) shall manually s~gu the Comptroller's Regxstrat~un Certificate on the Imtlal Bond, and the seal of sa~d Comptroller shall be ;mpressed, or placed m facsimile, on the InxtIal Bond The approwng legal op~mon of the Issuer's Bond Counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the Imtml Bond or on any Bonds ~ssued and dehvered m conversion of and exchange or replacement of any Bond, but neither shall have any legal effect, and shall be solely for the convenience and ~nformat~on of the registered owners of the Bonds The preamble to th~s Ordinance ~s hereby adopted and made a part 21 hereof for all purposes If insurance is obtained on any of the Bonds, the Imtial Bond and all other Bonds shall bear an appropriate legend concerning insurance as provided by the insurer Section 15 SALE OF INITIAL BOND The Initial Bond is hereby sold and shall be delivered to ., for cash for the par value thereof and accrued interest thereon to date of delivery, plus a cash premium of $ It is hereby officially found, determined, and declared that the Initial Bond has been sold at public sale to the bidder offering the lowest interest cost, after receiving sealed bids pursuant to an Official Notice of Sale and Bidding Instructions and Official Statement dated April __, 2001, prepared and distributed in connection with the sale of the Initial Bond Said Officml Notice of Sale and Bidding Instructions and Official Statement, and any addenda, supple- ment, or amendment thereto have been and are hereby approved by the Issuer, and their use in the offer and sale of the Bonds is hereby approved It is further officially found, determined, and declared that the statements and representations contmned m said Official Notice of Sale and Official Statement are tree and correct in all material respects, to the best knowledge and behef of the City Council Section 16 INTEREST EARNINGS ON BOND PROCEEDS Interest earnings derived from the investment of proceeds from the sale of the Initial Bond shall be used along with other bond proceeds for the acqmsatlon and construction of the improvements for which the Bonds are issued, provided that after completion of such improvements, if any of such interest earnings remain on hand, such interest earnings shall be deposited in the Interest and Staling Fund It is further provided, however, that any anterest earnings on bond proceeds which are required to be rebated to the United States of America pursuant to Section 11 hereof m order to prevent the Bonds from being arbitrage bonds shall be so rebated and not considered as interest earnings for the purposes of this Section Section 17 DTC REGISTRATION The Bonds initially shall be issued and delivered m such manner that no physical distribution of the Bonds will be made to the public, and The Depository Trust Company ("DTC"), New York, New York, mitlally wall act as depository for the Bonds DTC has represented that it is a limited purpose mast company incorporated under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meamng of the New York Umfonn Commercial Code, and a "cleanng agency" registered under Section 17A of the federal Secuntaes Exchange Act of 1934, as amended, and the Issuer accepts, but in no way verifies, such representations The Initial Bond authorized by this Ordinance shall be dehvered to and registered m the name of the Purchaser However, it is a condltuon of dehvery and sale that the Purchaser, immediately after such delivery, shall cause the Pa3nng AgentJRegtstrar, as promded for in this Ordinance, to cancel said Imtaal Bond and dehver in exchange therefor a substitute Bond for each maturity of such Initial Bond, with each such substitute Bond to be reg, stered m the name of CEDE & CO, the nominee of DTC, and it shall be the duty of the Paying Agent/Registrar to take such action It is expected that DTC will hold the Bonds on behalf of the Purchaser and/or The DTC Partmtpants, as defined and described in the Officaal Statement referred to and approved m Section 15 hereof (the "DTC Partac~pants") So long as each Bond is registered in the name of CEDE & CO, the Paying Agent/Registrar shall treat and deal with DTC in all respects the same as if it were the actual and beneficial owner thereof It is expected that DTC will mmntam a book entry system which wall identify beneficial ownership of the Bonds by DTC Participants m integral amounts of $5,000, with transfers of ownership being effected on the records of DTC and the DTC Pamclpants pursuant to rules and regulations established by them, and that the substitute Bonds initially deposited with DTC shall be immobilized and not be further exchanged for substitute Bonds except as hereinafter prowded The Issuer is not responsible or liable for any functions of DTC, will not be responsible for paying any fees or charges with respect to its services, will not be responsible or hable for maintaining, supermsmg, or reviewing the records of DTC or the DTC Pamm- pants, or protecting any interests or rights of the benefimal owners of the Bonds It shall be the duty of the Purchaser and the DTC Partmlpants to make all arrangements with DTC to estabhsh this book-entry system, the beneficial ownership of the Bonds, and the method of paying the fees and charges of DTC The Issuer does not represent, nor does at m any way covenant that the ~mttal book-entry system established with DTC will be malntmned an the furore The Issuer reserves the right and option at any 22 time in the future, ~n ~ts sole discretion, to tenmnate the DTC (CEDE & CO ) book-entry only registration reqmrement described above, and to pernnt the Bonds to be registered m the name of any owner Ifthe Issuer exercises its right and option to termanate such requirement, it shall g~ve written notice of such termination to the Paying Agent/Registrar and to DTC, and thereafter the Paying Agent/Registrar shall, upon presentation and proper request, register any Bond in any name as prowded for in th~s Ordinance Notwithstanding the initial estabhshment of the foregoing book-entry system w~th DTC, if for any reason any of the originally dehvered substitute Bonds is duly filed with the Paymg Agent/Registrar with proper request for transfer and substitution, as prowded for m this Ordinance, submtute Bonds will be duly delivered as provided m th~s Ordmanee, and there will be no assurance or representation that any book-entry system will be malntamed for such Bonds Section 18 CONTINUING DISCLOSURE (a) Annual Reports 0) The Issuer shall provide annually to each NRMSIR and any SID, w~thm six months after the end of each fiscal year endmg m or after 2000, flnanmal mformatlon and operating data w~th respect to the Issuer of the general type included ~n the final Offteml Statement authorized by Section 16 of th~s Ordinance, bemg the mformaUon described in Exhibit A hereto, whaeh Exhibit is attached to and incorporated in this Ordinance as ff written word for word here~n Any finaneml statements so to be provided shall be (1) prepared m accordance wath the accounting pnnmples described m Exhibit A hereto, or such other aeeounUng pnnmples as the Issuer may be reqmred to employ fi.om t~me to time pursuant to state law or regulataon, and (2) audited, if the Issuer eomnnsslons an audit of such statements and the audit is completed w~thm the period during whmh they must be provided If the audit of such finanmal statements is not complete within such period, then the Issuer shall prowde unaudited financial statements by the reqmred time and will prowde audited finaneml statements for the appheable fiscal year to each NRMSIR and any SID, when and if the audit report on such statements become available (n) If the Issuer changes ~ts fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the Issuer otherwise would be required to provide finaneml mformatmn and operating data pursuant to th~s Section The financial mformaUon and operating data to be provaded pursuant to th~s Secuon may be set forth ~n full ~n one or more documents or may be included by spemfic reference to any document (m¢ludmg an officml statement or other offering document, ff~t is available from the MSRB) that theretofore has been provided to each NILMSIR and any SID or filed with the SEC (b) Materml Event Notices The Issuer shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material w~thm the meaning of the federal securities laws 1 Pnnmpal and interest payment dehnquenmes, 2 Non-payment related defaults, 3 Unscheduled draws on debt service reserves reflecting finaneml difficulties, 4 Unscheduled draws on credit enhancements refleetmg finanmal difficulties, 5 Subst~tution of credit or hqmd~ty providers, or their failure to perform, 6 Adverse tax op~mons or events affecting the tax-exempt status of the Bonds, 7 Mod~fications to rights of holders of the Bonds, 8 Bond calls, 23 9 Defeasances, 10 Release, substitution, or sale of property securing repayment of the Bonds, and 11 Rating changes The Issuer shall notify any SID and either each NRMSIR or the MSRB, m a timely manner, of any failure by the Issuer to prowde financial information or operating data in accordance with subsection (a) of this Section by,the time required by such subsection (c) Limitations. Dlsclmmers. and Amendments (l) The Issuer shall be obligated to observe and perform th9 covenants specified m this Section for so long as, but only for so long as, the Issuer remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the Issuer in any event will give the notice required by Subsection (b) hereof of any Bond calls and defeasance that cause the Issuer to no longer be such an "obligated person" (ii) The provisions of this Section are for the sole benefit of the registered owners and beneficial owners of the Bonds, and nothing m this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person The Issuer undertakes to proxnde only the financial mformaaon, operating data, financial statements, and notices which ~t has expressly agreed to proxade,pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the Issuer's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise,~ except as expressly provided hereto The Issuer does not make any representation or warranty concerning such mformat~on or its usefulness to a decision to invest in or sell Bonds at any future date 0il) UNDER NO CIRCUMSTANCES SHALL THE ISSUER, ITS OFFICERS, AGENTS AND EMPLOYEES, BE LIABLE TO THE REGISTERED OWNER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE ISSUER, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFiED IN THIS SECTION, 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 (iv) No default by the Issuer in obserwng or performing its obligations under this Section shall comprise a breach of or default under the Ordinance for purposes of any other prowslon of this Ordinance Nothing m this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the Issuer under federal and state securities laws (v) The proxnslons of this Section may be amended by the Issuer from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change m the identity, nature, status, or type of operations of the Issuer, but only if (1) the prowslons of this Section, as so amended, would have permitted an underwriter to purchase or sell Bonds in the primary offenng of the Bonds in compliance with the Rule, taking rotc account any amendments or interpretations of the Rule since such offenng as well as such changed circumstances and (2) either (a) the registered owners cfa majority ih aggregate pnnclpal amount (or any greater amount required by any other prowaon of this Ordmanc~ that authorizes such an amendment) of the outstanding Bonds consent to such amendment or (b) a person that is unaffiliated with the Issuer (such as nationally recognized bond counsel) determined that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Bonds If the Issuer so amends the provisions of this Section, it shall include with any amended financial information or operating data next prowded in accordance with subsection (a) of th~s Section an explanation, m narrative form, of the reason for the amendment and of the impact of any 24 change m the type of fmancxal ~nformat~on or operatmg data so prowded The Issuer may also amend or repeal the provasxons of thas contmmng d~sclosure agreement ~f the SEC amends or repeals the apphcable provtsaon oft he Rule or a court of final junsdact~on enters judgment that such prowsxons of the Rule are mvahd, but only ff and to the extent that the prowsxons of th~s sentence would not prevent an underwriter from lawfully purchasing or selling Bonds m the primary offenng of the Bonds (d) Deflmtxons As used m th~s Section, the following terms have the meanmgs ascribed to such terms below "MSRB" means the Mumc~pal Securities Rulemalang Board "NRMSIR" means each person whom the SEC or ~ts staffhas determined to be a nationally recogmzed munxcxpal securities mfonnataon repository w~thm the meaning of the Rule from time to txme "Rule" means SEC Rule 15c2-12, as amended from t~me to t~me "SEC" means the Umted States Securities and Exchange Commasston "SID" means any person desxgnated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or ~ts staffto be, a state mformauon deposatory w~thm the meaning of the Rule from t~me to txme Sectxon 19 FURTHER PROCEDURES The Mayor of the Issuer, the C~ty Secretary of the Issuer, and all other officers, employees, and agents of the Issuer, and each of them, shall be and they are hereby expressly authorized, empowered, and d~rected from t~me to txme and at any ume to do and perform all such acts and thmgs and to execute, acknowledge, and dehver an the name and under the corporate seal and on behalf of the Issuer all such tnstruments, whether or not herean mentioned, as may be necessary or desirable m order to carry out the terms and prowsaons of thas Bond Ordmance, the Bonds, the sale of the Bonds, and the Not, ce of Sale and Official Statement, and the Assistant C~ty Manager/Finance of the Cxty shall cause the expenses of assuance of the Bonds to be pa~d from the proceeds of sale of the Imtxal Bond or from any other lawfully available funds of the Issuer In case any officer whose sxgnature shall appear on any Bond shall cease to be such officer before the dehvery of such Bond, such sagnature shall nevertheless be vahd and sufficaent for all purposes the same as ff such officer had remained m office until such dehvery Sectmn 20 OPEN MEETINGS The C~ty Council has found and determined that the meeting at whach th~s Ordinance xs considered ~s open to the pubhc and that not,ce thereof was gaven m accordance w~th the prowslons of the Texas Open Meetings, Law, Tex Gov't Code, Chapter 551, as amended Section 21 EFFECTIVE DATE Thas Ordmanee shall become effect;ye ~mmed~ately upon ~ts passage and approval 25 PASSED AND APPROVED this the 1st day of May, 2001 Euhne Brock, Mayor ATTEST Jennifer Walters, City Secretary By APPROVED AS TO LEGAL FORM Herbert L Prouty, City Attorney By 26 EXHIBIT A DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following mfonnat~on ~s referred to m Section 18 of this Ordinance Annual Financial Statements and Operating Data The financml ~nformatxon and operating data wxth respect to the Issuer to bc prowded annually m accordance w~th such Sectxon are as specified (and included m the Appendix or under the tables of the Official Statement referred to) below Tables numbered 1 through 15, ~ncluslve, under the captions "Tax Information", "Debt Service Reqmrcments" and "Fmancml Information" m the Official Statement Appendix B m the Officml Statement Accounting Principles The accounting prxnc~ples referred to m such Sectmn arc the accounting principles deser~bed m the notes to the financxal statements referred to m the paragraph above S \Our Documents\Ord~nances\01\Serles 2001 General Obligation Bonds doc 27 $14,245,000 GENERAL OBLIGATION BONDS, SERIES 2001 AND $12,120,000 CERTIFICATES OF OBLIGATION, SERIES 2001 Sealed Bid Due Tuesday, May 1, 2001, at 1:00 PM, CDT The following ratings have been assigned: Underlying Credit Rating Moody's Investors Service, Inc. "Aa3" Standard & Poor's Rating Group "AA-" A Division of McGraw-Hill, Inc. PREPARED BY' FIRST SOUTHWEST COMPANY Municipal Credit Re~earch Illoecly'e Investor Servi=e .. ~ ~ ~h Publlsh~ 11 Apr 2001 Denton (Ci oO TX Contacts Douglas Benton 214.220-4381 Robyn Kapiloff 212-553-4051 Steven Levlne 212-553-4097 Moody';s Rating Issue Rating General Obligation Limited Tax Bonds, Senes 2001 and Certificates of Obligation, Ser~es 2001 Aa3 Sale Amount $26,365,000 Expected Sale Date 05/01/01 Rating Description General Obhgat~on, L~m~ted Tax Moody's Assigns Aa3 to City of Denton's General Obl~gatton Debt Issue Affects Approximately $82 14 Million of Debt Opinion Moody's Investors Service has assigned a Aa3 rating and stable outlook to the C~ty of ~enton Texas upcoming sale of $26 4 m~lhon ~n general obligation limited tax debt oody's assignment and affirmation of the Aa3 rating and stab e outlook on the c~ty's general obligation debt reflects a growing economic base as well as, sound financial qpera~ons that ara maintained by ongoing growth and conservative financial r~anagement practices The proceeds from the upcoming sale of voter authorized debt ~11 be utilized for city ~nfrastructure and quah~ of I~fe projects approved ~n a 2000 bond election while the certificates Of obligation w~ll prowde funds for a range of purposes involving facilities and equipment capital needs Denton ~s located m the northern port~on of the Dallas-Fort Worth Metroplex with the c~ty h oundarles contained w~thin Denton (Aa3) county The favorable economic conditions at the city has enjoyed are reflected m the continued growth of Denton's $3 28 b~lllon tax base Taxable values increased 7 5% ~n FY 2001 and approximated the five-year average annual increase of 7 6% Some of th;s s~zeable increase ~s reflective of the value in new braiding permits that totaled $153 5 milhon for calendar 2000 and accounted for 60% of the increase ~n FY 2001 year The tax base continues to be dominated by residential however, s~gnificent commero~al development continues and expansions ;n the =ity'a two umvers~t~es are not captured m the appraised values Prospects for the =ntinuation of the historical growth patterns are positive w~th the announcement and levelopment of s~zeable residential retirement commun~t;es w~thm the city as well as, the city's pnme location north and approx~matsly equ~-dlstance from Dallas (Aaa) and Fort Worth (Aa1) In add~bon to taxable value growth, Denton continues to expand ~ts population base with a 23 2% ~ncrease in the c~ty's populabon since 1990 Officials ~ndicate that a substanbal amount of developable land exists w~thln the c~ty available for commercial and residential purposes Moody's beheves that the c~ty will conhnue to be a beneficiary of its location in the DFW metmplex and that northward mtgrat~on of development in the area w~ll result m ongoing tax base growth for the near term The cRy's unemployment rate for January 2001 at 2 8% ~s well below the state of Texas at 4 ~1% and the na+Jon at 4 2% A solid financial positions ~s reflected m the c~ty's $9 5 m~ll~on general fund balance at FYE 2000. which represents 22 3% of general fund revenues for the year Revenues from sales taxes, which account for 30% of the city's general fund revenues, posted an ~ncrease of 9% ~n FY 2000 This ~s a posit~ve vanance from the five-year and three-year average annual rates of 8% and 7 9%, respectively Consistent w~th the c~ty's conservative budgeting pract~cos and philosophy the ~ncrease projected for FY 2001 ~s 7 5% C~ty officials report that on a year-to.data bas~s th~s revenue source has under performed thus far and that expenditure adjustments may be made ~n the ~ntanm ~n order to maintain existing fund balance levels Revenues received from property taxes, which accounted for 28 3% of FY 2000 city revenues, continue to reflect a total collection rata of over 98% and are well d~vers~fled w~th the top ten taxpayers only accounhng for 8 2% of total assessed value Moody's believes that growth ~n both property and sales-tax revenues m recent years reflect the City's strong and d~verse economy and tax base Additionally, Moody's anhc~patas that future growth in revenues could be less than hleforlcal h~gh levels but should remain strong for the foreseeable future A third revenue source for the c~ty ~s transfare from the city' ut~hty system which through a combination of administret~ve charges, franchise fees, and investment returns equaled 23 9% of the FY 2001 general fund budget down from 26 9% m FY 1997 The c~ty continues to prudently manage ~ts use of ubl~ty system transfers ~n light of ~mpend~ng deregulahon The c~ty's actual results for 2000 and budget for 2001 reflects the sound operating philosophy of c~ty management ~n that any use of general fund balances w~ll be allowed only for one-time capital projects and that operating expenditure growth ~s permitted only to the extent of ~ncreases ~n recurnng revenue sources Moody's notes that th~s approach to financial management continues despite the s~gmflcant pressures placed on the c~ty over these past several years resulting from the growth ~n the c~ty's population and the related demand on city services The current ~ssues ara $23 5 million of General Obhgahon Bonds, which ~s the second installment of the Janurery 2000 authorization, and $14 25 m~lhon ~n Certificates of Obligation Due to the accelerafad growth within the c~ty, officials anticipate exhausting the ex~sflng debt capacity ~n the near term and plan to returmng to voters ~n early 2003 with additional authonzat~on request Int~al estimates of the s~ze of such a request are $40 million, however the ultimate s~ze of the authonzat[on w~ll be determined by affordab~l~ty aasumpbons and conservabve debt planning practices The c~bes d~rect debt burden ~s modest at 2 8% and the overall debt burden ~s 8 9% The overall debt level has experienced upward pressure as Denton lSD (Aa3) and to a lesser extent two small school distnct have issued notable amounts of debt to meet the needs of their accelerated enrollment growth The rate of retirement for all mty general obligation debt ~s above average with approximately 64% retired in ten years Moody's believes the c~ty's sound debt management pohcles and h~stoncally conservative ~ssuance practices w~ll nlaintaln the city's debt levels consistent w~th th~s h~gh rating level The c~ty's Capital Improvement Plan (ClP) has general obligation funded capital needs of $23 5 m~ll~on for FY 2002 Outlook The credit outlook for the C~ty of Denton's General Obligation bonds is stable reflecting the city's dynamic and diversified economy as well as sound policies that will maintain the city's strong debt pos~t~on and solid financial reserve levels KEY STATISTICS 2001 C~ty Population Estimate 81,627 2001 Full Valuation $2 91 B~lhon 2001 Full Value per Cap~ta $35,711 Direct Debt Burden 2 8% Overall Debt Burden 8 9% Payout of principal GO (10 years) 64% Fiscal 2000 General Fund Balance $9 47 Milhon (22 3% of General Fund Revenues) 0 Copyright 2001 by Moody's Invsstom Service, 99 Chumh Street, New York, NY' 10007 All nghta reserved ALL INFORMATION CONTAINED HEREIN IS COPYRIGHTED IN THE NAME OF MOODY'S INVESTORS SERVICE, IRC ("MOODY'S"), AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, RBPACKAOBD, 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 VtqTHOUT MOODY'S PRIOR WRITTEN CONBENT~ All information oontainod herein is obtained by MOODY'8 from sources believed by ~t to be accurate and reliable Because of the pcasiblllty of human or mechanical error as well as other factors, however such Information ia provided "aa is" without warranty of any kind and MOODY'S, in particular makes no representation or warranty express or Implied, ~ae to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information, Under no circumstances shall MOODY'S have any Iiiabil~ty to any person or entity for (a) any loss or damage in whole or in pert caused by raeulltng from or relating to, any error (negligent or othenvtse) 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 cemmumcation pubtlcalton or delivery of any such informetion~ or (b) any direct, Indirect, special, consequential, compensatory or ~nc~dental damages whatsoever (~ncluding without Ilmli~ation, lost profits), even if MOODY'S Is advised in advance of the poss~bihty of such damages resulting from the use of or Inability to uae, any such information The credit ratings, ~f any constituting part of the ~nformaflon contained Ilerain are, and must be construed solely as, statements of opinion and not statements of fact or recammsndatlona to purchase, sell or hold any aecuntisa NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSEIOF 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 Investmrmtldecislon made by or on behalf of any user of the reformation 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 prewber of credit euppert for, each cecurity that ~t may consider purchasing, holding or selhng Pursuant to Section 17(b) Of tbe Securities Act of 1933 MOODY'S hereby discJcaee that most Issuecs of debt secunties (including corporate and municipal ;~londa, debentures, notes and commercial paper) and preferred stock rated by MOODY'S have, pnor to assignment of any rating, agreed to pay to MOODY'S for appraisal and rating services rendered by ~t fcas ranging from $1,000 to $1,500,000 MADE IN U SA S['A~,~DAt'U3 RATt N B $ D I R IE CT &POOR'S Research': Denton, Texas; Tax Secured, General Obligation Publication Date 20-Apr-2001 Analyat Eden Perry, New York (1) 212-438-7987, Peter V Murphy, New York (1) 212-438-2065 Credit Profile $26 4 m~l muni debt muni issue cer 2001 due 2021 AA- Sale date 01-MAY.2001 AFFIRMED $26 502 mil Denton AA- $6 875 md Dentonl GO bnds & cart of obhg sar 2000 dtd 05/01/2000 due 02115/2001-2018 2020 AAA/AA-(SPUR) $8 215 m~l Denton GO bnda sar 1999 dtd 03/15/1999 due 02/1512000-2019 AAA/AA-(SPUR) $7 020 mil Denton GO rfdg bnds sar 1999 dtd 04101/1999 due 02/15/2000-2016 AAA/AA-(SPUR) $5 625 md Denton certs of obhg sar 1998 dtd 04/01/1998 due 02/15/1999-2018 AAA/AA-(SPUR) $6 935 md Denton certs of oblig sar 1999 dtd 03115/1999 due 02/1512000-2019 AAA/AA-(SPUR) $9 660 mil Denton go bnds sar 1998 dtd 0410111998 due 02/15/1999-2018 AAA/AA-(SPUR) OUTLOOK STABLE aa Rationale The rating on Denton, Texas' bonds reflects the following credit charectens~cs · Location ~n the d~verse north central Texas Metroplex, · Conservative fiscal management, which has resulted m strong reserves, and · Steady assessed value (AY) growth These factors are mibgated by the h~gh debt burden and below-average wealth levels The security on Denton, TX's bonds rafieots a full faith and credit pledge Denton s n Denton Count7 and ~s almost equidistant to Dallas and Fort Worth Serving as a regional economic center to the me~roplex, the economy Is predominantly servme-related, w~th h~gher education, hea th care an{I government employment Manufactunng is also ewdent, w~th large employers such as Boeing Electronlce, Peterbllt/Paccer, and Wctor Equipment As a result, unemployment has conbnual!y dechned to 3 1,~% in 2000 and should remain stable dunng the next several years The emergence or A ance A rport~ wh ch ~ncludes major companies such as American A~rhnes, Federal Express, and Intel Corporation, further broadens the economy and provides edd~t~onal employment opportumties The median housel~old effective buying income is Iow at 81% of the state, but ~s dnven downwards m part by the cons~derabl~e student population Since 1997, AV averaged annual increases of nearly 8% to $2 9 bdlion m 2001 This ~ncrease is due to strong construction act~wty and property appreciation Property values are projected to further increase as construction continues Financial performance is strong due largely to prudent fiscal management prect;ces A $1 m~llion operating surplus was achieved m fiscal 2000, which raised undesignated general fund reserves to $8 5 m~llion, or 20 6% of expenditures, and currently exceeds the 13% mimmum fund balance pohcy Overall net debt is high at, $3 096 per capita an 8 7% of market value, due pnrnanly to overlapping debt from the school district and county Debt service charges will continue to rise, and accounted for 14% of fiscal 2000 operating expenditures Principal amort~zatmn is rap~d, w~th two-th~rds of ex~sbng pnnc~pal repaid ~n 10 years, and 100% m 21 years [] Outlook The stable outlook reflects Standard & Poor's expectation that continued strong economic growth and d versification, coupled with maintenance of conservatJve fiscal management pohc~es and healthy reserves, w~ll offsetthe h~gh debt burden and Iow wealth levels [] Economy Denton Is roughly 45 miles from both Dallas and Fort Worth, providing residents w~th good access to employment w~tbin the Metroplex Locally the economic b.ase ~s anchored by three umvere~ties and the county ~overnment each which provide a stable source or employment while experiencing httle fluctuation dunng business cycles The c~ty also serves as a medical and retail center for the northern reaches of the Metroplax D~vers~ty ~s evident as the city's ~ndustrial base continues to grow Peterbilt (diesel trucks) ~s ptanmng to move ~ts headquarters to the ci.t7 In addibon, the Denton Mumc~pel A~rport ~s one of 34 airports ~n the U S designated, as a "sul~er-rehever" and ~s only one of two super-rehevers for Dallas-Fort Worth Intarnat~onal A~-port In January 2000, c~t~zens approved $720,000 to begin three capital improvement projects at the airport that will cost approximately $6 18 million The c~ty ~s ~n the second stage of negotiations on the alrpo~ projects, which will increase safety and capacity Residential growth ~s als0 ongoing, with several large developments planned such as Lakewew Ranch and Robson Communibes In the western part of the city, Robson, a restricted commumty, w~ll be an upscale retirement community w~th.~olf co.u. rse__T, he proj.ect ~s.est~m.ata..d to !.ncrease the tax ha.se by $1 8 b~ll~on over, the next 20 years ~Jurrem~y, ~u homes nave seen ou~, w~tn an average new nome price of $75,000, future home prices are expected to average around $300,000 [] Finances F nanc a performance ~s,strong The c~ty lewes a sales tax of 1 5% The ~ncreased sales tax levy was mst~tutad in 1995 to bring down the property tax taw The city ~s sbll able to levy an additional sales tax of 0 5% In 2001 the sales tax levy ~s projected to amount to $16 3 mill~on, of which 76% ~s from the retail sector The city alee lewes a property tax For 2000 the rate was 51 cents per $100, which brought ~n $13 5 m~llmn, for2001 jt ~s 53 cents per $100 and projected to bnng ~n $16 16 m~llion The total tax rate of 26 05 m s, ~nc udlng the schoo/and county, is moderate compared to other c~bes ~n the metroplex [] Debt Overall net debt is h~gh at $3 096 per capita an 8 7% of market value, due pnmanly to overlapping debt from the schooll district and county Debt serwce charges will continue to rise, and accounted for 14% of fiscal 2000 operafing expenditures Pnnc~pal amortization Is rap~d, w~th two-th~rds of ex~st~ng pnnc~pal repaid ~n 10 years, and 100% ~n 21 years CopydghtOlg94-2001 Standard&Poor's AII RIghts Reserved PrlvacyPollcy PARITY Reslalt Screela Page 1 of 1 22425pm EDST Bid Results , Denton $14,245,000 General Obligation Bonds, Ser,es 2001 The following b~ds were submitted using PARITY® and d~splayed ranked by lowest TIC Click on the name of each b~dder to see the respecbve b~ds Bid Award* Bidder Name TIC r~ ~ JBS PaineWebber Inc 5 107992 [] Sanc of America Securities, LLC 5 108243 ~ Stephens I n_c 5 123146 ~ ~,BN AMRO Financ~al Services, Inc 5 128617 [] 3a~n Rauscher, Inc 5 148312 [] ~/illlam R Houflh & Co 5 149617 ["] First Southwest Co 5 170031 r~ Legg Mason Wood Walker, Inc 5 171187 *Awarding the Bonds to a specific bidder w~ll provide you w~th the Reoffenng Prices and Y~elds Thomson Munlclnal Market Monitor. THOMSON Fit © 1995-2001Tl~omson Financial Municipals Group All rights reserved Trademarks page.(S2) ~, TM3 Client Services 1-800-367-8215, 8 O0 a m to 6 O0 p m EST w- Please send comments to webmasterC~tm3.com MUNICIPALS Tue Hay i 14 23 55 2001 /mmn htm~ frame=content&page=parltyResult&customer=TM3 &~ssue_key_no=28236&sec_typ~5/1/01 PARITY Result Screen Page 1 of 1 20126pm EDST Bid Results Denton $12,120,000 Certificates of Obligation, Serms 2001 The following b~ds were submitted using PARITY~ and d~splayed ranked by lowest TIC Chck on the name of each b~dder to see the respecbve b~ds !lid Award*B~dder Name TIC (-~ UBS PaineWebber Inc ¢ 817306 ~ Stephens Inc 4 829794 [] Legg Mason Wood Walker, Inc 4 838528 ~ 3a~n Rauscher, In_c_ 4 841336 ~ :~rst Southwest Co 4 843711 [] ~,BN AMRO F~nanc~al Services, Inc 4 845323 [] 3anc of America Securities, LLC 4 851342 ~ W~lliam R Hough. & Co 4 856291 *Awarding the Bonds to a specific btdder will prowde you w~th the Reoffenng Prices and Y~elds lh~mson r4umclpal F4arket Monitor. THOMSON Pit © 1995-2001 Thomson Financial Humcipals Group All rights reserved TJ'ademarks ps, ge (S2) TH3 Client Services 1-800-367-8215, 8 00 a m to 6 00 p m EST ~ Please send commen~s to webmaster~t[D~OZa MUNICIPALS Tue Nay i 14 01 11 2001 /mmn htm?frame=content&page=pantyResult&customer=TM3&1ssue_key_no=29310&sec_typ~5/1/01 Prepared by FIRST SOUTHWEST COMPANY TABULATION OF BIDS RECEIVED AT SALE OF SEALED BIDS DUE TUESDAY, MAY 1, 2001, AT 1:00 PM, CDT $14,24S,000 $12,120,000 CITY OF DENTON, TEXAS CITY OF DENTON, TEXAS GENERAL OBLIGATION BONDS, SERIES 2001 CERTIFICATES OF OBLIGATION, SERIES 2001 TRUE TRUE INTEREST INTEREST ACCOUNT MANAGER COST ACCOUNT MANAGER COST PRELIMINARY OFFICIAL STATEMENT Ratings Dated April 20, 2001 S&P See ("Other Information- NEW ISSLrE - Bunk-Entry*Only Ratinss' herein) In the of Bond Counsel, intm~st on the Bonds will be exclndablo flom gross lflCoffl~ fei' federal income tax purposes under oplmon s~atutes, ~ulations, published mhnffs and coral decisions exlslm~ on the date thereof, subject to the matters described under "Tax Matters" hindu, reclaims tim alternative mmunam tax on ootpnsations THE BONDS WILL NOT BE DESIGNATED AS .OUAL1NIED TAX EXI~MPT OBLIOATIONS" FOR FINANCIAL ~!STITUTIONS ~ OF D~a'qTON, TEXA8 (Denton County) GENERAL OBLIGATION BONDS, SERIES 2001 Dated Date May 1, 2001 Due February IS, as shown below Integer thc $14,245,000 City of D~nton, Texas General Obhgntlon Bonds, Sones 2001 (the "Bonds~) Mil TERMS on 2002, nsd w~ll be ~alonlot~ on th~ b~ of a ~60 dsy ~ comlabng of twelve 30-day montl~ The dsfimt~ve Bonds will be initially m01~t~ and dohwl~l only to C.~Io & Co, tho namm~ of Tho 1~pomto~ Trust Company ("DTC") put,mint to tho Book-Bnh'y-Only System d~'fl~l h~'oin B~nafio~al oV,~inp of fha Bonds n~ b~ aeqmmd m denonunatmns of $$,000 or mt*gr'al nminpl~ d~'~of No phy~loal dshv~y of tha Bonds will bo m~ds to tho own~ thor*of lh'm~lI~l of, preanum, if any, and mt~'e~t on th* Bonds will be payable by the Paylo. g Agant/Reststrar to Cede & Co, which will make distribution of tho amounts so paid to the participating members ofDTCf0ranbseqnantpaymanttothebenafioialownarsoftheBonds See '~rhe Bonds Book-Entty-OnlySystom'hesem Themfltal P~ym~ A$an~Rogr~rar is Bank ~na~ NA~ Dal~s~ Teans (see ~The B~nds and Cer~c~tes ~ P~ymg Agent/Ragistrar~) AIn'HORITY FOR ISSUANCE The Bonds are issued pursuant to the Constilution and genre'al laws of the State of Texas, (the "State'') mclatht~ ,particularly CYaapter 1331, Texas Govenunem Code, as amended, and are threct obligations of the City of Denton, Texas (the "City'), payable from a cunbnmng ad valorem tax levied on all taxable property within the City within the htmts preecnbnd by law, as prowded in tho ordinance authorizing the Bonds (tho "Bond O~hnanae") (see "The Bonds and Cefoficatos - Authority fo~ Issuance") PURPOSE Proceeds from the sale of the Bonds will be used for various sit.et improvements, hbrary improvements and park ~mprovemonts MATURITY SCHEDULE Amount Matantv Rate ¥t~ Amount I~[pturttv Rate Yield $ 710,000 2002 $ 710,000 2012 ?10,000 200~ 715,000 2013 710,000 2004 ?15,000 2014 710,000 2005 715,000 2015 710,000 2006 715,000 2016 ?10,000 2007 ?15,000 2017 710,000 2008 715,000 2018 710,000 2009 715,000 2019 710,000 2010 715,000 2020 710,000 2011 715,000 2021 (Accrued Interest from May 1, 2001 to be added) whole or m part m pnnctpal amounts of $$,000 or any lateral multiple thereof, on Feb~ary 15 2011, or any date thereafter, at the par value th0seof plus acortled interest to the date of redsmptlon Additionally, the Bonds may be ecbject to mandatory redempbon m the event the Initial Ptu~hnser of the Bonds elects to ag~c~ato one or more matonties as a Term Bond (see "The Bonds and Certificates Optional,Redemption" and "The Bonds and Cefltficaths - Mandatory Smktog Fund Redemption") appro~8 opunon of th~ Attomq~ Oan~'al of Tex~ ~nd tl~ opunan of MaCall, Pafl~hu~t & ttorton, L L P, Bond Coun~l, Dall~, Toxa~ (8** Appandl~ 12, "Foma of Bond Coumel'a Opunons") DELIVERY It ts napected that the Bonds w, ll be avadable for dehvery throngh The Deposflory Trt~st Coropany on Juna 5,2001 BIDS DUE TUESDAY~ MAY 1~ 200L AT 1 00 PM~ CDT PRELIMINARY OFFICIAL STA*I EMEN f Rntlug~ See ( Other Int'ormatlon - NEW ISSUE - Book-Entry Only Ratings** herein) C t'fs motor pool (vt) computer Mtd teclmology equipment and upgrades for th~ City's. i~?~tlon technol.og~ systems (w0 mlsceil~eous m~novatlon~s ,~tmt Maturttv ~P~ge ¥te)d Amount Maturity Rate Yield $ 1,22,5,000 2002 $ 265,000 2012 Counsel~ Opmtons") BIDS DUE TUESDAY, MAY 1, 2001, AT 1.00 PM, CDT This Preliminary Official Statement whtch lncludes the cover page and the Appendices hereto does not constttute an offer to sell or tha solicitation of an offer to buy in anyjurtsdlc#on to any person to whom tt ts unlawful to make such offer, sohcttation No dcolet', broker salesper~on or other person ha.v been authorized to give information or to make any representation other than those contained In tht~ Prellmtnary Official Statement and, if gtven or made, such other tnformatton or representations mu~t not ~e relied upon The tnforrnation set forth herein ha~ been obtained from the City and other sources behoved to be reliable but such lnformatton is not gu~tra nteed as to accuracy or comploteness and is not to be construed as the promise or guarantee of the Financial .4dvtsor ~ This Preliminary Official Statement contains, tn part estimates and matters of optmon which are not intended as statement,~ of facg and no representation is made o~ to the correctness of such estimates and opinions or that they will be realized The information and expressions of opinion contained heretn are subJect to change vnthout notice and neither the dehvery of thts Preliminary Offlclal Statement nor any sulo mede hereunder shall under any ctrcumstances create any tmphcatton that there haSlheen no ~hange tn the affairs of the City or other matters descnhed TABLE OF CONTENTS pRELIMINARY OFFICIAL STATEMENT FINANCIAL INFORMATION 21 SUMMARY 6 TABLI~ 13 - G~RAL FUND I~VI~X~S AND EXPI~NDITUP,~ HISTORY 21 CITY OI~I~IClALS, STAFF AND CONSULTANTS 8 TABLI~ 14 - MUNICIPAL SALI~ T-~ HISTORY 22 ELECTED OFPlClAI3 8 TnBLB 15 - CURRENT I~'ESTMENTS 24 SELeCq~ AO~,USTRATIVE STAYS 8 CONSULTANTS AND ADVISORS 8 TAX MATTERS 25 INTRODUCTION 9 OTHER INFORMATION 27 RATIOS 27 THE BONDS AND CERTIFICATI~S 9 LITIGA~ON 27 R~ISTEA:nO~ A~SO Q~ncuucn'no~ OV BONDS A~ TAX INFORMATION 13 CERTnUCA~S ~OR Snt~ 27 TApL~ I -VALUATION, F. xm~F~O~SANO(]m~RAL L~OALIm,~STteamTSA~OEzaomu.rrvTOS~CU~ OeUOAT~ON D~T 15 PUeUC FU~S nq TEXAS 27 LEGAL OP~UONS A~m NO-LIT~OATION CBRTn~CAT~ 27 TABLE2 - TAXAB~ASaBasBDVALUA~ONaBY CATEOORY 16 AtJTmm~ncrrv OF FInANCiAL DAT^ AND OTm~ T~BL~3 - VALUA~IONANDOENEKALOBLIOA~OH INFORMA~ON 28 , DEBT H~STORY 17 Com'av.m~o DISCLOSURB OF INFORMATION 28 TA~U~ 4 - TAX RAT~ L~VY AND COLL~HON INmAL PURCHASER OF T~ BoNDs 29 H~aTORy 17 INmAL PURCHASER OF T~ CERT~ICATBS 29 TABLB 5 - TEN LAROESTTAXPAYER8 17 FE~ANCL~LADWaOR 29 CERTI~IC^TION OF THB PILSL1M~4,~RY OlUUClAL T~L~6- TAXADEQUACY 18 T~t~7 - ESTrM^~ Ov~?moD~v 18 ST^TV~ 30 I APPENDICES DEBT II~I~ORMATION 19 GENERAL INFORMA'nON REGAP. I)INO TH~ CITY A T~B8 - PRO-FORMAGENERALOBLIOA~ONDBBT EXCERPTSFROMT~ANNUALFINANCLALRSPORT B T6aU~ 9 - I~m~ST A~O Smra~o FUND BUOO~T T~E 11 - Atrmoeazso Bcrr U~aSSUEB OenOAUON BONDS 20 Prehnunary Official Stetcment The off~nn~ of the Bonds end Cerllficates to potential investors Is made only by means of this entire Prelmunmy Official Statement No person is enthonzed to detach this sunmu~ from this Pralmuna~ Official Statement or ~ CITY ~se City of Denton is a polmc~l subdivision end municipal corporation of the State, located m Denton County, Texas ~bo City covers approximately 61 square nules (see '~Introductlun - Description of City") T~ BONi~ The Bonds are Issued as $14,245,000 General Obh~ation Bonds, Series 2001 Tbo Bonda ar~ issued as serial bonds maturing February 15, 2002 through February 15, 2021, unless the Initial Purchaser designates one or more mammies as a Term Bond (see "The Bonds end Cer~ficatos -Description of thc Bonds") TI~ C~rtTIFICATI/S The Cemficates are issued as $12,120,000 Cer~ficates of Obli~ation, Series 2001 Thc Cemficates are issued as senal C~lficates matormg February 15, 2001 ~hrou~h February 2021, unless the Inmal Purchaser das~natee one or more matuntias as a Term Cemficato (see "The Bonds and Cemficates -D~seript~on of the Cemficates") PAVM~lVr OF INl~m~s? Interest on the Bonds end Cemfi~atos accrues from May 1,2001, end is payable Febma~ 1:5, 2002, end cacti August 15 and Fcbma~, I!~ thereafter until matonty or prior redemption (see Optional Redemption") 1331, Texas Government Code, as amended, end the Bond Ordinance passed by the City Council of the City (see "The Bonde end Certificates Authority thr Issuenca") The Certificates are issued pursuant to the nenmal laws of thc State, par~celarly Subcbopter C of Chapter 271, Texas Local (]ovemmcat Code (the Certificate of Obhgation Act of 1971), as amended, end the Cer~ficate Ordinance passed by the City Council of the City (see "The Bonds end Certificates -Authonty for Issuance") contmarng ad valolml~ tax levied, within the hunts prescribed by law, on all taxable property located within the City (see "The Bonds and Certificates -Secunty end Source of Puyment") CZrmF~CA~S The Comficatos cenmtute da'net obh~aUens of th~ City, payable from a combination of (0 a direct end conlmulng ad valorem tax lowed, within the hents prescribed by law, on all taxable property within the City, and (11) a hneted pledge (not to exceed $10,000) of surplus n~t r~venues of the City's Utihty System (see "rhe Bonds and Certificates Secanty and Source of Puyment") R~)~Mm~ON The City reserves the nght, at its optmn, to redeem Bonds and Cemflcates, as the case may be, having stated maturities on and a~r Februal~ 15, 2012, in whole or in part in pnnclpal amounts of $5,000 or any lnte~'al multiple thereof, on February 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redmnptlon Ad&tionally, the Bonds end Cemficates may bo subject to mandatory redemption in the event the lmtial Purchaser of the Bonds end/or Certificates elects to a/~regato one or more maturities as a Term Bond or Tarrn Certificate (see "The Bonds and Certificates - Optional Redemption" and "Thc Bonds and Ce~ificates - Mendatory Sinking Fund Redemption") TAX EX~IVlFTION In the opmlen of Bond Counsel, thc interest on the Bonds end Certfficates will be excludable USEOFPROC~EDS Pn~ceads from tho ~e of ~e Bonds ~11 bc ~d for ~ous ~ovm~ts ~d p~k ~mprowm~ts Proc~ds ~ ~e sale of ~ Ce~lficatcs ~l[ bc used to pay thc costs of (1) impmvc~n~ at ~ CI~S ~, (il) cqmp~t for Ct~*s p~hc p~ks, (m) cons~c~on ~d cqmppl~ of a n~w can~ fl~ s~Uon, Or) lmpm~an~ to thc Cl~s sohd w~tc ~sposa[ syst~ (v) ~hlclos ~r ~ Ci~s motor ~ol, (~) co~uter ~d t~olo~ cqmpm~t ~d up~ for · e C~s In~ tea~olo~ ~st~, (vn) ~s~ll~us ~novatlons ~d lmpmv~ants to Ci~ o~ ~lh~os, ~d (vn) f~s for pmf~slon~ s~cos, including engmeem, ~hlt~, a~m~, ~p ~s, au~rs, ~d tin. Iai ~so~, m c~nectlon ~th ~c p~on of thc Ct~s ~mp~hensive D~clopment Plan, ~en Spa~ PI~, Do~ Master P~ ~d F~ill~ Sp~ Study and m ~lon ~ ~e tssu~co of~e C~lfi~tes ~e B~, C~ficatcs ~d pre~n~y ou~n~ng ~ncr~ obhgatton debt of~c Cl~ is ~t~ "~*' ~ M~s Investors S~, Inc ('Mood, s") ~d "~-' ~ S~ & Pools m~co by v~o~ co~l~ lnsu~ comics (~c "~her Mfo~tlon B~K-EN~Y-ONLY SVS~ ~e ~fim~ve Bonds ~d C~ficates ~lt be zmtmlly re~ste~ B~cfics~ o~rs~p of ~c Bonds ~d C~fi~tes ~y be $5,000 ~ mte~ m~plas th~eo~ ~o ph~t~ dehve~ of the Bonds and Ce~tcs ~11 be made to ~e ban~ci~ o~s ~of Pnnc~p~ o~, pre~, ff ~y, ~d rate.st on the Bon~s and ~flca~s ~ be payable by thc Pa~ns ~en~s~ to Cede & Co, whxch ~11 ~e ~bu~an of ~e ~o~ ~ prod to ~e p~c~patms subseq~nt pa~t ~ the b~eficml o~ers of ~e Bonds ~d C~ficates (s~ "~e Bonds ~D ~NAN~L [~O~ATION ~ao Funded Ye~ Estl~t~ T~able T~Ie Fund~ Fand~ T~ablc % of End~ Ct~ Assessed Ass~ Tax T~ ~ss~ Tot~ T~ 9~0 Po~la~on V~ ~tton Debt D~bt V~tion Coll~tmns 1997 71,450 $2,169,892,097 $30,369 $28,977,009 $ 406 I 34% 100 10% 1998 73,050 2,326,880,~ 31,853 40,536,308 555 I 74% 99 94% 1999 75,300 2,455,921,130 32,615 59,001,730 784 2 40% 99 96% 2~0 79,250 2,711,776,876 34,218 60,985,922 770 2 25% 100 19% 2001 81,627 2,914,958,9~ O) 35,711 82,~39,222 (~) I 006 2 82% 98 59% (1) Source DentonCantralApprassalDlsmotasofJuly21,2000 (2) Projected, includes the Bonds and Ccrtlfic~tea (3) Coll~tion~ for part year only, through March I, 2001 For additional information regarding thc City, please contact Kathy DuBose David K Medamch Assistant City Manager of Fiscal Laura Alexander and MUmclpal Sorvtcas First Southwest Company City of Danton or 201 Main Street 215 E McKmncy Street State 1320 Denton, Texas 76201 Fort Worth, Texas 76102 (940) 349-8228 (817) 332-9710 CITY OFFICIALS, STAFF AND CONSULTANTS T~rm City Council Exmms Euhne Brock May, 2002 Mayor Rom Beasley May, 2002 Mayor Pro Tern Mark Burroughs May, 2002 Couucdmember Mike Cochren May, 2001 Ned Durrance May, 2001 Councdmember Sandy Knstofersun May, 2001 Carl Gene Young, Sr May, 2001 SELECTED ADMINISTRATIVE STAFF Nang Poslt~on Howard Martin Interim City Manager* and Assistant City Manager of Utllttiss Kathy DuBose Assistant City Manager of Fiscal and Mumcipal Services David l-hll Assistant City Manager of Development Some, es Jon Fortune Assistant City Manager of Pubha Safety and Transportation Operations Jenmfor K Walters City Secreta~ Herbert L Pmuty City Attorney Robin Ramsay Municipal Judge Auditors Deloitte & Touche LLP Fort Worth, Texas Bond Counsel McCall, Parkhurst & Horton L L P Financial Advisor Flint Southwest Company Dallas end Fort Worth, Texas pRELIM~ARY OFFICIAL STATEMENT RELATING TO $14,245~000 CITY OF DENTON, TEXAS GENERAL OBLIGATION BOND~, SE1/IES 2001 AND $12,120,000 CITY OF DENTON, TEXAS CE~TII~'iCATES OF OBLIGATION, SERIES 2001 INTRODUCTION This Prehrmnary Official Statement, which tnclua,'s the Appanthcas hereto, provides certmn information rcgunhng the tssunncc of $14,245,000 City of Denton, Texas, (~neral Obligation Bonds, Scnes 2001 (the "Bonds") and $12,120,000 City of Denton, Texas, Cert~flcatcsofObhganon, Senes2001 (tho"Certificates") CapltahzedtcrmsusedmthtsPrehunnaryOfficLxl Statamant hove the same meentngs asstl/ned to such terms tn tho Bond Ordinance and Certificate Ordinanea each to be odopted on the date of sale o~ the Bonds and Certtflcatas wluch will authorize the issuance of the Bonds and Certificates, tnspsoUvely, except as otherv,~s~ indicated herstn There fo(lows in flus Prelttn/nery Officml Statement dsscnp~ons of thc Bonds and Certificates end certain reformation regurdmg the City and its finances All deaonpUens of docum~ts contained herein ere only sununeriea and arc qualified in their entirety by reference to each such docutnent Copiea of such documants nmy be obtained fTom thc City's Financial Advisor,First S°uthwest Cotnpeny, Dallas, Texas DaSCmPTION OY TH~ Cl'rv Tho Sty of Denton, Texas ts a poht~cal subthviston looted tn Denton County openttmg as o home- mis c~tyl under tho laws of the State of Texas and a cham~ approved by thc voters tn 1959 The City operates under the Council/Manager form of government where the Mayor end SLX Councdmmnbers are elected for staggered two-yaer tenns The City Coancd formulates operating pohcy for the City whdo tho City Manager ts thc cluef admonstrat~vc officer Tho City is approximately 61 sqonre milas tn area. THE BONDS AND CERTIFICATES DascRIirrION Ot~ Tint BO~*~DS A~U C~RTIFICATICS The Bonds and Cemficates ar~ dated May l, 2001, and hinters, or are subject to redemption prior to tnaturity, on February 15 tn each of thc years and in the amounts shown on thc cover page Interest will be computed on the basts of · 360-day year of twelve 30-day months, and vail be payable on August 15 and February 15, commencing February 15, 2002 The definitive Bonds and Certificates vail be issued only tn fully registered form m any tategral multiple of $$,000 for any one maturity and vail be initially regtstared and deltvetnd only to Cede & Co, the n~nunea~fTheDep~sit~¥TrustC~mpany("DTC")pursoantt~theBonk.Entry~n~ySystamdescrthedherem No phyaienl deliveryI of the Bonds and Certillcntes will be made to the owners thereof Principal of, ptnrmum, tf any, and mtctnst on the Bonds end Certificates will be payable by tho Paym§ Agent/RogisUm' to Cede & Co, wluch wdl make thstribut~on of the amounts so prod to the participating tnembecs of DTC for subsequent payment to the baneficed owners of the Bonds and Cemfic~tas See "Book-Entry-Only System" herein AUTHOalTV I~OR ISSU.*aqCg The Bonds am being issued pursuant to the Constituuon and general laws of tho State of Texas, particularly Chapter 1331, Texas Government Code, as amended, an election hold and passed by a majority of the pamclpotmg voters, and the Ordinance The Ce~flcatas are being tsaned pursuant to the Constitution and general laws of the State of Texas, pamcularly Subchapter C of Chapter ,27 l, Texas Local Government Code (the Cemflcata of Obhget~on Act of 197 l), as ar~uded, and an Ordinance passed by the C~ty Comtcil The Bonds All taxable property vaflun the City ts subJect to a continuing thrcct ennual ad valorem tax levied by the City sufficient to prowdo for the payment of Imnctpal of and interest on all Bonds which tax tnust be levied vatlun thc hrmts p~sonbed by law The Ce~cate~ All taxable property vathm the City is subject to a contmtnng &root aonuai ad valorem tax levied hy the City sufficient to provide for tho payment of principal of and mtsrast on all obligations payable tn whole or in pan f~otn ad valorem taxes, wiuch tax must be levied votlun hunts presertbed by law Adthtwnally, tho Cemfieates are payable from and secured by a lmuted pledge of smplea net revenues of the City's Utthty System, not tn excess of $10,000, as provided m thc Or&nonce anthomun0 the CerUficatas T,~.X RATg LIMITATION All taxable pmper~ within the City is sub. tact to the assessment, levy and collact~on by the City of a continuing, (hroct annual ad valorem tax sufficient to provide for the payment of pnnclpal of and ratefeet on all ad valorem tax debt within the htmts proscribed by law Arttela XI, Scct~on 5, of the Texas Constltotion is apphcable to tho City, and hrmts its nmyamum ad valorem tax rate to $2 50 per $100 Taxable Assessed Valuation for all City purposes The Horuc Rule Charter of thc City adopts thc constitutionally anthonzed maximum tax rate of $2 50 per $100 Taxable Assessed Valuation OFrlONAL RI~DEMPTION Thc City reserves thc nght, at its option, to redeem Bonds and Caitlficates hawng stated maturities on and after February 15, 20t2, in whole or m part in principal amounts of $$,000 or any integral multiple thereof, on February 15, 2011, or any date thereafter, at the par value theruef pfos accrued interest to the date of redemption If less than all of the Bonds and Certificates are to be redeemed, the City may select the matanties of Bonds and Cai~ficates to be redeemed If less than all the Bonds and Cemficates of any maturity a~ to be redsemed, the Paying Ageat/Reglstrar (or DTC whiz thc Bonds and Cemflcates arc in Book-Ent~/-Only form) shall deternune by lot the Bonds and Certificates, or portions thereof, within such matonty to be rodeerued If a Bond or Certificates (or any portion of the principal sum thereo0 shall have been called for rcdamption and notice of such redemption shall have been given, such Bond or Cemficate (or the pnanipal amount thereof to be redeemed) shall become due and payable on such redomptron date and interest thereon shall cease to accrue from and after the redemption date pro'adad fonds for the payment of thc redemption pnca and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date MANDATORY SINKING ~ R~DEMFHON In addition to being subject to optronal redemption as provided above, should the lratial Purchaser oftha Bonds or Cc~ficates select a combination of serial bonds or sonal certificates and term bonds or term cortifcates in accordance with the Notice of Sale for thc Bonds and Certificates, the term bonds or term certificates are subject to mandatory redemption on the first February 15th next following the lest matonty of the sonal bonds or zonal certificates, and annually thereaBer on each Fshmary 15th until the stated matonty for the term bonds at the redemption pnen of par plus accrued interest to thc date of redemptien In each oftha years thc term bonds or term ce~ficates are to be mandatorily redeemed, the Paying Agant/Reglstrar shall select by lot the numbers oftha term bonds or term certificates within the apphcabh Stated Maturity to ha redeemed on the next following February 15th from moneys set aside for that purpose in the foterost and Stoking Fund Any term bond or term certificate not selected for prior redemption shall bc paid on the date of its Stated Maturity The pnncipal amount of the term bonds or term certificates for a Stated Maturity x~qulred to be redeemed puraannt to the operation of such mandatory redemption pruvlslons shall be reduced, at the option of the City, by the principal amount of the term bonds or term certificates ofhha Stated Maturity which (1) shall have been acquired by the City at a price not exceeding the prtaclpal amount of such term bands or term certificates plus accrued interest to the data of purchase thereof, and dahvercd to thc Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions and not theretoforc credited against a mandatory redemption requirement NOTICE O1~ REDEMPTION Not less than 30 days pnor to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mall, first class, postage prepaid, to the registered owac~s oftbe Bonds or Certificates to be redaemed, in whole or in part, at thc address of the registered owner appearing on thc registration hooks of the Paying Anant/Rcgtsintr at fha chse of business on the busiacss day next proorxhng the date of mailing anch notlca ANY NOTICB 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 Bond or Certificate (or any portion of its pnnaipal sum) shall have been duly called for redcroption and notion of anch redemption duly ~lvan, then upon thc rederoption date such Bond (or thc portion of its principal sum to be redeemed) shall haanroe due and payable, and, if roeneys for the payment of thc redemption pace and the interest accrued on the pnnelpal amount to be reduemed to the date of rademptien are held for the purpose of such payment by the Paying Agent/Registrar, interest shall cease to accrue and be payable from and afar the rodamption date on thc pnncipal amount redeemed BOOK-ENTRY-ONLY SYSTEM This section describes how ownership of the Bonds and Certificates are to be transferred and how the pnncipal of, premium, ,f any, and interest on the Bonds and Cemficates are to be paid to and credited by DTC while the bends arc registered in its nonuane name Thc mformalran in this section concerning DTC and tho Bonk-Bntry-Only System has been pro'aded by DTC for use in disclosure documents such as this Official Statement The City believes the source of such raformation to be reliable, but takes no rosponsdidity for thc accuracy or completeness thereof The City cannot and does not g~ve any assurance that (1) DTC will dismbete payments of debt service on the Bonds and Certificates, or redemption or other notices, to DTC Participants (2) DTC Pamcipants or others will dismbute debt service payments paid to DTC or its noonncc (as thc registered owner of ibc Bonds and Certificates), er redemption or other notices, to the Beneficial Owners, or that they will do so on a tiruely basis, or (3) DTC will serve and act in thc manner dasenbed in this Official Statement The current rules applicable to DTC are on file vath the Sacunties and Exchange Cormmseran, and thc current pracedures of DTC to be followed in dealing with DTC Paractpants are on file with DTC The Depository Trust Company CDTC') New York, New York, will act as securities depository for the Bonds and Certificates The Bonds and Certificates will be issued as fully-registered seenntles registered in the name of Cede & Co (DTC's partnership 10 nounnes). One fully-registered certificate vail be issued for each matonty of the Bonds and Cemflcstes in the aggregate pnncipal ~nount of such such matonty and vail he dapos~ted vath DTC DTC is a hnutad-purpos~ ~nat company organized under the New York Banlong Law, a "banlong org~zatlon" vatlun the meaning ,~f tho New York Banlong Law, a mom~ ~f tha Fedaral .R..os. ~'va Sy~tsm, a "clcartog co~coranon within the meaning oftheNe~YorkUmfonnConunarctal Code, anda'clennngagsncy reglsteredpuranant to thcprowsions of Section 17Aofthe Sacun~es Exchangs Act of1934 DTCholdsascoritlesthntdspertlcipants('D~rcctPanicipants")depcartvathDTC DTCalsu ~cditates[ the settlement among Pamcipants of securities transactions, such ns transfers and pledges, m deposited securities through ~lectromc comput~land book-entr/cbangss in Pamclpants' accounts, thereby alioounting the need for physical moveman~ of secunhes cemficates Direct participants include secant~es brokers and dashers, banks, trust companies, clesnng corporanon_s, and certain other otgsnm~tions DTC is ownad by a number of its Direct Pamclpants and by the New Yor.,k S~to~c~k Exchange, lac, the American Stock Exchenge, lac, and the National Assuciat~on of SecunUes Danlers, lac Access to tan l.,lt.. system is also avadnble to others such ns securities brokers and dealers, beaks, and trust compames that clear through or mamtem a castodiAI relat~ooship with n Direct Pamcipsut, either directly or md~rectly ("Indirect Pnmclpants") The Rules applicable to DTC and,its Participants em on file vath the Securities and Exchange Conumaswn Purchnse~of Bonds and Cemficatas under the DTC system must be made by or through DTC Pamc~pants, wfoch vail receive a crecht f~r such purchases on DTC's records The ownership interest of each actual porehacor of each Bond and CenlficateC'Beneflcial Owner") is in toro to be recorded on the Direct or Indirect Participants' records Beneficial Owners will not receive written confirmation from DTC of their purchase, but Banctlclal Owners em expected to receive wnttan confirmations providing detads of the transaction, as well as periodic statements of their holdings, fi.om the Direct or In, direc! Participant through which the Beneficial Owner entered into the transaction Transfers of ownership interest in the Bones ano Ce~lfica~s are to be accomphshed by enmes made on the books of Pnmcipants acting on behalf of Beneficial Owners Baneflelul Owners wi~ not receive certificates representing their ewnareldp interests in the Bonds and Certificates, except in the evi~nt that use of the book-entt~ system described herein is discontinued To facth~ato subsequent transfers, all Bonds and Certificates deposited by Dir~ct Participants vath DTC nrc registered in the .~_..cr~r~,o "tuteershl" nounnes Cede & Co The denoslt of Bonds and Certificates vath DTC and therr re~strat~on in the nnme of ~ede & Co affect no change in beneficial ownership DTC has no knowledge of the actual Beneficial Owners of the Bonds a~d Certificates, DTC's records reflect only the identity of the Direct Pamcipants to whose accounts such Bonds and Certificates are credited, which may or may not be the Beneflcml Owners The Pamclpants will renann responsible for heaping account 0ftheir holdings on behelfof thalr customers Conveyance of notices end other commumceO_ons by DTC to Direct PnsUcipants, by Direct Participants to Indirect Pamcipants, and by l~lrect Pnst~clpants and Indirect Pa~iclpants to Benaficml Owners vail be governed by arrsngemcots emend them, subject to any st~tor/or regulator/reqmren~nts as mnyhe in effect from time to t~ma Redsmptton notices shall he scot to Cede & Co If lass than all ofthe Bonds and Cemficstes vathm an rssue em being redeemed, DTC's p{acttce is to datenmne by lot the amount of the interest of each Direct Participant in such Issue to he redeemed Neither DTC nor Cede & Co vail consent or vote vath respect to the Bonds and Certificates Under its usual procedures, DTC marls an O--mmbna Proxy to the City as soon ns possible after the Record Date (hereinafter defined) The Omnibus Proxy ass.~ns, Cede & [Co's consanting or votm~l nshts to those Direct Pamcipants to whose ncconnts the Bonds and Cemficates are cromteo on the R~cord Date (identified in a listing attached to the Omnibus Proxy) PnncipaI end mtarest payments on the Bonds end Certificates vail be made to DTC DTC's .p~r~t~ca ts, to .cred[_D~l.rect Participants' accounts on each payable date in accordance vath their ~spect~ve heldmgs shown on DT~ s rccorna umess otu nas reason tO believe that it vail not receive payment on such payable date Payments by Pamcipants to Beneficial Owners vati be governed by standing mstmct~ans and customary practices, as is the case vath accuntma held for the accou.n.~of..c~? _mars in h~nrer thrm or reemtered in "street name," and will be the responsibility of such Pamclpant and not or l.~l~, me ~'alung city, sub, est to any stato er re etoo requiremants as may be ,n .ore .ma to or pnnclpa~ ~nd interest to DTC is tho respens~bflity of the City, dishurs~nent of such payments to D~ract Pamcipants shall be the responstbthty of DTC, and dlsburseracat of such paym~ts to the Beneficial Owners shall be the responsthd~ty of Direct and Incbrect [Participants DTC r~y drscontmue providing its seraces as sacuntles depository vath respect to thc Bonds and Cemficatas at any tune by giving ~ensooable notice to the City Under such circumstances, in the event that a successor securmes daposltor/ is not obtained, Bonds and C. emflcatas are reqmred to be pnntsd and dcbvercd The Cl~ may decide to dlacontmua ese oftbe system of heok-cotry transfers through DTC (or n successor secunt~ce depositor/) In that F~ant, Bonds and Cemficates vail be lmnted and delivered Use of Certain Team in Other Sanflona of fids Official Statement In reading this Official Statement it should be understood that wh~le the bonds are in the Book-Entry Only System, references in other sections of this Official Statemant to ra~stered owners should be rend to include the person for which the Pnmcipant acquires an interest in thc Bonds and Certificates, but (0 all 11 nghts of ownership must be exercised through DTC and the Bunk-l~nt~y Only System, and (Il) except as dsecnbed above, notices that ere to be given to registered owners under the Trust Agreement will be given only to DTC Infomiat~on concerning DTC and tho Book-Entry Only System has bcen obtained l~om DTC and is not gaarsnteed as to accuracy or completeness by, and is not to be construed as a repl~untation by the City l~:[fect of Torminalion of Bunk-Entry Only System In the event that the Bonk-Enl~y Only System is discontluned by DTC or the use of the Book-Entry Only System is d~scontmued by the City, tho fullovang provisions will be applicable to the Bonds and Certificates The Bonds and Curhflcatas may be exchanged for an equal aggregate pnnrspal amount of the Bonds and Cemficates m anthonzed danonuant~oas and of the sem~ maturity upon surr~der thereof at the prlltolpal ofiice for payment of the Paying Agent/Registrar The transfer of any Bond and Cemficato may be registered on the books maintained by the Paying Agan~Reglstrer for such purpose only upon thc sur~nder of such Bond and Caitiflcato to tho Paying Agent/Reglsmu- with a duly eancuted assignment m form satisfactory to thc paying Agent/Registrer Fur every oxchungo ur transfer of l'~gls~ation of Bonds and C~mficatec, the Paying Agent/Registnv and the Chty may m_s~,z a charge sufficient to r~nbur~ them for any tax or other governmental charge required to be pa~d with sespect to anch exchange ur reg~sh, ution o f transfer The City shall pay the fee, if any, charged by the Tmstce for the lraasfer or exchange The Paying Agent/Registrar will not be requmid to transfer or exchange any Bund and c~mficate al~er its selection for redemphon The City and the Trustee may lrzat the perann m whose naro.~ a Bond and Cethflcato is registered as the absolute owner thereof for all pml~oam, whether such Bond and C. emficato is overdun or not, lechiding for the purpose of receiving payment of, or on account of, the pnnclpal of, premium, if uny, and interest on, such Bond and Cortfficate PAVING AGENT/RE~IS~ The initial Paying Agant/Registrar is Bank One, NA, Dallas, Texas In the Orthnance, the City r0talas the right to replace the Paying Agont/Reg~strer The City covenants to mamtaer and provide a Paying Agan~Registrer at all tunes until tho Bonds and Certificates are duly paid and any suec~asor Paying Agent~zgie~'ur shall be n commercial bank or lmst company organ~ecd under the laws of the State of Texas or other entity duly qualified and legally authonzed to serve as and perfurm the datlec and services of Paying Agent/Registrar for the Bonds and Certificates Upon any change in the Payerg Agent/Registrar for the Bonds and Certificates, the City agrees to promptly cause a wnrtun miUCZ thereof to be sent to each registered owner of the Bonds and Cemficatec by United States mall, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Reglstrer RI~OR]~ DAI'~ ~OR INTm~ST PAVM~N'r The record date ("Record Date") fur the interest payable on the Bonds and Certificates on any interest payinent date means the close of business on hie last business day of the month next prceexhng such interest payment date 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 ectabhshed 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 b~ 15 days a~er the Special Record Date) shall be asnt at least five business days poor to the Special Record Date by United States mall, first class postage preperd, to the address of each Holder of a Bond and Certificate appcenng on the registratloll books of the Paying Agant/Registrar at the close of business on the last business day next preceding the date of mmhng of such notice BoN~aol~mis' R~M~CI~II~S The Ordinances do not estabhsh specific events of default with respect to the Bonds and Certificates Under State law there IS no nght to the accalere~on of maturity of the Bunde und Certificates upun thc fullure of the City to observe any covenant under the Ordinance Althungh a registered owner of Bonde and Celtlficatos conld presumably obtmn a judgment agemst the City if a default oceun'ed in the payment of principal of or interest on any such Bonds and Certificates, such Judgment conld not be satisfied by execution agatost any prop~lty of the City Such registered owner's only practical remedy, ifa default occurs, is a mandamus or mandatoly mjunalun prceecxhng to compel the City to assess and collect rates and charges for water and s~er services sufficient to pay pnnaipal of and interest on the Bonds and Cortificatec as it becomes due The enforcement of any such remedy may be dlflienlt and time consuunng and a registered owner conld be required to enforce such remedy on a perlothc basis Neither the Bond Orthnanec nor the Cerllficata Ordinance provides for the sppoinimant of a ~rustee to represent the interests of thc bondhold~s 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 allgthle to sank ndief from its crethtors under Chapter 9 of the U S Bankruptcy Code Chapter 9 prowdes for the recogmtton of a secuniy interest represented by a specifically pledged source of revenues, and also lncinde8 an automatic stay provl~erl that would prohibit, without Banksuptoy Court approval, the proseantion of any other legal action by creditors or bondholders of an imtlty which has sought protection under Cbeptor 9 Therefore, should the City avnd itself of Chapter 9 protection from 0redlturs, the shlhty to enfoeco wonld be sub~ect to the approval of thc Bankruptcy Coert (winch could require that the ec~ton be heard in Bankruptcy Court instead of other federal or state court), and the Bankruptcy Code providec for bread dlseretiunery powers ora Bankruptcy Court In adunerstenng any proceeding brought before it The opmiun of Bond Cunasel will nots that all opinions relatlw to the anforeanhihty of the ordinance and the Bonds and Certificates are qualified with respect to the castomaiy rights of dchtors relative to their creditors 12 TAX INFORMATION AO VALOEEM TAX LAW Tho appunsal of properly within the City is the respansththty of the Denton Cenh~al Apprmsal Dismct (tha,,Approisall~stnct~) ~xc~udmg~/ncu~tora~endopen~spsee~and~wh~chmaybetazed~nthebseIs~fpreduc~.vecapasIty~th~ Appunsal,Distnct is required under tha Prope~y Tax Code to sppmtse all propeW/within tha Appraisal District on tha basis of 100% or,ts mar~. val~ and ~s prohibtted from applyms en~ asesm~nt raaos In datemm~ mar~ value of pn~y, thflh'cot ~.. ~.oda~ ofspp~ may be used, maludms tha cost m~hod ofappm~, t~e ir~oma n~-thed of appmsel and market data comparison m?o~ ~or residence boimstsed for a fax year to an anlount unt to axceed th~ less of (1) the manket vahe of the prolmly, or/z) ~ ~ or ia) the appml/mi valu~ of tha properly for the last y~r m wthch the pwperty v,ua appraised for tsuat~on times the unmber of years smca the properly Wes last appuasad, plus (b) the aPlmUSad vahe of th~ properly for the lsat y~es m whch tha ProPmY wse aPPraised plus (c) the miuket value of all ~ improyements to tha pl~operty Tha value placed upon properly within the Appraisal Dlstnet Is subjcct to ~vicw by an Appunsel l~vrew Board, conslstm~ of thr~ members appointed by the Board of I~rectora of the Aplmuasl Dratnct The Appnusel Dlsmct ~s required to review the value ofprolmty within the Apprmsel Dmnat at least evoiy three years Tho City may require annual revll~w at lta own expenas, and is entitled to challengo the datomunetton of appraised value of propesty within the Oty by peUaco filed vnth thc Appunsel P,.eview Board Ref~renc0 Is made to thn V T C.A, Prope~ Tax Code, for ldantlfica~ou of property subject to taxauco, propen'y aanmpt or which may be exanlp~l from taxation, if cl~unad, the sppr~al of prope~ for ad valorem taxa~co purposes, and the procedures and lmata~tons sppl/cebla to the levy and collec~on of ed valor~n ta.v. ce Amain VIII of the State Conmtotlon ('Amcla VIII'*) and Stoto law prov~da for camm exemp~ons from prope~, taxes, the valua~on of a~nenltural and op~-spaen luade at produc/lvdy v~lua, and the exemptron of caren pe~unal prop~ty from ed valorem taxa~un Under S~on l-b, Aflrale VIH, and State law, tho gov~uni body of a poht~cal subthwstan, at Its apron, may ~rant (1) An axemp~on of mit less than $3,000 of the market vahm oftbe residence homeatced ofperscos 65 y~rs of age or older and the disabled from all ~d valorem ~x~s thereafinr levied by the polmcal subthwslou, (2) An exemption of up to 2(P/o of the nmrket value of resldance homesteads The mmunum azoraptran under this provanco Is $$,000 In the case of resulence homestead nxemp~uns ~ranted under Sast~on l-b, Arhcla VIII, ed valorem t~xes may continua to be levied against the vaho of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessa~lor~ oftbe levy would impair the obhgetwn of the contract by which the debt was created S~ate law end SecUon 2. Amain VIII, mandate an adthtranal property tax exan'~otmn for d~sebled vetorans or the surname spouse or chddeen ofa dac~md veteran who d~ed whtle on antlva duty m the armed fo~es, the exemp~lco apphes to elthor real or personal properly l~¥/th the smouat of assessed valuation exempted rua~ng from $5,000 to a mammure of $12.000 Amain VIII provides that ehg, lbla ov~era of beth a~miultonfl land (Section I d) and open-space hud (SecUco I d-l). including open-spase land devoted to farm or roach prepays or open~spas~ land devoted to ~mber produc~co, may elect to have such property appunsed for propel~y ~tatiun on the beslS of lta produat~ve c~peclty The same land may not be qualified under both Sce/aon l-d and l-d-1 NcobualI~ess personal property, such as automobiles or light irank~, are exempt from ad valorem tanetiun unless tha governing body of a pohl~cel subdiwslon clccta to tax tlus property Boa'/s owuad es nonlmsraess prepoiiy a~ exempt from ad valorem taxat~un Ai'acla VIII, Section l-J, pro'ados for "frecpast propeW/' to be axalllpt~d from ad valorem taxaaco Freepo~ pwpeny is defined as goods detained m Texas for 175 days or lass for tha purpose of assembly, storage, muaufastonng, processing or fabncaUon Dcclswas to continua to tax may be reversed m the future, decisions to exempt fincport property are not subJeCt to reversal Tha City and the other ~xmg bodies within its tcndtovy may a/ran to jointly cmato tax increment financing zones, under which tha tax values all property ra the zonn arc "frozen" et tha valua of tha propcn'y at thc time of ama'aah of the annc Tha City also may entor Into tax abatew, ent agreements to encourage economic development Under the a/reements, a propariy owner agrees to construct certain improvements on tts property Tha City m turn a~ees not to levy a tax on all or pert of tha mcreasad valua atmbutable t° thc lmprovcfcentsuntllthauapffationofthaagrcement Thc abatement agreoreamt couldlast for apanodofupto 10years EFF~CllV~ TAX RATE AND ROLI,~Cll, TAX RATE By aach September I or as soon thereafter as practicable, tbe City Counad~ adopts a tax rate par $100 taxable valua for tha current year The tax rata consists ofiwo components (1) a rate for thnd~ng of rnmntenance and opamtlon expend~tores, and (2) a rata for debt servlcc Under the Property Tax Code, the City must annually calculate and publicize its "eft'active tan rate" and "rollback tax rate" The City Couricll may not adopt a tax rata that exceeds the prior year's levy until It has held a public heanng on thc proposed mcreasc following noiice to thc taxpayers and othenvise complied with the Property Tax Cede If the adopted tax mtn axceede the rollback tax rata the qualified voters of tha City by petition may re, quire that an alcctlon be held to detonmmi whether or not to reduce tha tax rata adopted for tha current year to tha rollback tax rate 13 "Effective tax rate" means the mia that will produce last year's total tax levy (a~ustad) ~om this year's total taxable values (ad~ustad) "Adjusted" inserts lost values are not included mn the calculation of last year's taues and new valuce arc not included in this year's taxable values "Rollback tax rata" means the rate that wdl produce last year's mamte~mnce and operation tax levy (adjusted) fi*om this year~s values (adjusted) multiphed by 1 08 plus a rote that will produce this year's debt ser~ce fi'om this yea~s values (tmadjusted) divided by the anticipated tax callectmn rate The Property Tax Code prowdes that certain cities and counties in the State may subrmt a proposition to the voters to anthorise an adthtlonal one-ball cant sales tax on rated sales of taanbla rictus [f the adthttoonl texta tevtad, tho effeetive tax rate and the rollback tax rate calculations are reqmred to be offset by the revenue that will be Saneratad by the sales tax in the current year Reference is made to the Property Tax Code for definitive rcqmx~manta for the levy and collection of ad valorero taxes and the calculation of the various defined tax rates PROPERTY AasEasMI~T AND TAX PAYblENT Property within the City IS generally assessed as of January I oF each year Business invcutory olay, at thc option of the taxpayer, be assessed as of September I Oil and gas resolves are assessed on the basts of a valuation process which uses an average of the dmly puce oFml and gas For the prior year Taxes become due October I of the same year, and become dehnquent on Febmas~ 1 of the following year Taxpayers 65 years old or older are penmtted by State law to pay taxes on homesteads in four mstallmcots with the first duc on Fobroary I of nach year and the final installment due on August 1 PI~NALTIF. S AND L~TERI~ST Cbarges for penalty and intcroet on the unpaid balance of delinquent taxes are mede as follows Cumulative Cmnulativc Month Penalty Intarest Total Febroaty 6% 1% 7% Match 7 2 9 Aprd 8 3 11 May 9 4 13 June 10 5 1 $ July 12 6 18 After July, penalty mmama at 12%, and interest mcrease, s at the rate of 1% each month In adtbt~on, if an ancount m dehnquent in July, a 15% attorney's collection fee is added to the total tax penalty and artarest charge Under certarn oa'oum~tannas, taxes which become dehnquant on the homestand of a taxpayer 65 years old or older recur a penalty of 8% i~r annum with no additional ponaltice or interest assessed In general, prop~'ty subject to the City's hen may be sold, m whole or In parcels, pursnant to coort order to collect the amounts due Federal law dues oat allow for the collection of panalty and interest against an cetate in bankruptcy Federal bankmptey law provides that an automatic stay of aet~on by arcddors and other entities, maludmg governmantal units, goes rote effect vnth the filing of any petition m bankmptey The automatic stay prevents gevonunantal units from foreclosing on propm'ty and prevents hens for post-peri,on taxes from attaching to property and obtalmag secured crethtor stains unless, in either case, an order hfiing the stay le obUuned fi'om the bnala~toy com~ In many cases post-patroon taxes are prod as an adnamstrotive exponce of the estate in bankruptcy or by order oftba bankmptey court C~TY A~UCAW~On o~ TAX CoDIt The City grants an exemption to the market value of the semdance homestead of persons 65 yearn of age or older of $25,000 and those who are disabled of $10,000 The City grants an addmonal one-half of one percent, or a nummum of $5,000 eanmptmo of the market value of residence homesteads See Table 1 for a listing of the amounts of the eanmptiona deasnbed above Ad valorem taxes are not levied by tho C~ty against the exempt value of residence homesteads f~r the payment of debt Tho C~ty does not tax nonbusmess personal property, and the City collects its own taxes The C~ty does not parent split payments, and thseoonts am not allowed The City does not tax freeport property The City collects the additional ona-half cent sales tax for reduction of ad valorem taxes The City has adopted a tax abatement policy 14 TAX ABATEMENT POLICY Thc City has estebhsbed a tax abatement presram to encouragc econounc development In 1990 the City Council adopted a resolution setm~ gmdelians and cnteua for srantmg abatew~nis m ramvesunmlt zones created vnthm *.ho City These gmdelines speOlficelly note that iticentiv~ ara lumted to comperaes wluch create new wealth cod do not adversely affect eyastmg businesses opera, ag wtllun tho City Smc~ 1990, the City has agreed to abate taxes for only one company On Jenualy 6, 1998, the council voted to abate taxes on 25% of $37,000,000 m new constmction and eqmpraunt to Umted Copper indusmes~('rOntted Copper~') for 6 yeah be~innin~ m 1999 Umted Copper is a new cerporate cltu:co and began producing copper w~ m January 1999 Umted Copper employs approximately 170 employees and estimates 800 employees m lis tenth year 2000/01~Market Valuation Estebhshed by Denton Control Appraisal District $3,280,279,343 Less Bx~mptions/Roductions at 100% Market Value Residence Homestead Bxemptmns $ 50,803,204 Over 65 Bxemptiuns 68,225,280 Disabled Persons Exemptions 1,630,399 Dllabled Veterans Exemptiuns 2,840,106 Agncoltorel Land Use Productivity 122,940,134 Hlstoncnl/Otber Exemptmus 10,351,930 Freeport Exemptions 86,934,691 Homestead Cap AdJustment 21~594.655 365.320.399 2000/01 Taxable Assessed Valuation (as of 7-21-00) $2,914,958,944 City Funded Debt Payable flora Ad Valorem Taxes (as of 3-1-01) General Obligation Bonds $ 37,589,222 Tax and Utility System Certificates 18,910,000 The Certificates 12,120,000 The Bonds ]4.245.000 Funded Debt Payable from Ad Valorem Taxes $ 82,864,222 Less Self-Sopperting General Obhgatiun Debt (~) 7.219.618 General Purpose Funded Debt Payable from Ad Valorem Taxes $ 75,644,604 Interest and Smkmg Fund ns of 3Il/01 $ 1,374,27 l Ratio Total Funded Debt to Taxable Assessed Veluntiun 2 84% Ratra Net Funded Debt to Taxable Assessed Valuation 2 60% 2001 Bstirnnted Population - 81,627 Per Capita Taxable Assessed Valuation - $35,711 Per Capita Total Funded Debt $1,015 Per Capita Net Funded Debt - $927 (l) The above statement of Indebtedness does not include currently outstanding $212,400,000 Utihty System Revenue Bonds, as these bonds are payable solely flora the net revenues of the Utibty System (the "System"), as defined m the ordinances author~Zmg the bonds (2) General Obligation debt in the arnounts shown for which repayment Is prowded from revenues of the respective revenue systems The amount of self suppomn~ debt is based on the percentages of revenue support as shown m Table l0 It Is the City's ourrant policy to provide these paymcote fl~m respective system revenues, this policy Is subject to chcoge m the future 15 R~a! Property, Inventory 17.998.601 01~50~ 0,00~ 0.00% 1998 lPP7 (1) Valuations shown are certified taxable assessed values reported by the Denton Central Appraisal District to the State Comptroller of Pubhc Accounts Certified values are subject to change th~ughout the year as contested value~ are resolved and theAppra~saID~str~ctupdatcsrecords For thc F~scal Year ended 2001 the values are as ofJuly 21, 2000 16 TAaLE3. V~,LUATIONAND(~EN~RALOBLIGATIONDstBTI~I~TORY Net Rntao FIscnl Taxable Tax Debt Tax Debt Funded Year Taxable Assessed Outstendmg to Taxable Debt Bnded Bs~muttad Assessed Valua~on at End Assessed Por 9/30 ponulat~on Valuation per Cenlta of Year V~luatlon Catdta 1997 71,450 $2.169.892.097 $30.369 $28.977,009 1 34% $ 406 1998 73,050 2.326.880.444 31.853 40,536.308 1 74% 555 1999 75.300 2.455,921,130 32.615 59.001.730 2 40% 784 2000 77.900 2.711.776.876 34.811 60.985.922 225% 783 2001 81,627 2.914.958.944 O) 35.711 82.139.222 {a) 2 82% 1.006 (1) Sontce Denton Central AppratealDlsmct asofJuly 21,2000 (2) Projected, ~ncludea tho Bonds and Cert~ficatea T,~LZ 41 - TAX I~TZ, I~VY ~ COLLECTION HISTORY Fmcul Year Bnded Tax Oenond Interest and % CtuTent % Total 9/30 Rate Fund Smkme Fund T~x Low CollecUona Collectmns 1997 $0 52840 $ 0 32070 $ 0 20770 $11,465,710 98 70% 100 10% 1998 0 51315 0 32008 0 19307 11,940,387 98 56% 99 94% 1999 0 50815 0 31187 0 19628 12,272,839 98 40% 99 96% 2000 0 50815 0 31948 0 18867 13,777,583 98 75% 100 19% 2001 052815 031948 020867 16,159,471 9485% o) 98 59% {0 (1) C°lleettoen fiat pm year only, through March 1, 2001 2000/01 % of Total Taxable Taxable Aasesaed Assessed ~ Name of Taxpayer Nature of Property Valuatmn Valuation C. olumblaMedacalConter of Denton Hospital/ProfessionalB~ulchng $ 56,463,761 I 94% (~aneral Telephone Telephone Utility 47,482,363 I 63% Andv~on Merchandisers Dlambuflon Center 25,297,958 0 87% Umted Copper Induames Copper Wiring Manufacturer 23,246,818 0 80% Denton Mall CO LP P/S RetaiI/Merchanthmng 17,299,887 0 59% PoterbdffPacear Diesel Tm~k Manufactunng 17,073,252 0 59% Andrew Corporation Ele~trome Eqmpmant 14,619,354 0 50% Westdale Prop Amer I Ltd Apartment Complexes 14,430,249 0 50% pPI Denton Center, Ltd Shopping Center 13,582,744 0 47% VicR~r Eqmpment Heavy Machmcry/Eqmpmant 8.244.789 0 28% $237,741,175 8 16% Source ' Denton Central Appraisal Dtsmct GENeRaL OBLIGATION DEBT LIMITATION No general obhgatlofl debt hfmtatlon is imposed on the City under current State law or the City's Home Rule Charter (see "The Bonds and Certificates - Tax Rate Llontat~on") 17 TABLE 6 - TAx ADEQUACY(1) 2001 Pnnclpal and Interest Requlrementa $ 9,144,960 $0 3169 Tax Rate at 99 00% Colleet~an Produces $ 9,145,130 Average Annual Pnncipal and Interest Raqrarementa, 2001 - 2021 $ 6,024,245 $0 2088 Tax Rate at 99 00% Collectton Produces $ 6,025,570 Mayamum Pnnclpal and lnterest Requirernenta, 2002 $ 12,050,113 $0 4176 Tax Rate at 99 00% Collectian Pwduces $ 12,051,140 (1) Includes the Bonds and Certificates I~xpendltUres of thc vartous taxing enttties within thc tcrnte~ of the City are paid out of ed valoratn taxes levted by such entrttes on p~pertics vathm the City Such entitles are independent of thc City and may incur borrowings to finance thedr axpandltures 'l~ls statement of direct and estimated overlapping ad valo~m tax bonds ("Tax Debt") was developed from raformat~on contemed m "Texas Muraclpal Reports" pubhshed by the Manlclpal Advlsury Coancfl of Texas Except for the amoants relating to the City, the City has not independently verified the accuracy or completeness of such mformatlan, and no person should rely bonds, the amount of which cannot be detesnuned The following table reflects the estimated share of overlapprag Tax Debt of thc C~ty (1) Includes the Bonds and Cert~ficetes, less self supporting debt 18 DEBT INFORMATION TABLI~ 8~ - paO-FOBMA GI~N~RAL OBLIGATION DEBT SI~RVICg I~QUI~M~ Fiscal Ye~ Total % of Ended ~&n~ Debt o) ~ Bon~ (~) ~e Ce~flcates o) Ou~thng Pnnc~p~ ~/~0] ~n~ ~ Pflncl~ Int~ast ~cra~ ~ -- Debt R~I~ 2001~ $ 5~11,700 $ 3,933~60 $ 9,1~,960 2002 4,878fl28 3,549,672 S 710,000 $ 936~72 $ 1,225,000 2003 4,862,457 3,284,624 710,~0 685,360 1,290,~0 512,500 11,344,941 20~ 4,31B,037 2,830,099 710,~0 ~8,~0 1,315,000 ~7,375 10,263,951 200~ 3,900,000 1,999,328 710,~0 611,520 1,345,0~ 380,875 8,946,723 35 70% 200~ 3,705,0~ 1,800,802 710,0~ 574,6~ 1,37f,000 312,875 8,478,277 2007 3,360,~0 1,631,840 710,~0 53~,680 59~,000 263,625 7,098,145 2008 3,165,~0 1,473,176 710,~0 500fl60 590,0~ 234,000 6,672,936 2009 3,000,000 1,321,839 710,~0 ~3,8~ 5~,0~ 204,500 6,290,179 2010 2,910,~0 1,177,303 710,000 426,920 590,000 175,000 ~,9~9,223 62 52% 2011 2,945,000 1,034,639 710,000 390,000 ~90,0~ 145,500 5,815,139 2012 3,010,0~ 888,223 710,000 353,080 26~,000 124,125 ~,350,428 201~ 2,835,000 742,564 715,000 316,030 265,000 110,875 4,984,469 2015 2,740,~0 602,291 71~,000 278,850 265,~0 97,625 4,698,766 201~ 2,670,000 460,903 715,0~ ~1,670 260,000 84,500 4,432,073 84 74% 2016 2,4~0,000 328,6~5 715,000 2~,~90 260000 71,500 4,029,675 2017 2,020,~0 212,145 71~,000 167,310 260,000 58,~ 3,432,9~5 2018 1,625,0~ 117,185 715,~ 130,130 260000 4~,500 2,892,815 2019 1,045,0~ 47,588 715,000 92,950 260,000 32,500 2,193,038 2020 340,000 9,988 715,000 55,770 260,000 19,5~ 1,~0,258 98 88% 2o~ 7~s.ooo l~,sgo 260.000 ~,~00 ~.ooo.o~o ~oo oo~ I $60.985.922 $27.~6.151 ~ ~ (1) .O~tstandmg D~bt" does not include lanse2purchase obligations, racludas sdf-suppor~mg debt (2) Average life of the issue 10 306 years Interest on the Bonds has been calculated at the average rate of 5 20% for purposes of fllustratmn (3) AVerage life of the ISsue - 6 729 ysur~ Intasast on the Certlficntas has been culeulated at the average rate of 5 00% for purposes of fllus~ra~on TABLE9 o INT~REgrA~'D~IIN~INGI~NDBUI~E?PRO~CTION Ta.~ Supported Debt So.ace Reqmraments, Fiscal Year Ending 9/30/2001 $ ?,652,83? lntorast and Smkrag Fund Balsuce as of 9/~0/00 $ 822,913 Interest and Stoking Fund Tax Levy 6,384,544 Budgeted Transfers 1.4?9.431 8.686.888 Es0mated Bulsuce, 9/30/01 $1,034,051 19 N~t R~enue ~m Sohd Was~ System, F~sc~ Y~ Enid 9-30~0 $1,661,511 ~ss Sohd W~te System Revenue Bund Reqm~ments, 2001 F~s~ Y~ 0 B~ Avalablo for O~ ~oses ~hd Was~ System General Obhga~on Bond ~qmm~ts, 2001 F~al Y~ 1.367.475 B~an~ $ 2~,036 T~LE 11 - A~HO~ED BUT U~S~D GaVeL OBregON ~S ~o~t ~o~t Date ~o~t H~fore Bmng U~ssued ~0~ Authon~d Authon~ ls~ Isled B~ S~ ~d Traffic lmpmv~m~ 2/2~96 $11,112,000 $ Il,Il0,000 $ 0 $ 2,000 ~nage lmprov~ts 2/2~96 7,238,000 4,930,000 0 2,308,000 S~ ~d Traffic Improvements 12/13/86 7,736,000 6,979,000 0 757,000 P~ks 12/13/86 5,950,000 4,550,000 0 1,400,000 S~t 1/15/00 17,~5,~0 650,000 7,320,~0 9,075,000 L~br~ 1/15/00 6,800,000 l,~0,000 4,600,000 1,200,000 P~s 1/15/00 10.175.000 2.100.000 2.325.000 $ 66,056,0~ $ 31,319,000 $14,245,000 $ 20,492,000 ~o CI~ has ~temd into capitol lease a~ ~c follo~ng Is a sc~ule of ~ ~tm~ le~ ~ts under the~ ~pl~ l~scs ~d thc present v~uc of~c net ~mmum l~o pa~cnts as of S~temb~ 30, 1999 Year Ending 30=S~ Pa~ent 2~1 $837,160 2002 8.669 To~ Minimum L~se Pa~mt S ~5,829 Mss ~o~t Rep~sen~ng lnt~st f26.021 ~ P~sent V~ue of Net M~m~ ~a~ Parrots $ 819,808 ~NSlON ~ ~e C~ pm~des pension ~nefils for ~1 of t~ ~11=~ ~plo~s ~u~ the Tex~ M~c~p~ Rehr~t S~t~ ('~RS'), a Stn~=~de a~ms~d pension pl~ ~e CI~ ~es ~ ~nmbut~ons to tho plan equM to the ~ounts ~cmed for pension expense (For mo~ 2O FINANCIAL INFORMATION TABLE 13 - GENERAl, FUND I~V~NU~S AND EXI~'~ITORZ HISTORY ~ ....... ~ ~9(~0 199~) 1995 1997 1996 Taxes $24,166,751 $21,850,143 $20,738,102 $19,497,320 $18,001,498 Fees for Service 2,037,392 1,553,219 1,430,236 1,372 826 1,140,724 Total Revenans $42,422,311 $37,880,902 $36,348625 $31,508,396 $29,189,781 General Govenunent $10,706,489 $ 7,918,901 $10,178 434 $ 8 774,807 $ 8,044 178 Pubhe 81ffety 21,230,610 17,857 765 16,018,327 14 867,747 13 696,802 Pubhc Works 4,738,828 5,050,028 5447,174 5,038,015 4,396,384 Totnl Expenditures $41,421,221 $35,302,317 $37,038,303 $32254616 $29,507,691 Excess (defiotancy) of Revenues OverBxFend~tures $ 1,001,090 $ 2,578,585 $ (689,678) $ (746,220) $ (317,910) Proceeds of Csp~tal Lease 10,918 554 625 Opernmyg Transfers (Out) (925.576~ [:~,701.009~ (504.733~ (L303.450~ (252.268~ Over (Under) Expand~tur~s and Othe~Uses $ 1,014,418 $ 493 747 $ 184,647 $ 975,832 $ (200 175) Apphcailon of New Accotmlmg Principal (437) Ending Fund Balanc~ $ 9,468,812 $ 8,454,394 $ 7,960,647 $ 7,776,437 $ 6,800,605 (1) The 1997' t~ansfers include a street usage fee from elecmc (2) D~ffe~nce from prior year ending balance dan to ro-clnsstficatlon of Hotel-Motel tax reserve fund 21 The Cio/has adopted the Mumcipal Sales and Use Tax Act, VATCS, Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax w~thra the City, die proceeds are credited to the Gen~nd Fund and are not pledged to the payment of die Cemficates Collections and anforcomants are effected through the offices of the CompS'oiler of Pubhc Acoounts, State of T~xan, who remits the pweceds of the tax, after deduction of a 2% sermce fee, to die City montldy In January 1994, die vote~ of the City approved dic imposition of an edditioanl one*half of one percent (½ of 1%) for propeW/tax redu~un Fiscal Year % of F. qmvalant of Ended Total Ad Valorem Ad Valorem Per 9[~0 Collected o) Tax Levv Tax Rate Camta 1997 $12,139,975 105 88% $0 5595 $170 1998 12,925,267 108 25% 0 5555 177 1999 13,883,181 113 12% 0 5653 184 2000 15,131,637 109 83% 0 5580 194 (1) Source CityofDentonAnnualProgramofServlsezfor2000-01 (2) Collections dir part year only, thrungh J~nua~ 31,2001 The sales tax breakdown for thc Ctty is as follows PropeW/Tax Relief 0 50¢ Ecenormc and Commuraty Development 0 00¢ City Sales & Use Tax 1 00¢ State Sales & Use Tax 6.25¢ Total 7 75¢ FII~CO.L POLIClZS Basis of Accounting The acooentmg policies of die City conform to generally accepted ecenuntmg pnnclplos of die (3ovemmuntal Aecounting Standards Board and program standards adopted by die Oovernment Finance Officess As~ociatien of die Umted States and Caenda The (]FOA has awerded a Cer~lficste of Achravemant for ]Sxcollence m Fmancral Reportm~ to die City of Dunton for each of the fiscal yeara ended September 30, 1983 through September 30, 1999 The City's current report has been subuntted to GFOA to doterrmne its ellgibdity for another Certificate The City bas also recelved die GFOA's award fer DlstmgmshedBudgetPresentationeachyeessmco 1988 TheCltyha~ anbunt~ed~ts 2000/01 budget to die GFOA to detern~ne its eligibility for another Ce~ficate The measurement focuses for the Enterprise Funds, Internal Service Funds and Nonax~panduble Trast Funds are mc'omc determination and cost of serv~,co, respectively Accordingly, the accrual bselS, whereby revenues and expenses am identified in the accounting period m which they are earned and incurred and net raceme, is utilized for diese funds The modified accrual basis, whereby revenues are recogmzed when they bec, omc bodi measurable and avmhble for use during die year and expenditures are recognized when the related fund liability is mcurre~ is used for all other fonds Budgeto~ Procedures As prescribed by City Charter die City Manager, at least 60 days prior to die beguunng ofanch fiscal year, submits to die City Council a proposed budget for the fiscal year beglunmg die following October I Tbo budget maludes proposed expenditures and revenues requm:d to fund the expenditures Follovang Council considerations, amandn~nts and refinements a public hconng is ordered and conducted for the pral~ose of obtaunng taxpayer comments The budget is finally approved and adopted by passage of an ordinance by the City Council prior to die beginning of the fiscal year The budget IS adopted on a basis consistent w~th generally accepted accoentmg pnnciples 22 The City ~of Denton invests ~is mvesteble funds in mvestmems anthormed by Texas law m a~ordsnce vnth mvestmunt polanes approved by tho C~ty Council of the C~ty of Danten Both state law md the C~ty's mvas~anant pohc~es ~e subject to change I,~_,~ ~ Under Teans hw, tha Chty ~s anthorized to revest m (1) chhgat~ons of the Umted Statce or tis ageun~ce and ms~nmm~t~t~as, (2) dir~t obl~a~lons of the State of Tanas or tis aganc~as and m~m~mentah~as, (3) celint~zed mortgage obhga~o~ dircetiy issand by a federal ageney or mstrumantahty of the Umted States, the underlying sceunty for wiuch ~ gearant~d by an a~'y or i~allty of the Urat~d Sla~, (4) other obhgeUons, tho Imr~lpal of and interest on which are unonnd~t~ooally guaranteed or insured by, or bac~ by the full faith and ~o&t of, tho State of Texas or the Umted S~ates or their resp~:tlve aguncans and ms~ananteh~e~ (5) obhgefioos of states, agencies, coun~es, elias, and other pohucel sub&wsions of any state rated as to investment quality by a nationally recogEized investment ratm~ finn not less than A or lis eqmvalent, (6) ce~lficates of deposit that are guaranteed or insured by the Federal Deposit Insurance Corpomtiun or am s~red as to principal by obhgat~ons described m the precedm~ alau~s or m any other w. mm~ and amount provided by law for C'~ty dopcerts, (?) cemficat~ of daposlt and share esfi~ficat~ sssued by a ala~ or f~deral ~edlt union dounc41ed m tho State of Texas that ar~ guamntmd or msu~d by the Federal Deposit Insurance Cespor~uon or the Na/aonal Cr~ht Umon Sham Imurance Fund, or ase s~cu~d as to lmnelpal by obhge~uns descrthe~ tn the cl~ (1) through (5) or in uny other ~anner anti anlount prowded by law for City dapcel~ ([~) fiflly colinterehzed rapureh~a a~s that have a defined term~tion dare, a~ fully se~ by obhga~uns de~n~ced m clause (1), and are placed tluough ~ pnmav] gevemmant sanun~es dasinr or a financial mst~mtten dome busme.~ m the State of Texas, (9) bankers' accepten0es w~th the re~ammg tonn of 270 days or less, fi'the shod~totm obhi/ahons of the accepting bank or ~is patent am rated at least A~I[ or P-I or tho ~quivalant by at lasst oun na~onally ~cegn~ed crotht retmg age~c'y, (10) conunerc~al ~ that is reted at least A- 1 or P-I or th~ equivalent by e~lther (a) two nationally ~co~.ed csetht ratmg agencies or (b) one nationally recogmzed credit raing ageuny lftha paper is fully sceored by an irrevocable le~er of o~ed t lesued by a U S or state bank, (11) bunds lsan~l, assumed or guara~tced by the State of l~sul, (12) no-ined manap mm'ket mutual funds regulated by the Securities and Exchange Cormmssion that havo,a dollar wolghted avan~ge por~ctho maturity of 90 days or less and meluds in then' mvesmlant objeet~ves the maintenance of a stable r~t esot value orS1 for each ~ and (13) no-load mutual fonds roistered voth the Securities and ]~xchunge Cortmuss~on that hav~ an average weighted maturity of less than two yesrs, mves~ exclusively in obhganom dascnbed m the precethng clauses, and am con~nuously rated as to investment quality by at least one un~onally reongelzed mvesm~ent mtmg fin~ of not less than AAA or lis eqmvalunt, l~OWdod, however, that the C~ty ~ not anthonzed to invest m the aggregate more than 15 pereant of its monthly average fired balance, excludmg bond pro~e~ds and reserves and other fonds held for debt service, m such no-loed mutual funds The City may invest m such obhgetloos thrcefly or thrun/h gEvermn~nt mves~mant pools that invest solely m such obhget~ons pwvidedJ that the pools ar~ rated no lower than AAA er AAA-m or an eqmwlent by at lass~ one nanonally r~oEntzed ratine surwce The City iD ap~eally prohth~ted fi'om investing m (1) obhgelrens whose payment represanis the coupon payments on the outstanding prmo~pal balance of th~ underlying mo~gege-hacked ~eonnty collateral and pays no pnneipal, (2) obhgEt~ons whose paymontlrepresenis the prmoipal s~eam of cash flow from the ooderlying mortgage-hacked security and bce~ no mtesest, (3) cellatemh.zed mortgage obhget~ons that have a stated final maturity of greater than 10 years, and (4) colinterehzed mortgage obhg~mans the mter~t rate of which is determined by an index that adjusts opposiis to the changes m a market radox ~ POLICIES Undar Tan~ law, the City is requn'ed to invest its fonds under written investment policies that pnmunly emphasi:~o safety of principal and hqmthty; that address invas~lant thve~lfication, yield, matenty, and the quality and capability of mvesm~nt maangEmunt, and that maludes a list of anthonzed mv~m~nis for City funds, maximum allowable stated matonty of any mdlwdaal investment and the manmmm average dollar-w~lghted maturity allowed for pooled fund ~roups All City funds most be mvested,cooslstont with a formally adopted "InvesUn~nt SUate/y Statement" that spcelficelty addresses each funds investment Each lnvesmx~nt Strete~' Statemant will dasonbe lis objectives concerning (l) smtabthty of mvesWcent type, (2) prosorve~on and asf~y of pnnelpal, (3) hqm&ty, (4) marketebthty of ceeb mvesh~nant, ($) thversificat~un of the portfuho, and (6) yield 23 Under Texas law, City mvestmsots must be made "vnth judgmsot and cam, under preveflmg ctmumstsoces, that a person of prudence, thscrutlon, sod m~efogsoce would exercise in tho msoagem~t of thc person's own affmre, not for speculation, but for mveetmsot, considering the probable safety of capital sod thc probable thsomc to bc derived." At least quarterly the investment officem of the Ctty shall subnut an investment report datmlmg (1) th~ lavestmsot pusltmn of the C~ty, (2) that all investment officers jointly prepared and signed the ~por~ (3) the beg~unrug market velun, any adtht~ons sod chungos to merket valon and thc enthng velue of each pooled fund group, (4) the book wlun und market vefoe of each acperutaly hsted assot at the b~nmng sod end of the ropertmg penod, (5) the matonty date of each sepam~2y invested asset, (6) the account or fund or pooled fund group for wfoch each mth,adeal mvesiment was acquired, sod (7) the complmuce of the mvas~nsot portfolio as it mlatus to (a) adopted mvasimsot strate/b, smtemsots sod (b) state law No person may mvost City fimds vathout exprass wntton authority from tho City Connol Aru~mONAL PROVlSlOI,~S Under Texas law the City ~s adtht~onally requued to (1) annually review l~ adopted pohcios sod strate~es, (2) require soy investment officers' v~th personal business relal~unslups or relaUves wUh from seekmg to sell secrmtres to the en~ly to disclose the relatlon~lup sod file a statement w~th tho Texas Ethics Commlssmn and the City Council, (3) reqmm the registered principal of firms scekang to sell accuntlos to the C~ty to (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls sod procedures have been unplamsoted to preclude unprudent investment activities, sod (c) dehvef a written statement attesting to these requirements, (4) perform an annual audit of the rsosoge~mt controls on mv~stments and adherence to the City's investment policy;, ($) prowde specific mvestmsot irammg for the Trunsm~, Chief Financial Officer and investment officers, (6) restrict reverse repurchase agreements to not more thee 90 days and restrict the investment of reverse repurchase agreement funds to no greater thee the term of the reverse repm~clu~ a~eemsot, (7) restrict the mvostmsot in non-money msrket mutual funds of soy po~un of bond proceeds reserves and fimds held for debt scrnce and to no more thee 15% of the sotlty's monthly a~rage fund balsoce, exaludmg bond procee~ sod reserves and other fimds held for debt serwce, and (8) reqmre local government mvas~nent pools to conform to the now disclosure, rutmg, n~t asset value, ytald calculation, sod advisory board reqmr~nunts TAS~ 15 - C~T INVESTMENTS A~ of Masch 31, 2001, the City's mvestable fonds were invested tn the following categories Book Market Dascrret~on P~rcent Value Value Federated/Money Market I 72% $ 3,500,000 $ 3,500,000 U S Federal Agency Coupon 58 720/0 119,354,889 120,807,436 U S Federal Agency Discount 15 87% 32,259,662 32,213,048 U S Federal Agency Callablos 22 680/0 46,091,374 46,359,770 U S Treasury Securities Coupon 1,01% 2~048.227 2.055.721 100 00% $ 203,254,152 $ 204,935,975 24 I TAX MATTER~ OPI~'ION ~ On tho data of mttml dallV~y of tha Bonds ~d C~fi~, McCall, P~t & Ho~on L L P, D~I~, T~, Bond ~wsol, ~H ~ tts ~mlon t~t, m a~ ~ m~tos, ~ons, pubhshed mlmgs ~d ~u~ dems~ons e~s~ ~ ~e ~ ~of ('~s~g ~*), (1) ln~ on ~e Bon~ ~d Ce~lficatcs ~ ~1 m~ t~ p~oses ~ be cxclu~b] ~ ~m ~ "~ss ln~" of ~ hold~ ~mof ~ (2) ~e B~ds a~ ~ficates ~ll not be ~t~ ~ *'specified pn~ · fl~ bon~" ~e mt~ on ~ch wo~d be m~u~ ~ ~ ~aa~ ~m~ ~ pm~nce ~tm ~ s~ 37(a~) * f~e ~t~ Revue ~ of 198~ (~e "Co~") ~t ~ s~tcd ~vc, Bond Co~sel ~11 exes no opmmn ~ to ~p~du C - F~ of Bond ~l's ~mlo~ In mn~ mg its oplm~, ~nd Co. sol ~11 ~y upon (a) c~m lnfo~on ~d ~s~ons of ~c Ct~, mclu&ns m~ m ~d ~2~ons ~21~d m ~e ~s ~ ~ ~fi~tc, ~d ~) covcn~ts of ~ Cl~ ~n~m~ m ~e Bond doc~ m~tmg ~ ~ ~, mcludin8 ~l~a~ ~d the usc of the pm~ds of the Bon~ ~d Ce~fica2s ~d pmp~ ~d or mfi~c~ ~e~ Pml~ of ~e Cl~ to comply ~ ~ese ~ons or covcn~ co~d m~st on the Bon~ ~d C~fi~ to b~ome inclu~ble m ~ss in~ ~t~vely to the ~ of ~ssu~ce of ~o B~ds ~e E~$ ~w is ~bj~t to ch~ by the ~n~s ~d ~ m~u~t ju~cml ~d ~ms~vc ln~ ~ ~e co~ ~d ~c D~t of ~e T~ ~m c~ be no ass~ce ~t ~ch E~s~n~ ~w or ~e tn~on t~f ~11 not be ch~g~ jna ~ner ~s~ ~uld adv~ely a~ct ~e t~ ~t of ~e ~h~, o~lp or dtsposltlon of ~e Bonds Bond Co~el*s op~on ts not a ~ of a ~t, but r~ents l~ te~l jud~ent ~ upon its ~leW of E~stm~ ~w (~c "S~ce") ~ ms~ ~ ~e ~ ~ m ~c opmt~ of Bond Counsel, ~d no ~cc c~ bc ~v~ ~ the S~ce ~uld a~ ~ ~o opmt~ of Bond ~1, if the ~t ~ of~c interest on the Bonds ~d ~mfic~es the ~bje~ of ~ au&t If ~ a~t ~s ~ ~ ~ent pm~dms ~e Settee ls h~ly ~ ~t ~c Cl~ ~ the .t~pa~f and the o~s of~c B~ ~d ~ifl~s wo~d have no n~t to p~clpate m ~c aunt PmCe~ In resp~ng ~ or def~dins ~ ~lt of ~e ~-~t s~ of ~e intrust on the Bo~s ~d C~fica~s, ~e Ct~ my ~ve ~nt or ~nfllctm~ mtm~s ~m ~e o~ of~e Bon~ and C~lficates for one or mom ~es of ~e Bonds ~d C~fl~ (~e '*~n~ Isle Dlsco~t Bon~" or "~ Isme ~t ~lfi~t~~*) ~ ~ less ~n ~e pnnmpal mo~t ~f or one or ~ p~ods for the pa~t of mt~t on ~e Bon~ or Cc~fic$~s ~y not b~ ~ ~ ~1 p~ or be m ~s of one ~ In tach ~ent, ~c &~ b~ (0 thc "stat~ ~tlon ~ce at ~** of e~h ~ ls~e Dimout Bund or ~81~1 Issue D~t C~lfl~tc, lm~ o~ng pn~ to ~c pubhc of ~ch ~ Is~ Dls~t Bond or ~n~ Issue Discount Cemfi~tc wo~d ~ns~tc on~n~ i~e ~s~t ~e "~ ~de~tton pn~ at ~*' m~s thc ~m of ~1 pa~ to be ~c o ~c Bonds ~d C~fi~tes less ~c ~o~t of ~1 p~o&c m~ ~ts Pcno~c mt~cst pa~ents ~ paints w~ch m ma~ ~u~ ac~al ~ (or d~n$ any ~u~ ~ If it is ~c ml~ or fi~ pmod) ~d which ~ ~dc dunng ac~ p~o~ whl~ d~ not ~ ~e ~ Under e~l~nS ~w, ~y o~cr who h~ p~ ~ ~1 Ismc Dt~ount Bond or ~stn~ Is~c Dls~unt C~lfica~ thc mitt~ pubhc offers is ~tled to exclu~ ~m ~ss ln~ (as defined m S~on ~ 1 of thc Code) an a~t of income ws~ ~s~t to ~ch ~ Isle Dm~t Bond or ~gln~ I~ ~sco~t C~tficatc ~1 to ~at pom~ of~c ~o~t of ~ch o~ issue ~o~t allocable to ~ ac~ period For a ~scusmon of c~mn ~lla~al fed~ ~ consequents, ~c dlscu~ton s~ fo~h ~low In the ~t of~c m~ton, s~e or o~ ~blc &s~sitmn of such O~al Ismc Discount B~d or Original Issue ~s~t Co. fica2 p~ to s~d ~, ho~, tho mo~t r~d by such o~ m excess of thc b~ls of su~ ~n~ Dtscou~t Bond or ~ Isme D~t C~fi~te m ~e ~ of tach o~ (~just~ upw~ by ~c potion t~ &~unt ~ocablc to the ~od for ~lch s~h ~slnd lss~ Dlsco~t Bond or Ongl~ Issue Dls~unt Ce~ficate w~ held by]~ch Int~al o~) is mclu~ble m ~ss inco~ Under e~ng ~w, the o~gmRI ts~e distort on ~h ~gm~ ls~ Dimout Bond or Original Isle Dlsco~t a~e~ly ~ the s~ted ~ ~f (m mo~ts cal~ ~ described below for c~h slx-month period endm8 on ~te be~m thc se~ ~ntv~s~ dat~ of ~e ~te of ~e Bon~ ~d C~ficates ~d rashly ~m e~h ~ch slx-~n~ p~od)]~d the a~med ~o~t ts a~ ~ an mla~ o~e?s b~ls for ~ch ~nal Is~c Dl~unt Bond or Original Dtsco~t C~fi~ ~r p~oscs of d~nm8 ~e mo~t of~m or 1o~ rcco~l~ by ~ch o~er u~n ~e ~emptson, or oth~ ~sposltton th~of ~e ~t to be ~ to basis ~r each a~mal period is cqu~ to (a) ~e sum of~e issue pncc ~d ~e ~ount of orl~n~ lsme dts~unt ac~ed m prior p~s multtphcd by thc ~ctd to s~t~ ~ (dcte~n~ on basts of ~po~dtns at the close of c~h a~ p~od ~d properly adjusted for ~e Icn~ of ~e accrual ~od) less mo~ ~ble ~ ~cnt tn~c~ d~ng ~ch a~mal p~od ~ such B~ds ~d C~ficate The federal income tax cons~ucocas of the purchase, ownership, redemption, sale or other d~sposl~on of Onglanl Issue Discount Bonds or Original Issue Discount Certificates winch are not purchased m the raitml offenng at the initial offering pnco may be deterunned according to roles which differ frem those desonbed above AIl owners of Original Issue l~hscount Bonds or On.hal Issue Discount Cefllficates should consult their own tax advisors w~th respect to the detemenat~en for federal, state and local income tax purpexes of the ~reatment of interest accrued upon redempt~an, sale or other d/spositlun of such Onglunl Issue Discount Bonds or Onhunal Issue Discount Certificates and vath respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other thsposlt~on of such Original Issue Discount Bonds or Original Issue Discount Ce~lficates COLLA~t~.AL I~)E~.~,L INCOME TAX CONSeQUences The following discussion is a smnmary of certain cullnt~al federal ~ncome tax consequences resulting from the purchase, ownership or d~spostt~on of the Bonds and Certlficstes This thscu~ston is based on cresting statutes, re/ulatlons, published rulings and court decislon~, all of which am subject to change or mothfica~on, retsuact~valy The followrag discuss~on is applicable to investors, other than those who are subject to special provisions of the Code, such as financial msututlons, property and casually Insurance companies, life insurance companies, mdlvidanl recipients of Social Security or Rmlread Retirement benefits, mthviduals allowed earned raceme cretht, owners of an Intm~st in a FASIT, certain S corporations v~th Subchapter C c~rnmga and profits mul taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obhgat~ons INVESTORS, INCLUDING THOSE WHO ARE SUB.It/CT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OV~ERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHBR TO PURCHASE THE BONDS AND CERTIFICATES Interest on the Bonds and Cemficates wdl be includable es an adjustment for *'adjusted current earnings" to calculate tho alterunt~ve unmmum tex unposed on corporations by section 55 of the Code Section 55 of the Code lr-u~.0osus n tan equal to 20 percent for corporations, or 26 percent for non corporate taxpayers (28 percent for texable excess excae&ng $175,000), of the taxpayer's "alternahve unnlmum taxable income," if the amount of such altereetuve ununnum tax Is grsu~r than the taxpayer's regular income tax for the texabte year Interest on the Bonds and Certificates may be sublect to the "branch profits tax" Imposed by section 884 of the Code on thc e fleet ~valy-counec ted earrungs and profit~ cfa foreign corporation doing basmess in the United States Under section 6012 of the Code, holders of tax-exempt obh~atlons, such as the Bonds and Certificates, may be required to d~sclose interest received or accrued during each t~xablc year on their returns of federal income ~.st~on Section 1276 of the Code prowdes for orthnary income tax treatment of gain recognized upon the thsposit~on of a tun-exempt obligation, such as the Bonds and Certificates, if such obhgahon was acquired et a "market thscunnt" and if the fixed matonty of such obb~atlon Is equnl to or exceeds, one year from thc date of issue Such treatment apphes to "market thscount bonds" to thc extent such gem does not exceed the accrued market thscount of such bonds, although for this purpose, a de mimmta amount of market thscount is l~nored A "market thscount bond" is one whwh Is acqtored by the holder at a purchase price which is less than the stated redempttun price or, in the case of a bond issued at au original Issue discount, the "revised issue price" (t e, the Issue price plus accrued on~lnal lssun d~scount ) The "accrued market discount" is the amount wluch be~s the same ratio to the market d~scount as the number of days during which the holder holds thc obhgat~on bco~ to the number of days between thc asqmsmon date and thc final matonty date STATE~ LOCAL AND FOREIGN TAXES Investors should consult their own tax advisors concerning the tax lraphcatlons of the purchase, ownership or dlspostoon o f the Bonds and Certlficetes under apphcable stere or local laws ~orsl~n ravestors should also consult their own tax advisors regerd~ng the tax consequences umqun to investors who arc not United States persons 26 OTHER INFORMATION The Bonds, Cemficales and presently outstanding tax supported debt of the City rs rated "Aa3" by Moody's and "AA-" by S&P The Cltylalso has issues outstanding wluch are rated "Aim" by Moody's and "AAA" by S&P throush insurance by vunous commerc~l insurance companies An explanation of the slgeificance of such ratings may be obtained from tho company furnishing tha rating The ratings reflect only the r0sp~ctlve views o f such orgemzat~on and tbe City makes no repmsantation as to the appl~prlataness of the ratings Tbem rs no assurance that such mtlnge yell continue for any ~ven perled, of tima ? ..that they vol plot be revised downward or vothdrawn antirely by either or both of such rating companies, if m the juogment es either or both companies, circumstances so warrant Any such downward revlslan or vothdrawal of such ratings, or either of them, may have an adverse efli.'ct on the market Imco of the Bonds and Certificates LITIGATION It is the Oplmon of the City Atiomey and City Staff that there is no pending httgation against the City that would have a material adverse financial impact upon thc City or its operations REGISTItATION AND QUALIFICATION OF BONDS AND CERTIFICATES FOR SALE Thc sale of the Bonds and Certificates has not been reatstered under the Federal Securities Act of 1933, as amended, in reliance upon tho[exemption provided therconder by Section 3(aX2), and the Bonds and Certificates have not bean qualified under the Securities Act of Texas m mhanco upon vinous exemptians contained thereto, nor have the Bonds and Certificates been quahfiedl under the secuntles acts of any junsdtotiun The City essumes no responslbthty for quahficatiun of tbe Bonds and Certifiextex under the suounties laws of any lunedtction m which thc Bonds and Certificates may be sold, assigned, pledged, hypothecated or cthm~rs~ t~ansferred Tfos thsehamer of responsibility for qualification for sale or other disposition of thc Bends mid Cemficates shall not be construed as an mtorpretatlun of any kind voth regard to the availability of any exemption from sectinties reglsmttion provisions LEGAL I~IVlZSTMEIqTS AND ELIGmILITY TO SECURE PUBLIC FUPmS IN TEXAS Section 1201 041 of the Public Security Pmesduras Act (Chapter 1201, Texas Government Code) provides that the Bonds and Certtfica~ex are negotiable rastmments governed by Chapter 8, Texas Business and Commerce Code, and am legal and authorized lnvcstml~nts for mmuanco companies fiduciaries, and trustees, and for the sinking timds of mumclpalities or other political subdlvis uns or pubhe agancles of the State of Texas With respect to investment in the Bunds and Comficates by mumclpahtles or other poht eal subdivisions or pubhc aganeles of the State of Texas, the Public Funds Investment Act, Chapter 22!;6 Texas Government Code, reqmres that the Bonds and Certificates be amgaed a rating of"A" or its eqmvalent as to investment quality by a national mtmg agan~y Sec "Other Infornmtion - Ratings" herein In addition, various provisions of the Texas Fmanc;c Code provide that, subject to a pmdant investor standard, the Bonds and Certificates are legal investments for state banks, savings banks, trust compames with st capital of one nulhan dollare or more, and savings and loan associations Tbe Bonds and Certlficqtos ere eligible to secure deposits of any public funds of the State, tis agencies, and its political subdivisions, and arc legal se0unty for these deposfls to tbe extant of thair market value No rewew by the City hes bean made of the laws m other states to'dctemune whether the Bonds or thc Certificates are legal investments for vanuns inst~totlons in those states LBGAL OPINIONS AND No-LITIGATION C~RTffICATg ~e C~ mll ~lsh a complc~ ~smpt of ~e~n~ had rectd~t to ~e au~on~un ~d ts~co of ~e Bonds ~ C~lfi~t~, racisms ~e unq~tfi~ appro~ns le~ oplnt~ of ~e A~omey G~c~ of Texas appro~ng ~e ~t~ B~d ~ Inl~ C~fica~ ~d m tho e~t tht ~o Bon~ ~d C~ficotes ~ v~ld and le8~ly bm&n~ obll~tio~ of ~e Ct~, ~d bas~ upon ~tiun of such ~s~pt of p~c~dmgs, ~e a~wvini leg~ opinion of Bo~ Co~sal, ~ hke effect ~d to the e~ct that ~O,lnterest on ~o Ban~ ~d C~fioates MIl be ~clu~blo ~m ~ss m~me for fed~ lnc~ ~ p~oses under Sec~ [1031al of&e ~o, ~l~t ~ tho ~ ~Scrlb~ ~ "T~ Ma~e~" h~m, including tbe ~temattve ~mmum t~ on co~{m~s ~e ~m~ al~ln~ pa~s, mcludmE a ~fi~to to ~e e~ &ct no h~tlun of ~y na~ has been fil~ or is &~ pan~ to ~9~n tbe ls~ ~d dell~ of ~o Bonds ~d Cmlficates, ~ which would affect tbe pwviston made for ~m( pa~t ~ ~un~, or m ~y ~ q~sti~ms tho v~lth~ of smd Bonds ~d ~lfi~tcs MIl also be ~shed Bond ~u~el wes not ~og~ to p~ctpato, ~d thd nct ~e pa~, m thc p~p~tion of the No~ of S~e ~d Bidding Ins~ctions, ~e Offim~ Bid Fo~ ~d ~o ~eral S~te~t, and such fi~ h~ not es~m~ ~y re~onsthdlw Mth res~ct the~o or un~ md~an~tiy to v~ ~y of tbe mfo~on cuntmned th~m, except ~at, m its capactW ~ Bond Counsel, tach fi~ ~s ~i~d &e mf~un ~thm8 the Bon~ ~d Cmlfi~tes m the Officl~ State.at to vm~ ~at such du~ption c~s to the pm~smns of ~o ~nces ~e le~l fee to ~ paid Band C~sd for ~mces ~nde~d m co~ection ~ &o is~co of &e B~ds and C~flcotes Is contingent on &o sale ~ ~ltve~ of ~o Bonds and Cefllfi~tes ~e le~l oplmon wIH ~company &e Bonds ~d ~ficates dspostted ~th DTC or ~11 be ~nted un &e Bonds ~d Ce~lfic~tes In ~e ~mt of~e dis~n~nuan~ cftc ~ok-En~-~ly S~ ~e vano~ leg~ opml~s to be dullve~ ~nc~n~y ~ the dehve~ of&e Bonds and Cemfl~tas express &c p~fesslon~ jud~e~t of ~e aRomeys rendering the opinions as to the le~ issues cxplantly ad~essed ~e~m In ~ndenng a le~l opinion, the a~o~ does not become ~ lnsu~r or ~untor of tbe exp~mun of pro~ss~o~ jud~nt, of Ibc ~snctton opm~ upon, 27 or oftbe futom performance oftbe parties to the transaction, nor does the rendering of on opinion guarantee the outcome of any legal dispute that may arise out oftbe transaction A~NTICITY OF FINANCIAL DATA ~ND Ol'l~R ]~FORMATION The financial data and other information centamcd hcmm have been obtained from City records, audited financial statements and other sources winch are believed to be reliable There is no guarantee that any of the assumptions or estimates contained hercar v~ll be realized All oftbe summaries of the statotes, documents and resolutions contained in this Prahmlnary Official Statement are made subject to all of the provisions of such statutas, documents and resolutions These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further mfommtion Reference is made to ongmal documents in all respects CONTINIJ1NG DISCLOSUt~ OF INFORMATION In the Ordinance, the City has made thc following agreement for the benefit of thc holders and beneficial owners of thc Bands and Certificates The City is reqcired to observe the agreement for so long as It remains obligated to advance funds to pay the Bonds and Certificates Under the agreement, thc City will be obhguted to pm*ada certain updated financial arforrflation and aparatrag data annually, and timely notice of specified material events, to cartaar lnformatlan vendors Tins reformation will be available to sccunties brokers and others who subscribe to receive tho mforrnstion from the vendors ANNUAL ~I~PORTll The City will provide certain updated financial reformation and operating data to certain mfommtion vendors annually The information to be updated includes all quentitetive financial raformatioe end operating data with respect to the City of the general type included in this Prehannsry Official Statement under Tables numbered I through 6 and S through 15 and in Appendix B The City vail update end pm,nde 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 secuntics information repository ("NRMSIR") and to any state information d~pository ('S[D') that Is desiguatad by thc State of Texas and approved by the State of Texas and approved by thc staff of thc United States Securities and Exchengu Conantsslon (the 'SBC") The City may provide updated inforiltation in foil text or may menrporate by reference certmn other pubhaly available documents, as pemuttod by SEC Rule 15c2-11l Thc updated mfonantioe will Include audited financial statements, if the City commissions an audit and tt Is completed by the reclarred time If anthtad financial statcmanta are not available by thc required tune, thc City vail provide unaudited financial statements by the required time and suthted financial statements when and if such audited financial statements become available Any such financial statements will be prepared in accordance with the accounting pnnciples described in Appendix B or such other accoant~ng principles as the City may be required to employ from tune to time pursuant to state law or regulation The Ctty's corrent fiscal ycer end ls September 30 Accorthngly, ltmuatprovuleupdatedlnformatlonbyMarch311ncechycar, unless thc City chenges its fiscal ycer If the City changes Its fiscal year, It will antify cach NRMSIR and the SID of the change Thc Municipal Advisory Council of Texas has been daslguatcd by the State of Texas and approved by the SEC staff as a qualified SID The address oft. he Mumctpal Advisory Council is 600 West 8th Street, p O Box 2177, Austin, Texas 78768- 2177, and its telephone number Is 512/476 (5947 MATERIAL EVICT NOTICES The Czty will also providc timely notices of certain events to certain mfommtion vendors The City will provide entice of any of the following events with respect to the Bonds and Certificates, if such event Is ITtaterlal to a dcelslen re purebeze or sell Bends aed Certificates ( 1 ) principal end mterest payment dehnquencles, (2) non-payment related defaults, (3) unscheduled draws on debt service reserves leflccting financial difficulties, (4) unscheduled draws on credit enhancements reflecting financial difficalties, (5) substitotion of credit or llqarthty provtdars, or their farlurc to perform, (6) adverse tax oplmons or events affecting the tax-exempt status oftbe Bonds and Certificates, (7) modifications to rights of holders of the Bonds and Certifinates, (8) Bond calls, (9) dafoasences, (10) release, substitution, or sale of property seenrmg repayment of the Bonds and Certificates, and (11) renag changes (Ncltber the Bond8 end Certificates nor the Ordinance nmkc any provision for dcht service reserves, liquidity enhancement, or early redemptioe for the Bonds and Celilficotes ) In addition, the City will pro*adc timely notice of any failure by the City to penvulc arforreatlOn, data, or financial statements in asenrdancc vath its agrcereent described above under "Annual Reports" Thc City vail provide each notice described in this paragraph to thc and to either cech NILMSIR or the Mumclpal Securities Rulemakmg Board ("MSRB') AVAILABILITY OF INFORMATION FROM NRMSIRs AND SID The City has a~read to provide the foregoing reformation only to NRMSIRs and thc SID Thc reformation will be avadabfo to holders of Bonds and Certificates oely i f the holders enmply with the procedures and pay thc charges cstabhshed by such mfommtioe vendors or obtain the mfornmtion through securities brokers who do so 28 1AMIT.~TIOIqS ~,I~D AMI~IqDMI~I~rrs The C~ d~s~bedl ~ve ~e Ct~ ~s not a~d ~ p~ld~ o~cr m~fl~ t~t ~y ~ ~lcv~t or ~t~al to a co~l~ p~ta~0n of its ~ci~ m~ of op~s, con~o~ ~ pm~ or a~ to u~te ~y mf~on ~at ts pm~ ~cept ~ d~ ab~ u~lness to a d~smn to m~st m or sell B~ds ~d Cemfl~s at ~y hablh~ f~ ~Ses ~l~ng m whole or m p~ ~ ~y bm~h of 1~ ~n~nums ~los~ a~ent or ~m ~y s~to~nt ~e p~t to its a~t, althou~ hol~s ofB~& ~d ~mficates ~y ~k a ~t of~ to ~m~l thc CI~ to co~ly ~& t~ a~t ~o Q~ ~y ~d t~ ~n~g d~lo~ c~go m leg~ ~, a ~ m law, ~ a ~ m &e i~UW, ~, stares, or ~e of o~atlons of ~ Ci~, if (~) · c a~t, as ~ ~d ha~ ~ ~ ~e~t~ m p~o~sc ~ ~11 B~ and C~fi~tes m thc offmng do~lbed h~m m ~ll~ ~th ~e R~o, ~n~ in~ ~t ~y m~cnts or mt~mm~ons of tM Rule to ~e ~ of tach m~t, ~ ~11 ~ tach c~ c~os, ~d 00 el~ (a) tho holde~ of a ~lon~ m a~to pnnmpal ~o~t of~o ou~&ng Bon~ ~d narrowly ~t~ bond ~sol) d~n~ ~t ~e a~t ~11 not ~nally impair tho mt~s~ of tho hol~ ~d ~efict~ o~ of &o Bon~ ~d ~flca~s ~e Ci~ ~y ~so ammd ~ ~poa[ ~e pm~slons of this ~ntmm~ &sclo~c a~I If ~o S~C ~ or ~s thc a~H~blo pm~ons of ~e SEC R~o 15c2-12 or a co~ of fin~ j~lctlon ~t~ Jud~ ~t such p~vlslons of s~tm~ ~d not ~t ~ ~d~t~ ~ laxly put.ms or sellmg Ben& ~d Ccmfi~t~ m &c pn~ o~l~ of · c Bonds a~ C~fl~tos If &e CI~ so ~ ~ ~ it ~ a~ to include ~ ~ next fi~ct~ toleration ~d op~tm~ ~m provl~ m ~nce ~ ~ a~m~t de~nbcd a~vc ~der "~ R~m" ~ ~pl~a~on, m n~t~vc ~ of ~o ~a~ns for &c ~t ~d of ~ i~a~ of ~y c~ m ~e ~e of ~cl~ mfo~U~ ~d o~aUn8 data so p~d~ CO~L~ ~Ta ~OR U~T~ ~e Ct~ h~ co~ll~ m ~1 ~tenal ~s ~ all conanmng &~losure a~m~ m~e by it m ~c~n~ ~& SEC R~e 15c2-12 At~ ~estm8 coOl.ye bl~ for ~o Bon~, ~ CI~ accep~ the bid of (thc "~l~al ~rch~ of the B0~s") to p~e pnncip~ mo~t thief plus a ~h p~ (If ~y) of $ ~e lnl~ Pu~8~ of the Bonds ~ ~vo no ~ ~t ~y ~dlng ~t ~ll be dcv~ f~ ~o Bon~ a~ &mr sale ~ thc Cl~ to &e ~lU~ ~h~ of~e Bonds ~e ~W ~ no ~n~l ov~ &e pn~ at ~l~ ~e Ben& ~ ~bsc~mt~ sold ~d ~e lmtl~ ~eld a w~ch ~ Bonds ~11 be pn~d ~d ~o~ ~11 ~ es~bh~ by ~d ~11 be the resp~tblll~ of&e ~m~ ~hascr of&c Bonds I~ ~C~ER O~ ~ ~ ~ques~ng compotl~vc bl~ for ~o C~flcatos, ~c Ci~ a~ ~c bid of (thc "~al ~rchas~ of the ~ficates") ~ p~h~ ~e ~ficatos at &e ln~st rotes sho~ on the ~ver page of the Officl~ Sta~t ~ a pn~ of ~e pnnctp~ ~t ~of pl~ a cash p~ (If ~y) of $. ~e Inm~ ~h~ of the C~ficat~ ~ ~ve no ~ ~t ~y ~ng ~ ~ll be d~elo~d for ~e C~ficatcs afl~ ~clr sale by ~e CI~ m the lmU~ ~has~ of the ~lflcatcs ~e Ci~ h~ no ~n~ol ov~ the ~lcc at which the C~lficates ~ subsequently sold ~d · e ml~ ~eld at which lm~al ~has~ of the Fl~t Southwe~ ~any Is ~loyed ~ F~c~ Ad. or to the Cl~ in co~cc~on ~th ~c ls~ of ~c Bon~ and C~fi~tcs ~e Fl~cl~ Ad~s ~e for ~ces mnd~ with rcsp~t to the s~c of the Bonds ~d C~ficatos ~s conUn~cnt u~n the iss~ ~d dohv~ of ~c Bonds ~d Ccmfi~tes F~ Southwest Comply ~y ~b~t a bid for ~e Bonds ~d ~tfic~s, m~cr ind~nfly or ~ a ~mb~ of a ~d~ca~ Or~l~d m sub~t a bid for ~c Bonds ~d ~ficates Ftnt Soul.st Comply, m its cap~l~ ~ Fm~m~ Advisor, ~ ~hed on the oplmon of Bond Co.sol ~d has not v~ficd ~d does n~ ~sume ~y ~onmbd~ for the m~tl~, co~n~ ~d ~cn~aons ~nt~n~ m any of &o le~l doc~ts ~ ~t to tho f~ tn~ ~ smms of ~o Bon~ ~d Ccmfi~s, or tho possible ~mpact of ~y present, pen&nB or ~ aca~s ~ by any leglsla~vo ~ jU~clal bo&~ In the no~al ~ursc of business, &e Fm~cial Ad~sor ~y ~m ~ to time sell Inves~mt sc~ntlos to ~c CI~ ~r ~ mvos~mt of bond pmce~s or o~er ~ds of thc Ct~ upon the ~quest of thc C~, The Financial Advisor to the City has provided the following sentence for inclusion in this Preliminary Official Statement The Fmenolal Ad'assr has reviewed the reformation m tlus Preliminary Official Start in accordance wth, end as part of, its responsibilities to the City mid, as applicable, to Investors under the federal securities laws as applied to the facts and c~reumstonces of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such mfommtion CI~RTIFICATION Of TI~ PI~LIMII~ARY OFI~IClAL STATF, blF, NT At the time of payment for and delivery of thc Bonds and Certificates, thc City v~ll fa~nlsh a ce~ificato, executed by proper officers, acting in their official capacity, to thc cl~ct that to thc best of their knowledge and bche~ (a) thc descnptrens and statements of or pertaining to the City cont~mied In its Prehrelnp/~ Official Statement, end any addenda, supplement or mnendment thereto, on the date of such Prehmimity Official Statement, on thc date of sale of sssd Bonds and Certificates and thc acceptance of the hast bid therefor, and on the date of tho delivery, wine end am true end correct m all material respects, (5) insofar IlS the City end Its affairs, mchithng its financial affairs, are concerned, such Preliminary Official Steteraent did not end does not contmn an untrue statement of a materml fact or omit to rote a materiel fact required to bo stated thormn or necessary to nmkc tho statements therein, lo thc light of the cirenrestenca8 under which they were milde, not mis]enthng, (c) insofar as thc dsserlptlomi end statements, mchithng financial data, of or pertaining to entitles, other then the City, and their activities contomcd in such Prehn~nary Official Statement are concerned, such statements and date have been obtained ~rom sources which thc City behoves to bc reliable end the City has no ~.ason to hahcve that they are untrue in any material respect, end (d) th~ has been no material adverse change lO thc financial condition oftha City since thc date of the last anthted finenClal stotemoots of tbs City Thc Bond Orchnance and the Cemficate Ordinance authorizing the tssuenco of thc Bonds end Certificates will also approve thc form and content of this Preliminary Official Statement, end any addenda, supplesuent or en~t thereto, end authorize its fu~her use in the reoffertng of the Bonds and Certificates by the Initial Porchasur BULIN£ BROCK Mayor AT~EST City of Denton, Texas ~ENNIFBR WALTERS City Secretary 3O (~ENBKAL INFORMATION REGARDING THE CITY LOCATIOIq The City of Denton is situated m the uerthem poffion of tha Dallas/Fort Worth Consolidated Stahatga] Ama (CMSA) The City is officially a part of the Dallas/Fort Worth me~-oplex, and ts sttuatsd at the apex cfa mangle based by Dallas (38 miles to the routhcast) and Fort Wonh (36 miles to the sunthwest) The City hes excellant ace.s to and from all pasts of the aren ECOlSOM¥ Dentun is m the midst of a nch agncultmal and hvest~lc arue, The hub city of Texas' new "Land of Lakes" re~qon, which provides Denton and nmghbunng cities with abundant watm' for mumcipal, mdustnal and rcercetiunal purposes, One of thc three major umverslty centers m Texas The ho~ of diversified lndustoal interests, The sits of thc Nation's first underground Control Center of the Office of Emergency Plamimg and Office of Civil and Defense Mobd~zatiun, O11o of the key cities In the econoxmca]ly significant Dallas Consohdated Metropohiau Area IPmUSTIUAL F~TURE Fiscal Year 1999 - 2000 brought a vunety of new and expanding businesses to Denton with a total new value of $49,304,972 The following are some of the outstanthng Industrial projects that contributed to Dunton's economic growth in 2000 Dcnton's regional shopping mall, Golden Triangle Mall, completed a major re~uedelmg project with a perlmt value of $3,000,000 · A local auto dealership, Jamcs Wood AutoPark, invested iR its Denton facility with a $3,200,000 expansion · A longtlma Denton company, Trimly Industries, retunled its plant to move from production of rail cars to bridge g~rdars This project allowed the cempany to rattan 80 jobs m Denton und added $1,500,000 to the lueal tax base · Comfort Suites Motel built a 38,330 square foot building with a permit value of $1,957,129 · The Radisson Hotel remodeled and expended its Denton hotel The project had a pemut value of $1,600,000 · Northstar Bank, Denton's only locally owned bank, is construcung a new 25,048 square foot bank building The proJact has a permit value of $1,810,920 · In addition to several professional office butldarg projects, there were three office park projact8 developed in 2000 The Dove Creek Office Park, the Southrldge Office Park, and the Timber Ridge Office Park added 26,853 square feet of office space and had a combined pemut value of $1,282,396 · Tetra Pak, an international aseptic packaging company for food products, added a 26,000 square foot research centsr with a value of $1,231,360 · TRCA, a local conlmurocatlons refurbishing company, built a 36,465 square foot building with a permit value of $1,131,795 · The Federal Emergency Management Agency announced the consolidation of Its Denton call center operations into a 82,000 square foot facility with an expected value of $14,000,000 · Thc renovation of the Radio Cantsr Budding, located In the historic downtown area, added additional office space and apertmants The renovation had a pcrnut value of $1,000,000 · Heavy truck parts distributor Inland Track Parts bmlt a 20,520 square foot facihty with a pemut value of $667,424 · The Duncan Slreet BuelueSS Park expanded Its park with 30,000 squnre feet of new braidings with a permit value of $635,475 · Sirius Enterprise, a manufacturer of component parts for the elactren~rd telecommuntcatiuns recluse/, built a 10,000 square foot building with a pcmut value of $500,000 · gkyfob, a local metalwork company, built a 34,800 square foot expansion with a perout value of $550,000 · National retarlar Dollar Crcncral built two new stores In Denton with a total permit value of $632,066 · Anothar bustacss park expanslun was constructed in tho RonJun Business Park with an adthtiOllal 9,855 square feat and a pemut value of ~450,688 · Local business Achievers Crymuestics bmr a new 19,624 square foot facility with a penmt value of $842,262 · A growing restaurant chain, Taco Cabana, loceted a new facility In Denton and developed a 3,061 square foot restaurant with a value $176,228 A I Ma]or Employers Approximate Number of ~m~lowr ~scn~t~o~ Hmul~ Unlv~ ofNo~ T~ Educa~o~ F~dtW 5,9~ D~ ~d~t School Dlsmct ~hool Syst~ 2,000 ~emg ~mp~y Mih~ ~d Co~ El~omcs 1,700 ~ton S~te ~h~l ~ Facdl~ 1,350 Pe~btlt Mo~O) ~egl Track As~bly 1,200 D~t~ ~ ~v~m~t ~ Gove~t 1,227 CiW of ~ton Ci~ Oov~t 1,2~ T~ Wo~*s Univ~s~ ~o~ F~tlt~ 1,131 ~n Re~o~ M~tc~ ~t~ Hospital 865 F~ F~ ~ve~t C~I Cent~ 750 Vscmr E~p~t ~mp~y Wel~ng Eqmpm~t 500 D~ton ~tW Hosps~ Ho~l~ 500 O~ Tel~ng ~c C~I Center 390 ~e ~ P~m g) Jet lnt~ors 365 S~ly B~uW Supply(2) B~uW Supply Dzsmbumr 361 Joel's Cl~s ~ng ~g~ 350 F~rst State B~k(2) B~ 350 ~de~ Mcgh~dt~s Dls~butm~ouse 310 ~ ~o~tton ~t~ M~u~r 310 CBS M~t~ (2) Con~on Se~l~s 275 TeUa P~ ~c P~gmg 250 V~n Tel~hone ~mp~y 230 Momson MiRing (2) F~/~n Mall 200 Ao~ Bn~ Back M~u~c~ 1 ~ ~e ~s~mt~ C~I ~n~ 160 SCI Enclos~ Plasuc Molding 150 D~ma Good S~t~ Village ~t Center 140 Shrew ~ Fuel Recycling 140 Um~d Cop~ In~es~) ~pp~ Wire 126 R~II Ne~ M~u~nng (2) hng~e 120 ~sson Hotel & EaSe Point Golf Co.se HoWl 120 ~yday M~uf~ng (2) ~msp~e ~hm~ Pn~s 100 (1) Peri,It Re~ H~dq~ (2) Head~e~ So~e ~lW of D~mn ~d Denton C~m5er of C~ ~o~c Devclopm~t O~ces Denton is proud to boast ov~ 30 ~es ~d msRm~ons ~o employ 100 or mog people, e~t of ~ r~sent ~orate or regto~ headq~s Well ov~ 100 comp~t~ ~t pmd~, ~ ~d d~u~ goo~ all ov~ ~e world ~1 ~ ho~ Mom t~ 3,~0 ~smesgs ~lo~ng 1 m 5,9~ ~lc ch~se to ~ b~s m D~ton W~ s~l, m~ ~d I~ge ~m~ op~tmg m a v~eW 0f ~d~eg ~v~W ts a s~ m ~ Sm~ md~cag a ~jon~ of ~esc work~ ~ ~1~ ~d ~lve ~eff ~g m A-2 four danades HIstuncal population totals from U S Census rccurds are 1940 Census- 11,192 1950 Census- 21,345 1960 Census- 26,844 1970 Census - 39,874 I980 Census - 49,079 1990 Census - 66,270 The City's ascension toward a top rung on Texas* econonuc laddm' ts atinlmtcd partly to the steady influences of govenunental ac~vtty wluch includes thc yenr-by-yusr expansion of the ~ Stotc-suppur~d umversities, and partly because of such enwrenmentsl factors at its location in a rich ainenlturai i~eglen, some od and gas production m the northwest sant~en of Denton County, its melusion tn the Dallas/Fort Worth Metroplex, its proxm~ty to three of Texus' largust resarvoirs (Lake Tenoma is only 40 rmlas from Denton), its excellent highway and transpurtatien facditius, tts mild climate, and the less tangible but mfluenturl uspec~ of anc~nl, cultural and education advantages that have prompted profusslonnl wod~rs to choose Denton as a place of residence ECONOMIC RANK~G The followmg data was tskan from Snlus and Marketing Managament 1999 Survey of Buying Power, dated August 2000 °,4 of Populatien Whose Age ts 18-24 25 40°,4 25-34 15 700.4 35-49 19 00% 50 and Over 19 80% Households 32,900 Mc&an Household Effective Buying Income $ 29,183 Total Effective Buying Income $1,235,080,000 % of Households by EBI Group $20,000 - $34,999 19 80% $35,000 - $49,999 15 90% 550,000 and Over 27 20% Retiul Sales $1,309,768,000 Food 86,461,000 Eatmg and Dnnkmg 161,474,000 General Merchandise 217,685,000 Automotive 368,836,000 EMPLOYMENT/LABOR FORCE Denton's largest private employer, Peterbilt Motors, reduced its labor force this year The layoffs were duc to a reduction m new tmch selas caused by high thel prican The enmpany expects it will tske appronunately 18 months to regain its production capacity and mcranse employment at the Denton facility A-3 U~M~LOYMZNT I~.TI~S As of D~mnb~r of 2000, the avadabl~ workforc~ hvmg m Denton ts $7,200 ~ton Is fo~ to ~aw work~ ~m ~ D~las ~ F~ Wo~h~n MSA's (~a~ 2 9 ~lhon p~ple) ~ busm~s~ ~1~ ~s ~ho ~ ~ sou~ O~o~ ~ wcH ~ m ~ fav~bl~ ~nomy and s~llcd l~or ~m~, ~ton shifty b~low ~e s~ ~d ~aon~ av~6~ f~ ~lo~t Average Avomge Av~go Average Av~ge I ~ ~1 ~l ~nual ~n~ C~ of ~ton 2000 1~9 1998 1997 ~tvfll~ ~ Fo~ ~6,~35 54,694 53,201 50,418 47,940 To~ ~loyed ~4,626 53,136 51,654 48,747 46,003 ~ Unemployed 1,709 1,558 1,547 1,671 1,937 P~mt of Un~ployed 3 03% 2 85% 2 91% 3 31% 4 D~mn ~wli~ ~bor Fo~ 250,868 243,708 237,~6 224,317 212,788 To~ Employ~ 24~,6~8 238,938 232~70 219,198 206,860 Term Un~l~od 5~30 4,770 4,736 5,119 5,928 ~ant of Un~ploy~d 2 08% 1 96% 2 00% 2 28% 2 79% Sm~ of ~i~h~ ~b~ Fo~ 10,454,895 (o 10,206,~3 10,081,605 9,838,951 9,674,460 To~ Employ~ 10,~2,140 9,734,413 9,596,501 9,309,966 9,129,997 To~ Unempl~ 412,755 471,630 485,1~ 528,985 5~,463 ~ent of Un~pl~ 3 95% 4 62% 4 81% 5 38% 5 63% (1) Ave ~g~ annual unavailable, as ofNowmber 2000 Source ~ E~l~t ~on EDU~ ~N ~t~ ~ ~ ~ ~o Umv~W ofN~ T~, ~ m 1890, T~ Web's Umv~, fo~ ~n 1901, ~d ~ ~ ~on ~ si~ ~r No~ C~ T~ ~]le~, o~bhs~ m 1924 ~e ~o ~v~i~es ~d c~m~ college ~ a c~m~ ~ml~t of more ~ 36,000 smd~ts ~d app~x~tely 7,029 ~ ~ t~ With ~ ~ll~t of ov~ 26,0~ sm~is, the Um~l~ of No~ Texas leads &e combm~ ~llment of Sout~ Me&od~ Umv~tW at D~I~, T~ ~s~ Umvers~ m Fo~ Wo~ ~d ~ Umvers~ m Ho~ton Te~ Wo~' ~ Um~t~ ~ ~ appmxt~ mmll~t of 6,800 m Denton ~& ~ ad&~onal 1,8~ smden~ a~mdmg m DalI~ ~d Houston I ~e Um~ ofN~ Te~, (~ c~us c~s~ a l~d ~a of ~ th~ ~25 ac~s valued m ~ss of ~167 ~lhon ~c Um~l~ enco~as~s reno ~lleges ~d ~h~ls of s~dy ~d o~ B~helor s ~s in 93 field, ~ s de~s in 124 ~ and Doctoral pm~ m 47 ~iplines ~ ~ns a low 16 I s~ent-~ mira mom p~alont mo~ pn~te ~cr ~ public ms~ons ~ is hs~ In both ' c C 1 e ~d ~ Co~eeeS Te~s Wo~ s umv~l~ ~, a ~or ~t~p~n~ t~chms ~d ~se~h ms~m~n, ~s ~e ~a~on s l~gest pubhc ~l~l~ a~d~ primly ~ wo~n, ~o ~so 90% of a~&nS ~ts ~most 90% of~ s ~ ~1~ m~ bold a [ ~oral ~ or o~ appm~ate t~n~ de~ in ~e~ field ~u~ ~ts ~cn schools ~d colle~s, ~ off~s 106 Pml ~ lea&nS to a Bachelor's do~, 106 M~'s de~ fi61ds, ~d Doc~a[ ~ces m 23 spocl~l~on ~as No~h C m~l To~s College ~C), ost~lished in 19~, opined a T~i~ Vo~mnal Center m D~ton o~nng ~socmtc De~s m O~upag~al ~y ~l~, ~n~ ~usgce, ~d-Man~emcnt Training ~d Micro Co~ut~ ~phca~ons N~C i ~ectah~s m ~m~ 6e~ &r~ly to ~sme~ ~d mdusW n~ds Co~caon has be~ on &o fi~t stage of the college, ~ n~ ca~ si~ m ~dn&, locat~ 1 ~ ~1~ sou&~ of ~ts cu~t Dmton cmpus Upon ~lo~on m De~cr 1999, t~ ~ $7 ~ ~lhon ~11~ ~fl&ng wall ~mbtne ~fly le~ ~t~ ~d ~s~lle cmpus sl~s rote one colle~-o~ed facili' ~nE~of-the-~In~et~cl~s~don-hnccla~o~nn~ Subs~uents~tepl~sam~ay ~pm~ly 13,227 students ~lled m t~ Dmmn Ind~mdmt School D~smct ~ISD) for thc 1999-2000 school ~ S~nt~ ~end 17 ~h~ls, mclu&ns 10 el~ schools ~s K-5), t~e ~lc ~hools (6-8), ~o high schools (9-12), one e~y c~l~o~ ~t~ ~d o~ ~t~atlvO school DISD o~ cl~s~ at e~h school ~d at ~e ms~onal c~r ~r ~d~t~ who exp~ce le~n~ &sablh~ or ~dlcaps Co.scion, ~ch ~d l~go s~cmhsts, p~cholo~sts, ~d ~ng]~d &a~osflc ~m~ts ~ avm~le for all ~e levels In 1999, DISD ~uat~ 569 smdmts wl~ o~r 81% A-4 rate 4% Tbe district Is one of only 82 school districts t~ have cerued ttccrath~tion by both the Txots ~ducattur~ Agency and thc Southern Association of Colleges end Schools for primary and secundary schools DISD studcuta cooststcutly exceed both state and national average test scores Conuuned emphasis on basic skills has positioned students to achluw acudanuc, fine errs, vecntionalnadathlctlc honors at distnct, stcte, andanuonalcempctmons BlllyRyanH~gh School w~ chosen in Jannary 1999 by USA Today ns one of the top 96 High Schools m thc United States Denton State School It ts one of the conaw/'s must modem and pro~eas~ve educct~onal mst~tuticus The s/ate supposed edacatianal restitution for mentally hanthcepped Texas re.dante is located on a 200-acra sim prod for by Denton clttmm Px~sent fsothties include residences which accommodate 677 students, more then 20 buildings for physically handicapped individuals ,,~th a capacity of 600, a~l a 32 b~d acute hospital with supportmg fnstht~as such as X=ray, laboratory, deutel, and pharmaceutical Additional budd~ngn include a mudem adnamstrat~on building, an acudeanc belldmg, laundry facthty, mamter~tce shop and a warehouse Tbe school has a staffer 1,354 with an annaal payroll m excess of $28,705,000 DENTON UNIVERSITIES TeXO~ Woman · University- In 2001 TWU celcbratud its 100th buthdey TWU celebrated its ach and long lustery ofnatlunally ~co~llzed programs m occupational thcrapy, physical therapy end dance Thc undergraduate pro.are in nutrition in the college of Hculth Sciences is ranked 23rd tn thc natmnl The over 100 majors offered to students includes the only mester~s program in womcu's studies In Teens In April 2000, Dr Ann Stna~ was inaugurated ns TWOs nw,v president end chancellor University of North Texas - UNT's new 100,000 square foot, $175 nnlhcu Gateway Visitors Canter conetmctioo ts well cuderway When completed it vail include classrooms, administrative offices, and a comprehensive cnmpan reformation center forvantors lnOctuber, Dr NorvalPohlcan~toUNTfromtheUnlversltyofN~LasVagnsandwesuppothtedprasidentof UNT Under Dr Pohl's dirceUon, the university will establish a new doctoral pragn~m m applied serontnlol~ The Umvcunty is worlong w~th radantiy to plan for a highly anticipated collegn of engineering Regional industry demand for angmccrs is expected to accelerate tlus goal Acclmmed for acousUcul excelleace, UNT's Murclnson Perfonmns Arta Braiding opanud m Febnmry 1999 The statu-of-thc-art facility includes a 1,200-scet pcrfornumce hall and a 400-seat lyric opera house showcasing UNT's 1,400 music maJOrS and mternatlunal vlsmng artt sis UNT Is one of foe country's largest and mcat racugmzed music sohunle, and is home to the multiple Grammy v~unrag "Cna o'Clock Lab Band" AGItlCt~TUi~ Northwestern Denton County is one of the mom diversified ngncnltural ames m Texas With soil types ranging f~om ach black to deep sandy loam, end geed, so~ artesian wcter, it ~s ideal for thverslfied thnnmg and hvestuck Pnanlpal crops are corn, wheat, oats, hay gram sorghums and peanuts Beef cattle, sheep, cluckens and turkeys anntnbute a substantml end steady mc. oma every year to the farmers and ranchers of the County A very significant concentration of valuable world chnmprcn horses and horse ranches, located immediately to the north and cast of the C~t~s corporate boundaries, prorate a pmsperoan ccunounc resoerce for the City and erex Products significant to the economy are horses, beef, e~gn ,wheat, gnun sorghums, hay, and nursery c~ops TRANSPORTATION Denton le located only 20 mdes northeast of the Dallas-Fort Worth lnternatiunal Airport which began operations in January 1974 [n eddmon, Dallas' Love Field Airport and Fort Worth's Meacbem lntumatmnal Airport arc w~thm close pmx~rmty to Denton Alhence At~port, located abunt 20 nales southwest of Denton, is the only purely rathtstrtal airport ra the world Accumpenymg the Alliance's Airport are five business perks Together, Alhance's access to highway, rml and air ~ansportation offers an excellent opportunity for futura commercial and mdustml growth Thc Denton IVlumclpal Att-port uses a full instrument loathes system and is in operation 24 hours a day The runway is 6,000 feet by I$0 feet with pleas to extend It an eddmonal 1,500 feet A new terminal apron was completed in 2000 Other plans include air traffic control serwces and a new terminal braiding The City airport received $1,500,000 gnmt for airport anprovemants that will fund thc rccoostructlun oftex~ways, lmprovemante to the runways and tax,way signage, gnneral pavement malntonnncc and construction o f a behpad The a~rport also received a $150,000 grant to fund a coaster plea opdete The Kunsns City Southern Redroad and the Union Pacific Rudroed provide daily servlcu to Denton Full switehmS is available, providing direct access to all major markets across the nation GrayhcundfFrmlways serves Denton through Dallas and Oklahoma City Motor f~eight m Denton is maluded ra the D/FW cummercml trade zone and is s~.ed by major freight comers BA~'KmG Tbera ara eight hanks ra Dantun Bank of America, N A, Bank Gao, N A, Flrat State Bank of Texas, Furmers and Merchants State Bank, Northwest Bank Texas, N .et., Point Bank, N A, Provident Bank and Texas Bank. Denton was chosen ns the hcudquartor site for Northstar Bank, thc only locally-owned bank m Denten Constructlun Is scheduled for complctlun m tha Fall, 2001 In 1998, locally hased Fumt Bank rcnovated a vacant budding tu ereste thor third branch m Denton Also m 1998 Guaranty Federal Bank built a new facility on University Drive A 5 GROWTH INDICES Year i(~ommercial Reridenttal Total Castome~s Customers Customers l~t~ Rates (1) New Construction Only MgDICAL Denton Regtonel Medical Center is a 186 bed community hospital that scn~s the growing population of Denton, Wise, Cooke end Mmitagon Counties origin8 the full-spash'um of healthcare lneluthng edvarleed open-heart surgery and neurosurgery pro.ams, Denton Reglonal's mom than 1,000 employees and 250 physicians em constantly stnvin$ to offer the Inghest qUality service to the north-Texas area Denton Community Hospital is a 110 bed (all prlvat~ room) acute care faedlty with l0 wali-haby cribs end three mtcmledlate care units The phymcal plant consists of a three sto~y structure with approximately 128,000 squere feet The hospital has approximately 500 employees end more than 200 physicians on staff Patient care Is evadable to neonates, pediatric, adult, and ~enatne patients based on their needs, dmgnosts, acuity of dlness, end special--cd treatments Rl~caggtlON Lake Ray Roberts, located approxtrastaly 8 miles northeast of the City's corporate betmda~ on the Elm Fork of the Tnmty River, Is a n~jor water enns~vaflon and flood control faedity of rno~ than 799,600 acre-feet of storage winch provtdas on ablmdan~ of parks and other water and outdoor related rcereational faothties Major park facthtier on Lake Ray Robclis were completed in the fall of 1996 NcerSy Lake Lewiswlle, one of North Texas' lerg~t lakes, Is one of Texas' most populer recreation a~as L~ Lewis'nlle has a shore line of 183 miles located enttsaly m Denton County Lake Levnsvdln atiracts over 3,000,000 · amers to its shores annually Ihe upper reacher of the Lake em only about 3 miles east of tho Denton City Lmuts, while the dam is 15 miles[f~om downtown Denton Cmipevine Lake, another lerso body of water created 5y the U S Anuy Corps of En~nems, ts located m Denton and Tarrent Countier The dam ts 23 miler from Denton Perks end recreational areas abound on thc shores of Leks Ra~ Roberts Lake Lowtsvflle and Grapevine Lakes Bentmg, fishing, honting, swimming end all water sports em the favorite renrentional pastimes at the lakes, winch, bccauas of this ama*s favorable c lmate, are tn usc thc yasr tumid A-6 EXCERPTS FROM THE CITY OF DENTON, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2000 Tho lnformatlen cental~ed ut this Appendtx ~:orlsists of excerpts f~om the Ctty of Denton, Texas Annual Fmnnclnl Repolt for the Year gnded September 30, 2000, mid ts not intended to be a complete statement of the Ctty's thmnclal condmen Reference Is made to complote Report for further reformation APPENDIX C FORM OF BOND COUNSI~L'S OPINIONS $59,545,000 UTILITY SYSTEM REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIES 2001 Tuesday, April 17, 2001 The following rating has been assigned: Underlying AMBAC Cre&t Moody's Investors Service, Inc. "Aaa" "Al" Standard & Poor's Rating Group "AAA" "A+" A Division of McGraw-Hill, Inc PREPARED BY: FIRST SOUTHWEST COMPANY ~i~ MOl~J~l Mvelt~ ~l~J"¥i~ Municipal Credit Resea~h New Issue Denton (Ci oO TX Contacts Douglas Benton 214-220-4381 Robyn Kaplloff 212-553-4051 Moody's Rat, rig I~eue Rating Utility System Revenue Refunding and Improvement Bonds, Series 2001 A1 , Sale Amount $83,265,000 Expected Sale Date 04/17101 Rating Description Ubhty Revenue Moody's Assigns A1 to C~ty of Denton, TX Utihty System Revenue Issues Affects Approximately $214 96 M~lhon of Debt Op,nion Moody's Investors Serwce has assigned an A1 rating to the upcoming sale for the C~ty of lenton's Utility System Revenue Refunding and Improvement Bonds, Senes 200! ddltlonally, Moody's has affirmed the A1 rating and stable outlook on the systems 62 36 million ~n revenue supported debt The rating and outlook are based on the system's well managed financial operations that result ~n ample coverage of debt serwce ~equirements, a stable and d~veralfied customer base anchored by a growing economy, nd moderate debt levels Also contnbubng to the A1 rating ~s the compebflveness of the electric utillty's cost structure and the steps management has taken to operate w~thm a dompetitive environment Proceeds from th~s issue w~ll advance refund ex,sting outstanding issues as well as provide new momes to fund capital proJects ~n each of the system's utilibes of electric, water, wastewater, and drainage The bonds are special obligabons of the C~ty of Denton Utd~ty System and are secured by a first lien pledge of the system's net revenues The system ~s a combined electric, water, ~nd wastewater treatment utdity that serves the C~ty of Denton (GO-Aa3) and portions of the surrounding area m Denton County (GO-Aa2) The electric utility obtains Spproximately 60% of the power needs of the electnc system's 33,833 customers from ~ts Spencer Umts and 7% from power purchase agreements, the balance comes through a take or pay wholesale power agreement from the Texas Mumc~pal Power Agency (A2) The water systems primary water source ~s Lake Ray Roberts and Lake Lew~swlle, which lave sufficient capacity to address the c~ty's growth needs for the foreseeable future The ewer system serves city residents and two wholesale customers and will soon ~ncrease ~tal treatment capacity by 40% with a new wastewater treatment plant, which should meet pr~)jectad needs for at least the next six years STRONG FINANCIAL OPERATIONS, ELECTRIC COMPETITION POSES A CHALLENGE Conservative management of the electnc ut~hty port~on of the system has resulted ~n adequate debt service coverage, as well as s~zeable financial reserves to meet future compebtive challenges Fiscal year 2000 net revenues prowded 2 2 times coverage of current debt service and 1 3 t~mes projected maximum annual debt service requirements, aftar the inclusion of th~s ~ssue Moody's believes that coverage will narrow In the futura, bdt remain adequate over the near term Water and sewer rates were not ~ncreased ~n FY 2001 and management reports no plans to raise rates for the next five years assuming the ~ntlat~on of a drainage fee ~n FY 2002 Absent the establishment of such a fee, management anticipates a need to ~ncrease water and wasfewater rates by 6 5% and 7 0%, respectively to meet future capital plans Management's project~ons for fiscal 2001 red,cate that coverage of debt service w~ll ramam comfortable MANAGEABLE DEBT POSITION MAINTAINED, STANDARD LEGAL PROTECTIONS The system's debt ratio of 38 8% is very modest and debt amort~zabon is below average wlth 41% retired within 10 years Proceeds from the current issue w~ll be used to refund approximately $30 m~ll~on of the system's outstanding revenue bonds for a net present value sawngs of $683,000 or 2 3% of the refunded bonds The system's capital program projects ~ssu~ng approximately $112 5 m~ll~on of additional debt over the next four years Standard bondholder protections for Texas issuers include a 1 25 average annual debt service rate covenant, a two-t~ered additional bonds test of 1 25 t~mes average annual debt service or 1 10 maximum annual debt service, and a reserve fund equal to average annual debt service requ~raments funded over five years ALTHOUGH WELL POSITIONED FOR COMPETITION, CHALLENGES REMAIN Dpnng the 76th Texas legislative session, the state adopted aB7, which provides for retail electric competition ~n 2002 Moody's believes that c~ty's utility system ~s taking adequate steps to ramam competitive w~thln a deregulated enwronment The system is ~n the process of selling ita ~nefficient Spencer plant and raplac~ng ~t w~th power purchase contracts that can lower the overall cost of system power As an indicator of ~ts current competitiveness, the system was successful in being selected as the serwce prowder to 100% of the new housing developments that ~n 1999 were located ~n dual service areas s~rved by two other electric utilities Additionally, officials have established a Rate S~ab~hzation Fund, currently funded at $54 m~ll~on, to enhance operating flexibility ~n a deregulated market Given electdc rate pressures that could result from compebt~on, system management at this time ~s taking a wa~t and see approach before deciding to "opt m" or "opt out'' Despite management's positive steps, the onset of electric c0mpet~tlon poses a challenge to the financial operations of the system Moody's believes that competition could result in rate pressures and reduced operabng margins CUSTOMER BASE EXPANSION EXPECTED TO CONTINUE The city of Denton ~s located ~n Denton County approximately 60 miles north of downtown 13alias and w~thin the growing Dallas-Fort Worth metrcplex The system's customer base ~S stable, partially due to the presence of two state umvers~t~es, with over 35,000 students enrolled Customer base growth has been steady at 3% per year over the last three years (fiscal 1997 to 1999) The city's $3 28 b~llion tax base is over one-half residential, but maintains a solid mix of commero~al and ~ndustnal elements that provide economic divers~ty Moody's expects the steady customer base growth to conbnue as residential and commercial development continues Outlook The A1 rating on Denton's Utility System Revenue debt carries a stable outlook The oUtlook reflects Moody's expectation that management will continue to undertake the appropriate actions to maintain adequate debt service coverage levels KEY STATISTICS FY 2000 debt service coverage 2 23x FY 2000 maximum annual debt service coverage 1 33x FY 2000 operating ratio 85 6% FY 2000 debt ratio 38 8% Peyout of Princ~pal (10 years) 41 0% 2001 estimated population (City of Denton) 81,627 O Copyright 2001 by Moody's Inveetom 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'8") AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKA~ED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED F~OR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEAN8 WHATSOEVER, BY ANY PEREON VVlTHOUT MOODY'S PRIOR WRITTEN CONSENT~ All Information contained herein ia obtained by MOODY'S from sources believed by ~t to be accurste and reliable Because of the possibility of human or mechan~col error as well as other factors, however such reformation Is provided "da la" without warranty of any kind and MOODY'S, in particular, makes no representation or wananty, express or Implied, aa to the secure=y, timeliness, complethcese, merchantability or fitness for any particular purpose of any such information, Under co clmumstances shall MOODY'S have any liability to any person or entity fer (a) any Ices or damage n who · or n port caused by, reau tng from, or relating to, any error (negligent or otherwise) or other circumstance or contingen,~ within or outside the control of MOODY'S or any of Its d~rectors, officers employees or agents m connection w th the prq=urement, collection compilation, analysis, interpretation, commun~cetion publication or delivery of any such information, or (b) any direct, Incllre~'t, special, consequential, compensator'/or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'8 Is advised in advance of the possibility of such damages, resulting from the use of er Inability to use, any such Information The credit ratings, if any constituhng part of the ~nformation contained herein are, and must be ccoatrued solely es, statements of opinion and not statements of fact or recommenIletlona to purchase, sell or hold any securities NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURA(~,Y, TIMEMNEES, COMPLETENE88, 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 fector m any investment de=ision made by or on behalf of any user of the information contained here~n, and each such user must accordingly make its own study and evaluation of each eecunty and of each ~ssuer and guarantor of and each provider of credit aupl~ort 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 sscunflee (including corporate and municipal I~)onda debentures notes and commercial paper) and preferred stock rated by MOODY'S have pnor to sesignmeqt of any rating, agreed to pay to MOODY'S for appraisal and rating services rendered by it fees rengmg from $I,000 to$1,500,000 MADE IN USA 13 Apr 2001 Reprinted from Summary SummarY: Denton, TX; Utility, Combined Utlhty; Utlhty, Retail Electric; Uflhty, Water/Sewer Analyst Peter V Murphy New York (1) 212-438 2065 Eden Perry New York (1) 212-438-7967 T~eodore Chapman Dallas (1) 214-87141401 Rationale The rating on Denton, Texas' bonds reflects the following credit nsks · The electnc system's reliance upon Texas Municipal Power Agency (TMPA) for 55% of its power requirements, · H~gh electric system fixed cost, pr~manly from off-balance sheet debt of TMPA, and, · The challenge of funding a s~zeable capital plan The rabng also reflects the following strengths · A growing service area economy w~th a stable base, · Compebt~ve rates and adequate capacity to meet demand ~n each of the systems, · Substanbal reserves held to combat future rate pressures, and · Strong debt service coverage and liquidity levels The electric system's bus~ness profile remains a "four" on a 10-point scale, reflecting the projected increasing cost of power from TMPA as well as the poss~b~hty that Denton may lower ~ts cost of power by d~vesbng ~ts generation capacity and replacing ~t w~th a cheaper resource TMPA operates one 482 mWh coal-fired plant of which Denton owns 21 3% Despite successful efforts to lower fuel and operabng costs ~n the past few years, the plant's h~gh fixed costs are expected to escalate unless the agency can lower ~ts fixed costs Denton benefits from ~ts Iocabon ~n the d~verse Metroplex The c~ty's electnc system, which provides 73% of the combined utility revenues, has experienced stable retail energy sales growth, an 5% annual ~ncrease by mWh, and 3 5% annual ~ncrease ~n dollar volume between 1992-2000 Management has been proactive ~n preparing for statew~de deregulation by offenng competitive rates, and ~s acbvely working to d~vest ~tself of ~ts generation cepac~ty m the hope of replacing ~t w~th a less expensive power resource Residential and industrial rates are compet~bve w~th other power prowders In areas where there are duel and tnple certifications the c~ty's electric systems have been able to compete effecbvely for new customers Power purchases and the system's own generating capacity are sufficient to meet demand Water supply sources and treatment capacity are sufficient to meet demand for at least 30 years and wastewater treatment capacity w~ll ~ncrease by 40% th~s year, sufficient to accommodate sewer needs for a populabon ~n excess of 110,000 Hlstoncally, financial operations have been strong, w~th coverage of annual debt service of 2 2 t~mes (x) ~n 2000, which ~s reduced to 1 24x ~f fixed charges related to Denton's contract w~th TMPA ~s included Unrestncted cash has declined to zero, however, total funds (unrestncted and restncted cash and ~nvestments) increased to $162 m~lhon, a porbon of which ~ncludes a substanbal $65 m~ll~on rate ~n a stab~hzat~on fund The 2001-2005 capital plan ~s large, but manageable, at $160 m~lhon and consists of $97 m~lhon of water and sewer projects, and $62 mllhon of electnc projects The utility expects to ~ssue an additional $113 m~lhon of new debt dunng the next four years to fund the projects In conjuncbon w~th the 2001 bonds and the prewously ~ssued 2000A and 2000B bonds, amendments to the governing ordinance w~ll enable the city to remove prowslons that restricted competition and asset sales under certain conditions In both cases, no s~gn~ficant effect on credit quality ~s expected Outlook Denton has sufficient rate-setbng flex~b~hty to remain compebbve for electric service for several years as a deregulated energy market arrives In Texas Based on current management practmes, ~t ~s expected that Denton w~ll formulate and ~mplement a long-term plan to mmatn compebt~ve further ~nto the future Published by Standard & Poor's a D~wslon of The McGraw Hill Compames Inc Executlve offices Avenue of the Americas New York NY 10020 Ed~tonal offices 55 Water Street New York NY 10041 Subscriber services (1) 212-438-7280 Copyright 2001 by The McGraw-Hill Companies Inc Reproduction in whole or in part prohibited except by permission All nghts reserved Information has been obtained by Standard & Poor s from soumes believed to be reliable However because of the possibil~ty of human or roechanical error by our sources Standard & Poor's or others Standard & Poor s does not guarantee the accuracy adequacy or completeness of any information ar~l is not responsible for any errom or omissions or the result obtained from the use of such mtermat~on Ratings are statements of opinion not stetemente of fact or recommendations to buy hold, or sell any securities City of Denton, Texas Utility System Revenue Refunding & Improvement Bonds Series 2001 DEBT SERVICE SCHEDULE Date Principal Coupon Interest Tota~ P+t FISCAL TOTAL 6/16/200t 12/01/2001 1,200 000 00 4 000% I 868,842 65 3 068 842 65 6/0t/2002 1 464,458 76 t 464 453 76 6/30/2002 4 533 301 41 t2/01/2002 I 615 000 00 5 000% 1 464 458 76 3 079 458 76 6/01/2003 1 424 083 76 1 424 083 76 · 9/30/2003 4 503 542 52 12/01/2003 1 695,000 0O 5 000% 1 424 083 76 3 119 083 76 6/01/2004 I 381,708 76 1,381 708 76 9/30/2004 4 500,792 52 12/01/2004 2,110,000 00 5 000% 1 381,708 76 3 49t 708 76 6/01/2005 I 328,958 76 1 328 958 76 9/30/2005 4 820,667 52 12/01/2005 2 200 000 Oo 8 000% I 328 058 76 3 528 958 76 6/01/2006 I 273 958 76 I 273 958 76 9/30/2006 4 802 917 52 12/01/2006 2 280,000 00 4 250% I 273 958 76 3 $53,958 76 6/01/2007 1 225 508 78 I 225 508 76 9/30/2007 4 779 467 52 12/01/2007 3 420 0O0 00 5 000% 1 225 508 76 4 645 508 76 6/01/2008 I 140 008 76 1 140 008 76 9/30/2008 5 785 517 52 12/01/2008 3 570 000 00 5 000% I 140 008 76 4 710 008 76 6/01/2009 I 050 758 76 I 050 758 76 9/30/2009 5 760 767 52 12/01/2008 3,740 000 00 5 000% I 050 758 76 4 ?90 758 76 6/01/2010 957 258 76 957 258 76 9/30/2010 5 745 017 52 12/0112010 3 915 000 00 5 000% 957 258 76 4 872 258 76 6/01/20ti 859 383 76 859 383 76 9/30/2011 5 731 642 52 12/01/2011 4,100,000 00 5 000% 859 303 76 4 959 383 76 6/01/2012 756,883 76 756 883 76 9/30/2012 5 716 267 52 12/0tl2012 2 ?55,000 00 5 000% 756 883 76 3 511 883 76 6/01/2013 688 008 76 688 008 76 9/30/2013 4 199 892 52 12/0t/2013 2 895 000 00 5 000% 688 008 76 3 583 008 7'6 6/01/2014 615 633 76 615 633 76 9130/2014 4 198 642 52 12101/2014 3,040 000 00 5 000% 615 633 76 3 655 633 76 6/01/20t5 539 633 76 539 633 76 9/30/2015 4 195,267 52 12/01/20t5 3,200,000 00 5 000% 539,633 ?6 3 739,533 76 6/01/2016 459 633 76 459 633 76 First Southwest Company Publk~,Flnance 411712001 10 23 AM City of Denton, Texas Utility System Revenue Refunding & Improvement Bonds Series 2001 DEBT SERVICE SCHEDULE Date Pdcclpal Coupon Interest Total P+I FISCAL TOTAL 9/30/20t8 4 199 267 62 12A)1/2018 3 365,000 00 5 000% 459,633 76 3 824 633 76 6/01/2017 375,508 76 375 508 76 9/30/2017 4 200 142 52 12/0112017 3,335,009 00 5 125% 375 508 76 3 710 508 76 6/01/2018 290 049 38 290 049 38 9/30/2018 4,000 558 14 12/0112018 3,515,000 00 5 125% 290 049 38 3 805,049 38 6/01/2019 199,977 51 199 977 51 9/3012019 4 005 026 89 12~112019 3 700 000 00 5 125% 199,977 51 3,899 977 51 6/31/2020 105 165 00 105 165 00 9/30/2020 4 005 142 51 12/01/2020 389500000 5400% 10516500 400016500 9/30/2021 4 000,165 00 Total 59 545,000 00 34 142 006 75 93 687 006 75 YIELD STATISTICS Accrued Interest from 04/15/2001 to 05/10/2001 206,730 37 Bond Year Dollars $674 141 03 Average Life 11 322 Years Average Coupon 5 0645199% Net Interest Cost (NIC) 5 0282599% True Ioterost Cost (TIC) 5 0012900% Bond Y~sld for Arbitrage Purposes 4 9649181% All Inclusive Cost (AFC) 5 0980692% IRS FORM 8038 Net Interest Cost 4 9638619% Weighted Average Maturity 11 151 Years First ~outhwest Compeny Public Pinenos 411712001 10 23 AM City of Denton, Texas Ubl~ty System Revenue Refunding & Improvement Bonds Series 2001 [REFUNDING] DEBT SERVICE COMPARISON Date Total P~-I Existing D/S Net New DIS Old Net DIS Savings 9/3012001 903 897 50 870,957 40 870,957 40 (0 00) 9130/2002 834 947 29 2,807,570 00 3 342 517 29 3 335 222 50 (7 294 79) 9/30/2003 498 712 50 2,785 016 00 3 283,727 50 3 312 667 50 28 940 00 9/30/2004 497 462 50 2,758,250 00 3 255 712 50 3,285,902 50 30 190 00 9/30/2005 817 962 50 2,420,115 00 3 238 077 50 3,269,352 50 31,275 00 9/30/2006 800 212 50 2,421,350 00 3 221 562 50 3 253 592 50 32 030 00 9/3012007 783,793 75 2,429 555 00 3 213,348 75 3 244 472 50 31,123 75 9/3012008 1 781,375 00 1,412,825 00 3 194 200 00 3,226,965 00 32 755 00 913012009 I 760,375 00 1 412,825 00 3 173 200 00 3 205 752 50 32 552 50 9130/2010 1 748 625 00 1,412 826 00 3,159,450 00 3 189,897 50 30,447 50 9130/201t I 729,876 00 1,412,825 00 3 142 700 00 3 173 930 O0 31 230 00 9/30/2012 1,715,000 00 1,412,826 00 3 127 825 00 3 157,635 00 29 810 00 9/30/2013 200 250 00 2,909,182 50 3 109,432 50 3 141 795 00 32 362 50 9/3012014 202,000 00 2,889,530 00 3 091 530 00 3 121 505 00 29,975 00 9/3012015 198 375 00 2,553,060 00 2 751 435 00 2 783,822 50 32 387 50 9/30/2016 199,375 00 2 654 250 00 2 753,625 00 2 783 225 00 29 600 O0 9/30/2017 199 875 00 2,554,850 00 2 754,725 00 2,786 318 75 31,593 75 9/3012018 2,550 050 00 2 550 050 00 2 550 050 00 9130/2019 2,654,400 00 2 554 400 00 2 554 400 00 913012020 2,552,450 00 2 552 450 00 2 552,450 00 9/30/2021 2,553,900 00 2 553 900 00 2 553 900 00 9/30/2022 2 553 300 00 2 553 300 00 2 553 300 00 9130/2023 2,555,200 00 2 555 200 00 2 555 200 00 9/30/2024 2 854 160 00 2,554 150 00 2 554 150 00 9/30/2025 2,559,550 00 2 559 550 00 2,559,550 00 Total 13 666 216 04 57,483,750 00 71,117 025 94 71 576,003 65 458,977 71 PRESENT VALUE ANALYSIS SUMMARY Accrued Interest Credit to Debt Service Fund 32,940 10 Transfers from Pdor Issue Debt Service Fund (296,766 35) NET PRESENT VALUE BENEFIT $305 553 21 NET PV BENEFIT I $9,500,000 REFUNDED PRINCIPAL 3 216% NET PV BENEFIT/ $9,540 000 REFUNDING PRINCIPAL 3 203% Ftrst Southwest Company Public Finance 4117/2001 10 23 AM City of Denton, Texas Utility System Revenue Refunding & Improvement Bonds Sedes 2001 TOTAL ISSUE 8OURCES AND USES Dated (}4/15/2001 Delivered 05/10/2001 Water Wa~tewater Dlatrlbuflon Refunding luue Summaq 80UR(~E8 OF FUND8 USE8 OF ~ND8 [ OFFICIAL STATEIVIENT Rntinls Dated April r/, 2OOl S&P "AAA*' (AMBAC Insured, see "Bond NEW ISSUE - Book-Entry-Only Information - Ratings'* herein) pubhshe~ rulings and court decisions ~xtstins on tho date thewof subject to the mortars dascnbed under ' Tax Matters" herein, including tho alternative ~ BONDS WILL NOT BE DESIGNATED AS 'QUALIFIED TAX E~EMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $S9,S4S,000 CITY OF DENTON, TEXAS (Denton County) UTILITY SYSTEM REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIF~ 2001 DatedDate AprtllS, 20dl Due Decemberl, as shown bolow PAYME~fF TUnMS Inter~t on the $59)545 000 City of Denton, ?ex~ Utility System Ravenna gefunthna and Improvement Bonds Series 2001 (the "Bonds'*) MIl ,~ran from April 15, 2001 (the "Dated Date"), and will be payable Sune I and December 1 of eech year commencing December 1, 2001 and wdl bo calendared on the basis of a 3~0 day year consbting of twelve 30-~ay months The dafinltive Bonds Mil be mmally reg~stare~, and dal~e~e.d only to Cede & Co, tho nominee of Tho Deposlto~ Trust Company CDTC ) pursuant to the Book Entry Only System d~cnbnd harem Renenc~a~ ownership of t~e BonOs may bo acquired tn denominations of S~00~ or integral multlp!e.s ~e .r~.of ~No phy?ca! ~deliv~y of ~e .BO?~s will .be .ma d.a. to distribution of~o mounts so paid to tho patrlclpating m~mbors of I)TC for subsequent payment to the be,ri, afloat o ,wants of tho. Bond~s S.~__~,~The Bonds- AuraomTv ~OR iSSU,~,qC~ The Bonos are issued puranant to tho gen~rsl laws of ~he Stele of Texas particularly T~xas Govermnont Coda, Chapters 1207 and 1 $02, as mended, and an ordinance (the 'Ordinance) passed by the CRy Council and a~ special obhgan oas of the City of Denton, Toy, as (the 'City' ) payable both ~s to principal and interest, solely from and eecured by a fu~t lion on and pl~ge of certain Pledged Revenues Including the Net Revenues of the City's combined water sower and electric light and per,or system (the "System") Special reference ts made to 'The Electric System" herein for systemoperet~ TheCllyhasnotruvenantedorobligntnditseiftopaytheBonds frommanies raisedor toboraised fromtoxation (se~ *TboBonds Authority fo~ Issuance') $3,630 000 Utility System Rovcnee Bonds Settee 1993, $1,760,000 Utility System Revenue BOnOs Series 1996 and $25 275 000 Utility System Revenue Ambac dahve~ o~tha Bonds by Amb~c Asanr~co MATURITY SCHEDULE 1,61~,000 ~002 5 00% 3 40% 2 75~ 000 2012 5 000% 4 81% 3 piS,000 2010 ~ 00% 4 ~8% 3 895 000 :2020 5 400% ~ 40% (Accrued Interest from April It, 1001 to be added) or tn part tn ~rincipal amounts of $5 000 or any mtegrel touthple thereof on Inne I 2011 or any date thereafter at the par value thereof plus accrued rnterest to thq date of re~]emptinn (see "The Bonds Optional Redamption'*) Counsel's O~lnlon") Certain legal matters wilt be passed upon for the Underwriters by Kelly I-Left & Bellman a PC Fort*vVor~ Texas Counsel for the Undarwr~te~ DAIN RAUSCHER INCORPORATED SALOMON SMITH BARNEY INC JACKSON SECURITIES INC LEGG MASON WOOd WALKER, INC. For purposes of compliance with Rule 15c2 12 of the Securities and Exchange Commission (the "Rule ") this document constitutes an O. fficial Statement of the CiO, with respect to the Bond~ that has been "deemed flnal" by the CIO, as of lt~ date except for the omis~;Ion of no more than the Ioformatlon permttted by the Rule This O. fficlal Statement which tncludes the cover page and the Appendices hereto do~s not constttate an offer to s~ll or the solicitation of an offer to buy in any Jurisdiction to any person to whom it ts unlawful to make zuch offer, solicitation or sale No dealer broker salesperson or other person has been authorized to give Information or to rna~ any representation other than those contained In thLv O.~ctal Statement and, ff glven or made such other mformatlon or representatlon~ must not be relied upo~ The ittformatton set forth herein has been obtained from the City and other aou~s believed to be reliable but ~uch lrtformatlon ts not guat~Tnteed as to accuracy or cor~oleteness and ts not to be construed as the promise or guarantee of the Fthanclal Advl~or This Official Statetn~nt contains tn part esttmates and matters of opinion which are not intended as statements of fact and no representation ts made as to the correctness of such estimates and oplnlon~ or that they will be realized The Ir~formation and expression~ of opinion contained herein are subject to change without notlc~ and neither the delivery of this Official Stat~rnent nor any sale made hereunder shall under any clrcurn, vtances create any Implication that there has been no change in the avffalr$ of the CiO' or other matters descrthed Neither the Cio' the Financial Advisors nor the Underwriters make any representation as to the accuracy completeness or adequacy of the information ~upphed by The Deposttory Trust Company for use In thLv Official Statement CUSIP numbers have been assigned to this I~sue by the CUSIP Service Bureau and are included solel~ for the convenience of tho owners of the Obllgatlon~ Neltber the Cio' the Financta1.4dvlsor~ nor the Underwrtters shall be responsthle for the selection or correcme~ts of the CUSIP number~ shown on the cover page~ IH CONNECTION WITH THE OFFERING THE UNDERWRITERS M.4Y OV£R-ALLOT OR EFFECT TP~INSACTIONS WHICH STABIlJZE THE M~RKET PRICE OF THE OBLIGATIONS AT A LEVEL ABOVE TtL4T WHICH MIGHT OTHERWISE pREVAIL IN THE OPEN M~RKET SUCH STABILIZING IF RECOMMENDED M~ y BE DISCONTIArUED AT ANY TIME TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY 3 SELECTED PROVISIONS OF THE BOND ORDINANCE 46 CITY OFFICIALS, STAFF AND CONSULTANTS 5 ELECTED OF~C~S 5 PROVISIONS OF THE AMENDATORY SELECTED ADM]NISTRATIVE STAFF 5 ORDINANCE 59 TAX MATTERS 60 INTRODUCTION 7 CONTINUING DISCLOSURE OF INFORMATION 61 PLAN OF FINANCING 7 OTHER INFORMATION 63 THE BONDS 8 RA~OS 63 LmOATION 63 BOND INSURANCE 15 REGIS'IRATION AND QUALIFICATION OF BONOS FOR MANAGEMENT OF THE SYSTEM 17 SAtE 63 LEGAL II~/ES'nVmNTS AND ELIGmlLITY TO SECURE THE ELECTRIC SYSTEM 18 PUBLIC FUNDS IN TBXAS 63 TABLE 1 - HIS?O~CAL OPERATING AND FINANCIAL LEGAL OPINIONS 63 DATA 19 AU~t~TICtrY OF FINANCIAL DATA AND OTHER TABLE 2- CURRENT ELECTRIC RAYE SCHEDULES 20 INFORMATION 64 TABLE 3 - OUTSTANDING DEBT 28 VERIFICATION OF .~TICAL AND IVL~THF~MATICAL COMPUTATIONS 64 THE WATER SYSTEM 37 Ut, toERwarr~G 64 TABLE 4 - WATER USAGE 38 FORWARD LOOKING STATEMENTS 65 TABLE 5 - TOP TEN WATER CUSTOMERS 38 MISCELLANEOUS 65 TABLE 6 - WAYER RA~S 38 THE WASTEWATER SYSTEM 39 APPENDICES TABLE 7 - WASTEWATER RATES 39 G~,~ERAL INFOIUV~ATION REGARDING THE Crrv A EXCERPTS FROM TI~ ANNUAL FINANCIAL REPORT B DEBT INFORMATION 40 FO~U~ OS BONO COtmSEL'S Osm~ON C TABLE 8 - DEBT SERVICE REQO1REMENTS 40 SPECIMEN MUNICIPAL BOND INSURANCE POLICY D FINANCIAL INFORMATION 42 TABLE 9 -COIVIPARABLE CALCULATION OF NET The cover page hereof, this page, the appendices included REVENUES AVAILABLE FOR DEBT SERVICE 42 hereto and any addenda, supplement or amendment hereto, TABL£ 10 - COVERAGE A~) Ft~to BADOtCES 43 are part of tho Officml Statement TABLE I I - CURmiNT INVESTMENTS 45 2 OFFICIAL STATEMENT SUMMARY This summary is subject m all respects to the more anmplate reformation and defunt~ons contmned or Incorporated m this Official Statement The offering of the Bonds to potential investors Is made only by means of this entire Official Statement No person is authorized to detach this summary from this Official Statement or to otherwise usc it without thc cntirc Official Statement. Ti~ CITY The City of Denton is a pohtlcal subdivision and municipal corporahon of the State, located m Denton County, Texan The Clty covers approximately 61 squarcmllcs (see"Introduction - DescrlpUon THE BONDS The Bonds arc issued as $59,545,000 Utility System Revenue Refunding and Improvement Bonds, Series 2001 The Bonds are issued as serial bonds matunng December l, 2001 through December l, 2024 (sec "Thc Bonds -Description of thc Bonds") PAYMENTOI~INT~REST Interest on the Bonds acerucs from April 15, 2001, and Is payable December 1, 2001, and each June I and December I thereafter untd maturity or peer redemption (sen "Thc Bonds Dcscrlptton of the Bonds," and "Thc Bonds - Optional Redemption") AUTHORrrY,FOR ISSUANCE The Bonds are issued pursuant to the general laws of thc State, Including particularly Tcxas Government Code, Chapters 1207 and 1502, as emended, and an Ordinance passed by thc City Council of the City (sec "Thc Bonds - Authority for Issuance") S~TY I~OR THE BONIXq The Bonds cons~atutc special obligations of thc City payablc, both as to pnncipal and interest solcly from and sccured by a first ban on and pladgc of certain Pledged Rcvanuas including thc Net Revenucs of the City's combined water, sewer and clectrlc light end power system (the "Systcm") Special refcrenen is mede to "Thc Blenlric System" herein for a description of ccrtmn legal and regulatory changes that have affcctcd, end arc cxpcctcd to further affcct, thc cnvlromncnt In which the City's electric utility system opcrstes The City has eot covenanted or obligated itself to pay the Bouds from monies raised or to be raised from taxation (see "The Bonds - Authority for Issuance") OPTIONAL ]~EDEMIPTION The City reserves the r~ght, at its optlen, to redeem Bonds having stated maturities on and al~cr December l, 201 l, In whole or in part in principal amounts of $5,000 or any integral mu|tlple thereof, on Junc I, 2011, or any date therenflcr, at thc par value thereof plus acerued interest to thc datc of redcmptlen TAX EXFM1,TION In the opunon of Bond Counsel, the interest on the Bonds will bc cxcludablc from gross raceme for federal raceme tax purposes under existing law, subject to thc mattcrs dcscribcd under the caption "Tax Matters" hcrem, including the alternative minimum tax on corporations USE OF PROCEEDS Proceeds from the sale of the Bonds will bc used to advance refund a portion of the City's outstanding revenue obligations, to-wit $3,630,000 Utility System Revenue Bonds, Series 1993, $1,7(;0,000 Utility System Revenue Bonds, Series 1996 and $25,275,000 Utility System Revenue Refunding Bonds, Series 1996-A (collectively, thc "Refunded Bonds") to lower the overall debt scrvlen requlremenLs of thc CIty Thc City wdl also use a portion of the funds for the purpose of improving and extending the System end to pay costs of issuence associated with the sale of the Bonds RATINGS The Bonds are rated '*Aan" by Moody's Investors Service, Inc ("Moody's") end "AAA" by Standard & Poor's Ratings Services, a Division of The McCJraw-Hlll Companies, Inc through an insurance policy to be issued by Ambsc Assurance The uninsured revenue debt of the City is rated "Al" by Moody's end "A+" by S&P (see "Bond Insurence" and "Other Infounal~on - Ratings~') 3 BOOK-~,NTRY-ONLY SYgrEM The d¢fimtlve Bonds wall be initially registered and dehvared only to Cede & Co, the nominee of DTC pursuant to the Book-Entry-Only System descrthed herein Beneficial ownership of the Bonds may be acquired in denommatmns of $5,000 or m~gral multtplas thereof No physical dehve~ of the Bonds will be made to the beneficml owners thereof Principal of, premium, if any, and Interest on the Bonds wall be payable by the Paying Agent/Registrar to Cede & Co, which will make thstnbntlon of the amounts so pa~d to the partl¢lpaUng members of DTC for subsequent payment to the beneficial owners of the Bonds (see "The Bonds - Bunk-Entry-Only System") PAYIVlgNT RECORD The City has never defaulted with respect to the payment of bonds secured by revenues of the System For additional information regarding the City, please contact Kathy DuBose David K Medanlch Assistant C~ty Manager of Fiscal Laura Alexander and Municipal Services First Southwest Company C~ty of Danton or 201 Main Street 215 E McKmney Street Suite 1320 Denton, Texas 76201 Fort Worth, Texas 76102 (940) 349-8228 (817) 332-9710 CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS Term City Council Expires Euhno Brock May, 2002 Mayor Rom Beasley May, 2002 Mayor Pro Tern Mark Burroughs May, 2002 Councflmembcr Mike Cochran May, 2001 Couno~h'anmber Nm{ Durranco May, 2001 Counoflmember Sandy K~stofarson May, 2001 Counallmember Carl Gene Young, Sr May, 2001 Councdmember SELECTED ADMINISTRATIVE STAFF Name Position Howard Martin lntenm City Manager* and Assistant City Manager of Utdlt~es Kathy DuBose Assistant City Manager of Fiscal and Municipal Services David Hill Assistant City Manager of Development Services Jon Fortune Assistant City Manager of Public Safety and Transportation Operations Jennifer K Walters City Socretary Herbert L Prouty C~ty Attorney Robin Ramsay Municipal Judge * Mr Mike Conduffof the City of B~yan ha~ been named City Manager and will start h~s new positron on May 14, 2001 CONSULTANTS AND ADVISORS Cemfied Public Accountants Deloitte & Touche L L P Fort Worth, Texas Bond Counsel McCall, Parkhurst & Horton L L P Dallas, Texas Financial Advisor First Southwest Company Fort Worth and Dallas, Texas OFFICIAL STATEMENT RELATING TO $$9,54S,000 CITY OI~ DENTON, TEXAS UTIL,ITY fitYSTEM REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIES 2001 INTRODUCTION This Offiolal Statement, which mchidss tho Appendices hereto, provides certmn mfurmat~un regosdmg the lasunnc~ of $59,545,0001 City of Denton, T~xos, Ut~hty System Revenue Refunding and Improvement Bonds, Series 2001 (the "Bonds") Capitalized terms used m this Official Stat~,'nant have the same maamngs osslguod to such terms m the Ordinance to ba adopted on the date of sule of the Bonds which will authorize the issuance of the Bonds, except os otherwise indicated herein There follows In this Official Statement descrtpt~ous of the Bonds and cerium Information regnrthng the City and its finunecs All dasarlptionslof documents cuntamad herein ar~ only summaries and ara qualified in their entirety by refurenco to each such duoumant Copies of such doenmants may be obtmned from the City's Financial Advisor, First Southwest Company, Dallas, Taxes DESCRIPTIO~ OF THE CITY The City of Denton, T~xos is a polthcal subdivision luoatad In Denton County op~ratmg os u horny- role city under the laws of the Stein of Te0ms and a chertsr apprevad by the voters m 1959 The City operates under thc CouuolL'M0~ger form of gnvcromant m which the Mayor and s~x Counclhnambers are elected for staggered two-year te~ns The City Counall formulates operating policy for the City while the City Manager is the chief admunstraUve officer The City ~s approximately 61 square milos In area. PLAN OF FINANCING Pc~u,os~ , Proceeds from the sale of the Bonds will be used to advance refund a portion of the City's outstanding revenue obhgatlons,lte.wlt $3~63~UtthtySystemP`xvanueBunds~$erias~993~$~76~UtthtySystemRevanuoB~nds,Sertas 1996 and $~:5,27~,000 Utility System Kevanue Refenthng Bonds, Sert~ 1996-A (collectively, the "Refundad Bunds") to lower the overall debt service requirements of the CIty Sca Sche~lula I fur a d~tmled lrstmg of the Refunded Bunds and their respective call dates at ~ar Tbe City wall also use a purtiun of the funds fur the purposu of unprovmg und extending the System und to pay costs of issuance ossuvtated with the sale of the Bonds RgI~UN~O ]BONOS The principal and interest due on the l~fundad Bonds are to be paid on thc scheduled interest payment dates and the respective redemption dates of such Refunded Bonds, from funds to be deposited pursuant to a certain Escrow Agreement (the "Escro~ Agreement") h~vcen the City and The Chose Menhaden Bank (thc "Eserow Agent") The Orthunnc~ provlde~ that from the prg~l~ of the sale of the Bonds received fi'om the Underwater(s), the City will deposit with the Escrow Agent the amount necessury tc~ aceomphsh the thscherge and final paymant of the Refund~ Bunds un their respective radamPt~un dates Such funds will be bald by the Escrow Agent m a special escrow aecunnt (the "Escrow Fund") and used to purehasa cluett obhgatlons of the Umted Stat~s of America (the "Fedaral Seconttce") Under the Esarow Agreement, the Escrow Fund is Irrevocably pleAgnd to the payment of the principal of and interest on the Refunded Bonds Grant Tber0ten LLP, a nat~enally recognized accounting firm, vail verify at the Urea of dchvery of the Bonds to the Underwriters thc math©mariani accuraoy of the schedules that demonstrate the Federal Securities will mature and pay interest In such amounts which, together w~th unmelted funds, if any, m the F. sc. mw Fund, will be suffictant to pay, when duo, the prmclpal of and interest on the Refunded ]~onds Sneh maturing prlneipal of und reterost on the Federal Seenritlas wdl not be available to PaY the Bonds (san "Other lnfo~matlun - Venfica~on of ArlthmeUcal and MathemaV. cal Compat~oos") BY the depend of the Federal Sceurthes and cash, if necessary, with the Escrow Agent pursuant to the Escrow Agreement, the City w~ll have effceted the dofcesance of all of the Refunded Bonds m accurdance with the law It is the opunon of Bond Counsul that os a result of such defeasance and in rellenc~ upon tho report of Grant Thornton LLP, the Refunded Bonds will be outstanding only for the purpose of rooeivlng payments from the Federal Seounues and any cash held for such purpose by the Escrow Agent and such Refunded ]~unds will be defeosed end cease to be obligations payable from end secured by a lien on and pledge of thc Net Revenues of the System and will not be deemed os outstanding obligations of the City or the System for any purpose other than being payable from the funds held in tho Escrow Fund Tho City has covenanted m the Escrow Agreement to make timely deposits to the Escrow Fund, from lawfully available funds, of any adthtlo~al amounts required to pay the principal of and interest on the Refunded Bonds, if for any reason, the cash balances on deposit or Scheduled to be on deposit In the Escrow Fund be insufficient to make such payment Usg OE PROCE.~OS The proceeds from the sale of the Bonds will be applied appruxanstely as follows Sources of Ftthds Par Amount of Bands $ 59,545,000 00 Ranffenng Premium 628,810 40 Transfer from Poor Issue Debt Service Reserve Fund 296,766 35 Transfer from Existing Debt Service Rosove Fund 9,881,112 00 Accrued Interest 206,730 37 Total Sources $ 70,558,419 12 Uses of Funds Deposit to Project Construction Fund $ 47,000,000 00 Deposit to Escrow Fund 9,992,470 48 Deposit to Interest and Stoking Fund 206,730 37 Deposit to Debt Service Reserve Fund 12,502,820 60 Costs of Issuance 0) 856,397 67 Total Uses of Funds $ 70,558,419 12 (1) Includes underwrlter's dlsenunt and bond insurance premium THE BONDS DESCRIPTION OE ~I~-IE BONDS The Bonds are dated April 15, 2001, and mature on December I in each of the years and m the amounts shown on the cover page hereof Interest wdl be computed on the basis of a 360-day year of twelve 30-day months, and such interest will be payable on June I and December 1, commencing December 1, 2001 Tho definitive Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity end will ba initially registered and delivered only to Cede & Co, the nominee of The Depository Trust Company ("DTC") pursuant to tho Book-Entry-Only System described hereto No physical delivery of the Bonds will be made to the owners thereof Principal of, premium, if any, and interest on the Bonds wdl be payable by the Paying Agent/Registrar to Cede & Co, which will make dlstrthutton of thc amounts s~pa~dt~thepartIcIpstmgmembers~fDTCf~rsubsequantpaymentt~th~beneficIal~wners~ftheB~nds See "Book-Entry- Only System" herein AUTHOIU'[Y ~OR ISSUANCE The Bonds are Issued pursuant to the general laws of the State of Texas, particularly Chapters 1207 and 1502 Texas Government Code, and the Orthnance SECURITY AND SOURCE OF PAYMENT The Bonds are special obhgatlons of the City payable, both as to principal and interest, solely from and, together with certain outstanding revenue bonds of the City (anllect~vely with the Bonds, the "Parity Bonds") and any adthtmnal parity bonds ("Additional Bonds") that may be issued in the future, secured by a first lien on and pledge of the N~ Revanues of the System In the Orthnance, the "System" is defined as the City's entire existing wstarworks and sewer system and the City's entire existing electric light and power system, together with all future extensions, improvements, enlargements, and additions thereto and all replacements thereof, and any other related faclhtlas, but excluding any water, sewer, ¢lcctrlc, or other facilities of any kind that are declared not to be a part of the System, and which are scqmred or consffucted by the City wflh the proceeds from the ISSUanCe of "Spcclal FaclhtleS Bonds" The Ordinance defines "Gross Revenues" to Include all revenues and income received by the City from the operation end ownership of the System, including the interest mcome from the investment or deposit of money m any fund crested by the Ordinance The Ordinance defines "Net Revenues" as all (}ross Revenues after deducting the current expenses of operation and mmntonance of tho System, including all salunas, labor, materials, rapmrs, and extensions necessary to render efficient service Maintenance and operating expanses of the System include contractual payments which under Texas laws and their provisions are estobhshed as operating expenses (see "The Elcctrlc System - The Power Sales Contract" for a description of the City's lung-term power purchase agreement with the Texas Municipal Power Agency) The City currently has outstanding Parity Bonds as follows 8 Outstanding D/~ted Pflneipal Date Amount (1) Issue Dascnption 3/I/92 $ 955,000 UIihty System Revenue Bonds, Series 1992 3/1/93 1,650,000 Utihty System Revanuu Bonds, Series 1993 611/93 16,860,000 Utility System Revenue Refunthng Bonds, Series 1993-A 6/1/93 1,420,000 Utihty System Revenue Refunding Bonds, Taxable Series 1993-B 5/1/96 660,000 Utility System Revenue Bonds, Sunas 1996 5ll/96 27,455,000 Utihty System Revenue Refunding Bonds, Sones 1996-A 3/15/98 6,095,000 Utihty System Revenue Bonds, Serius 1998 7/15/98 36,795,000 Utility System Revenue Refunding Bonds, Series 1998-A 871/98 7,475,000 Utility System Revenue Refunding Bonds, Series 1998-B 4/15/00 49,815,000 Utility System Revenue Bonds, Series 2000-A 4/15/00 3,675,000 Utility System Revenue Bonds, Taxable Senas 2000-B Total $ 152,855,000 (1) As of Mtirch 1, 2001, excludes the Refunded Bonds The Bonds are not a charge upon my other income or revenues of the City and shall never constitute an mdebtedness or pledge of the general credit or thxJng powers of the City The Ordinance does not create a lien or mortgage on the System, except the Pledged Revenues, and any judgment against the Glty may not be enforced by levy and execution against any property owned by the City Special reference is made to "The Electric System" hereto for a description of ccrtnin legal and regulatory changes that hove affected, and arc expected to further affect, thc anvlronmcnt in which thc City's electric utthty system operatas PLEnC, F,9 I~Wt~S The payment of thc Parity Bonds and the lntcrest thcreon cons'orates u first hen upon thc Pledged Rcvcnues THE RESEI~Vg FUND Thc Ordinance confirms thc estabhshmant of the "Reserve Fund" by thc City and rcqmres the City to marntmn thgreln an amount of money and investments equal to the average annual principal and interest requirements of all the outstandmgl Panty Bonds and Additional Bonds (thc "Rcqarred Rcscrve Amount"), provided, howcver, that the Reqarred Reserve Amount shall ncver bc lass than $3,000,000 if thc maximum annual pnncipal and lntercst rcqun'cments on all outstanding Parity Bonds and Additional Bunds exceeds $3,000,000 Immediately afier thc issuance and datlvery of the Bonds there shall be deposited to the credit of the Reserve Fund, fi.om thc proceeds of the sale of the Bonds, money sufficient to cause the Rescrv~ Fund to contain an aggregate amount of money and lnvastmants equal to the Required Reserve Amount for all then outstanding Panty Bonds After the dehvery of any future Additional Bonds the City shall cansc the Reserve Fund to be increased, If and to the extent necessary, so that the Reserve Fund will contain an amount of money and mveslmcnts equal to thc Required R~serve Amount Any mcrcasc m thc Required Raservc Amount may bc funded from Pledged Rcvcnuas, or from proceeds fi.gm the sale of any Adthtiunal Bonds, or any othcr available source or combaration of sources All or any part of the Required Rbserve Amount not f~nded initially and immediately after the dehvcry of Additional Bonds shall be funded, within not more than five years from the date of such delivery, by deposits of Pledged Revenues in approximately equal monthly arstallmcnt$ on or before thc 25th day of each munth If at any time after the fundarg of thc Reqmred Rcscrve Amount thcrc Is a depletion tllerem or the Reserve Fund otherwise holds lass than the Required Reserve Amount, thc Ordmancc requires that the City commence mldong transfers of Pledged Rcvanuas from the System Fund to the Raservc Fund monthly in an amount equal to 1/60th o~'thc Required Rascrve Amount, until thc Reserve Fund is restored to thc Required Reserve Amount Thc Reserve Fund shall be used to pay the principal of and interest on any Parity Bonds or Additional Bonds when and to the extent the amounts In the Interest and Smkmg Fund avai able for such payment are lnsufficiant for such purpose, and may be used for the purposc of~nalty retiring the last of any Panty Bonds or Additional Bonds AVOIDANCg OF PLEnGE Texas has adopted thc 1998 revisions to Article 9 of thc Uniform Commercial Codc (thc "UCC") to become effective July 1, 2001 The revisions would for thc first time provide means to perfect pledgas by govcmmcnt entities and, in addition, would makc unperfcctcd plcdgas subject to thc lntcrast of a bankruptcy trustee, whether or not the pledged collateral i~ exempt frumjudlclal hens Security interest nosing before July 1, 2001 that arc not pcrfected by July 1, 2002 will be consldcredlunperfected pledges For a number of reasons, it will be impractical and perhaps impossible to perfect thc City's pledge of Hot Revenues under thc revised Article 9 In proceethngs for thc adjustments of their debts under thc Bankruptcy Code, mumarpalities ar~ ganerally authorized to exercise thc powers of u bankruptcy trustcc Accordingly, after July 1, 2002 it is hkely that the City could avoid Its pledge of Net Revenues to secure payments of thc Bonds, unlass thc Texas UCC Is further emended, or other statutes are enacted, to avoid this result Since the pledge of the Net Revenues may bc legally unenforceable in the circumstances In which It would bc most valuable, no person should rcly upon thc pledge as providing asset security or a preference'right in the event that the City should become insolvent 9 Even under the 1998 UCC revis~ons, the rights of bondholders with respect to the Not Revenues and the amounts in the funds created under thc Ordlannce, and other financial covenants of the City made In the Ordinance are valid and enforceable except In the event of bankruptcy Thus, for example, outside of the occurrence of municipal bankruptcy, bondholders may enforce the obhgatlon of the City to apply the Net Revenues and amounts on deposit in the debt service reserve fund to pay holders of the Bonds and Additional Bonds, as described above Moreover, the City is aware that proposed log~slstlon has b~en introduced for coesalerotion by thc Texas Legislature in thc legislative session that began January 1, 2001 to amend Texas law to avoid tho results of the adoption of the 1998 UCC revisions mentioned above No assurance can bo given, however, that any such legislation will be adopted by the Texas Legislature, or that, If It Is adopted, it can be given legal effect prior to July 1, 2002 FLOW O1~ FUNDS The Ordinance confirms thc creation of the ~Syalem Fund,*' the "Interest and Sinking Fund,'* the "Reserve Fund" and the "Extension and Improvement Fund," among others, and provides that all Gross Revenues be credited to the System Fund lmmethatoly upon receipt Tho current expenses of operation and mmntenance of the System are required to be prod from the (~ross Revenues as a first charge from amounts m the System Fend Before making the daposits to the other funds described below, the City is required by the Ordinance to retatn in the System Fund an amount at least equal to one-sixth of the amount budgeted fur the then current fiscal year for the entreat opcrstion and mmntenance expenses of the System Tberua~er, the City is required to transfer Pledged Revenues in the System Fund to the funds deser~bed below and in the following order of prlonty First, to the Interest and Sinking Fund, on or before the 25th day of each month in approximately equal monthly payments, amounts sufficient, together with any other funds on hand therein, to pay all of the interest or pnncrpal and interest commg due, maludlng with respect to any mandatory redemption requirements, on the Parity Bonds and any Additional Bonds on the next interest payment date, Second, to the Reserve Fund, to fund the Required Reserve Requtremant, as described above, and Third, to the Extension and Improvement Fund, an amount equal to 8% of the '*Adjusted Gross Revenues of the System", which means the Gross Revenues of the Systum for each year a~er deducting from thc Gross Revenues an amount equal to the current expenses of operation and mmntenance of the System for such year that are directly at~ribtuable to (1) all fuel costs related to the production of electric energy by the City and/ur (u) the purchase of electric energy by the C~ty The Extenslun and Improvement Fund shall be ased for the purpose of paying the costs of unprovements, enlasgemants, extensions, eddtuons, replacements, or other capital expenditures related to thc System, or for paying the costs of unexpected or extraordinary repoars or replacements of the System for which System funds arc not available, or for paying unexpected or extraordinary expenses of operation and mmntonence of the System for which Systum funds arc not otherwise avmlable, or for any other lawful purpose Subject to making thc required deposits to the credit of the various Funds when and as rcqu~ed by the Ordmance or any ordinance authorizing the issuance of Adthtlunal Bonds, any surplus Pledged Revenues may be used by thc City for any lawful purpose Thc Ordinance requires the City to establish, mmntmn and collect, such rates, charges and fees for the use and avadablhty of the System that are at all times in amounts necessary (1) to produce Gross Revenues sufficlant, together with any other "Pledged Revenues" (which consist of the Net Revenues and any eddltlunal revenues, income, or other resources which are expested to be available to the City on a regular periodm basis that In the future, at the option of the City, may be pledged to the payment of the Parity Bonds end any Additional Bonds), to pay all cerrent operation and mmntonence expenses of the System, and (2) to produce an amount of Pledged Revenues during each fiscal year at least equal to the greater of 1 25 times the average annual principal and interest requirements of all then outstanthng Parity Bonds and Additional Bonds or 1 25 times the succeeding fiscal yuar's principal and mterest requirements of all then outstanding Parity Bunds and Addmunal Bonds The City has established certain accounts (the "rate stabilization funds") within each of Its water, sewer and electric light enterprise funds to serve as operating resarvas that may be drawn upon from time to time in heu of increasing utthty rates In eccurdence with the terms of the Ordinance, the City Couned may pledge all or part of the amounts in one or more of thc rate stablhzatlon funds to secure the Parity Bonds, in which event, such pledged amounts wdl become "Pledged Revenues" that may be taken into account by tho City for purposes of satisfying the foregomg rate covanant OPTIONAL ]~EDEMPTION The City reserves the right, at its option, to redeem Bonds having stated maturities on and after December I 2011, in whole or In part in principal amounts of $5,000 or any integral multiple thereof, on June 1,2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption If less than all of the Bonds are to be redeemed, the City may select the maturities of Bonds to be redeemed If less than all the Bonds of any maturity are to be redeenled, the Paying Agent/Registrar (or DTC while the Bonds are in Book*Entry-Only form) shall determine by lot the Bonds, or porhons thereof, within such maturity to be redeemed If a Bond (or any portmn of the principal sum thereof) shall have been called for redemption and not,ce of such redereption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and aacroed interest thereon am held by the Paying Agen'JReglstrar on the redemption date 10 NOTICE O1~ RI~DI~I~G'TION Not less then 30 days prior to a rsdcmptmn date for the Bonds, thc City shall cause a notice of rcdcmptien tO bc sent by United States mall, first class, postage prepaid, to thc registered owners of thc Bonds to be redeemed, in wholc or In I?art, at the address of the registered owner appearing on the registration books of the Paying Agant/Rcglstrar ut thc closc of bus,lass on the business day next precedtog the dais of mmlmg such notice ANY NOTICE SO MAILED SHALL BE CONCLUSIyELY PRESUMED TO HAVE BEEN DULY OIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE NOTICE HAVINO BEEN SO OIVBN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE. AND NOTWITHSTANDINO THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE AI~DITIONAI~ BONDS Subject to satisfying cartmn conditions for thc issuence of parity bonds, thc City has reserved the right in the Orthnapce to issue Addmonal Bonds from timc to time Any such Additional Bonds will be securcd on a parity with the pledge ofth~ Pledged Revenues that secures the outstanding Parity Bonds end thc Bonds Among thc conditions required by the Ordmence for the issuance of Additional Bonds, is the delivery m the City of a wrlttan ce~tificatiun from an independent certified public accountant to the effect that, m his or its opinion, during either the next preceding fiscal year, or any twelve consecutive icalandar month period out of the 18-munth period lmmedlstaly preceding thc month in which thc ordinance anthonzmg the issuance of the then proposed Additional Bonds is passed, thc Pledged Revenues were at least (0 1 2:5 lames an amount equal to the avcrngo annual principal end interest requu~-Anents, and (n) I 10 times an amount equal to thc pnnclpal and interest reqnir~ments during the fiscal year during which such requirements arc scheduled to bc the greatest, of all Parity Bonds and Adthtiai~al Bonds which ar~ scheduled to be outstanding after the delivery of the then proposed Additional Bonds In calculating the amount of Pledged Revenues for this pull:~ose, if there has been any increase In the rates or charges for services of thc System which is then m effect, but which was not m effect during all or any part of tho entire period for which the Pledged Revenues a~ being calculated (heremalier referred to as the "entire period") then the certified pubhc accountant, or in hun of thc certified public accountant a firm of consulting engmeers, may dctenmne and ce~fy the amount of Pledged Revenues as being the total of(~) the actual Pledged Revenues for the entlr~ period, plus (il) a sum equal to the amount by which the actual billings to customers of the Systhm during tho entire panod would have been increased If such increased rates or charges had been in effect during the entire pcnod Reference is made to "Solaced Provisions of thc Bond Ordinance" for further requirements with respect to tho issuance of Adthtlonal Bonds AMENDMENT OF THE ORDINANCE Tho Ordinance provides that the hoidsrs or owners of Panty Bonds and Additional Bonds aggregating m principal amount 51% of the aggregalc principal amount of then outstanding Parity Bonds and Additional Bonds shall have the right from tune to time to approve any amandment to the Ordinance which may bc deemed necessary or desirable by the City, provided, however, that without the consent of all haldsrs or owners of Parity Bonds and Additional Bonds, no amendment may be made that would (1) make eny change in the maturity of the outstanding Panty Bonds or Additional Bonds, (2) reduce the rate of mtsrost borne by any of thc outstanding Parity Bonds or Additional Bonds, (3) reduce the amount of thc principal payable on the outstanding Parity Bonds or Addthunal Bonds, (4) modify thc terms of payment of principal of' or interest on thc outstanding Parity Bonds or Additional Bonds, or impose any conditions with respect to such payment, (5) affect the rights of thc holders or owners of less than all of thc Panty Bonds and Additional Bonds then outstandmg~ (6) change the minimum percentage of the pnnclpal amount of Parity Bonds and Additional Bonds necessary for consent to such amendment For a description of tho notice requirements and other provisions pcrtmmng to the amendmant of the Ordmancc, see "Selected Provisions of thc Bond Ordinance" PROPOSI~D AMENDMENTS TO THE ORDINANCE As part of a plan of finance that mcludcs the issuance of the Bonds, the City Council wdl adopt an ordmenc.~ (the "Amendstory Ordinance") on the date of the sale of the Bonds that wall complete the amendment of the Ordinance and thc ordmencos pursuant to which thc outstanding Panty Bonds have been anthorizcd (collectivaly, the "Parity Ordinances") The Amendalory Ordinance provides for the amandment of three provisions of the Panty Ordmences [by (i) modifying a provision that provides the terms under which the City may sale lease or otherwise dispose of property constituting the System, (ii) daletmg a provision that requires thc City to prohibit in the City the operation of facilities by others that compete with the System end (in) modifying a provision that requires that books, documents, and vouchers relating to the City's alcetnc system shall be made available for inspection only to the extent required by [aw, including, without limitation, Sectlun 552 131 of the Texas Government Code, which provides that certmn information, including commercial information, need not be disclosed If it is determined by thc City Council that the disclosure of such information would give edventage to competitors or prospective competitors of the alectnc system Reference Is made to "Continuing Disclosure of Information" herein for a description of cartmn finencad end operating dam (Including cerium alectrlc system data) that the City has agreed to previdc to end for thc benefit of Bondholders whdo the Bonds remain ontstandmg For a further description of such amendments see "PROVISIONS OF THE AMENDATORY ORDINANCE" Provisions of the Parity Ordinances that permit amendments thereto require the that the City obtain the consents of the owners of Panty Bonds aggregating in pnnclpal amount 51% of the aggregate principal amennt of then untstendmg Parity Bonds for such amendments As a condition to the sale of the Ben,Is, the City is requirmg the Underwntars to consent to the amendments In accordsncc with the terms of the Orthnencc, lsuch consent will be irrevocable by any owner of the Bonds for twelve months from thc date of thc delivery of the Bonds (the, "Irrevocable Period") The City has previously obtained the consent of approximately 32% of the owners of the Panty Bon~ts (exclusive of the Bonds) Such consent was provided in May. 2000 by underwriters some of whom are participating In this Issue Collectively, the consant by the Undcrwnters as owners of the Bonds will constitoto the consent of approxlmalely 63% of the owners of the Panty Brmds Accordingly, ~f tho City effectustes this plan of finance, thc amandments would become effective prior to the end of the Irrevocable Period 11 DEItgASANCE eli BONDS The Ordmance provides for the defeasance of the Bonds when payment of the principal of end premium, ~f any, on Bonds, plus Interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise), is prowded by irrevocably depositing with a paying agent, In trust (l) money sufficient to make such payment or (2) Defeasance Securities, certified by en Independent public accounting firm of entinnal reputation to mature as to principal end interest In such amounts and at such t~mas to insure the avmlabthty, wtthunt remvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation and expenses of the paying agent for the respantlve series of Bunds The Ordmsuce provides that "Defeasance Securities" means (1) direct, noacallable obligations of the United States of America, mcludmg obligations that are unconditionally guaranteed by the United States of America, (2) noncallable obligations of an agency or instrumentality of the United States of America, lncluthng obligations that am uncondltmnally guaranteed or insured by thc agency or mstrumantahty end that are rated as to investment quality by a nationally recognized Investment mtmg firm not lass than AAA or its equivalent, and (3) noacallable obhgatluns of a state or an agency or a county, municipality, or other pobtlcal subdivision of a state that have been refunded end that are rated as to investment quality by a nationally recognized Investment rating firm not less than AAA or its equivalent The City has adthtiunaliy reserved the right' subject to satisfying the requirements of (l) and (2) above, to substitute other Defeasance Securities for the Defuasence Securities originally deposited, to reinvest the uninvested moneys on deposit for such defeasance and to withdraw for the benefit of the City moneys in excess of the amount required for such defeasance Upon such deposit as dascrthed above, such Bonds shall no longer be regarded to be outstanding or unpmd After Finn banlang end finenmal arrangements for the discharge and final payment or redemption of the Bonds have been made as deseribed above, all rights of the City to Initiate proceedings to call the Bonds for redemption or take any other action emending the terms of the Bonds are extinguished, provided, however, that the right to call the Bonds for redemption is not exttngmshed if the City (l) m the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Bonds for redemp/aon, (il) gives notice of the reservation of that right to the owners of the Bonds immediately following the making of the firm banking and financial arrengements {ill) thrants that notice of the reservation be Included In any redemption notices that it authorize, and (IV) at the time of the redemption, settsfias the conthttons of tho preceding paragraph with respect to such Bonds as though It was being defeased at the time of the exercise of the option to redeem tho Bonds, after taking the redemption Into account In determining the sufficiency of the provisions made for the payment of the Bonds BOOK-ENTRY-ONLY SYSTgM This section describes how ownership of the Bonds are to be transferred end how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by Tho Depository Trust Compeny ("DTC"), New York, New York, while the Bonds are registered in Its nominee name The mformatton in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in d~sclosure documents such as this Official Statement The City believes the source of sech lnformsttun to be reliable, but takes no responsibility for the accuracy or completeness thereof The City cannot and does not give any assurance that (l) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Purtiinpants, (2) DTC Participants or others wdl distribute debt service payments paid to DTC or its nominee (as the registered owner oftbe Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis or (3) DTC will serve and act In thc manner dascnbed m this Official Statement The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC DTC will act as securities depository for thc Bonds The Bonds will be ISSUed as fully-registered securities registered m the name of Cede & Co (DTC's partnership nominee) One fully-registered certificate wall be ISsued for each maturity of the Bonds in the aggregate pnaclpal amount of cech such maturity and will be deposited with DTC DTC is a limited-purpose trust company organized under the New York Banking Law, a 'booking organlzatiun'* 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 Umform Commercial Code, end a "clearing agency" registered pursuant to the provisions of Section 17A of the Securlties Exchange Act of1934 DTCholdssecurltlesthatltsparhclpants('DlrectPertlinpants")deposttwlthDTC DTCalee faed~tatas the settlement among Participants of securities trensectluns, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes In Partlclpents' accounts, thereby eliminating the need for physical movement of securities certificates Direct Participants include securities brokers and dealers, banks, trust companies, cleanng corporations, and certmn other orgenlzatlons DTC is owned by a number of tis Direct Purtlclpants end by the New York Stock Exchange, Inc, the American Stock Exchenga, lnc, and the National Associntlon of Securities Dealers, lnc Aecess to the DTC systein Is also avmlable to others such as securities brokers end dealers, banks, and tiuat compenins that clear through or mmatmn a custodial relationship with a Direct Particlpent' either d~ectly or Indirectly ("Indirect Pertinlpants") The Rules applicable to DTC end its Participants are on file with the Securities and Exchenge Commission Purchases of Bonds under the DTC system must be made by or through DTC Participants, which wtll receive a credit for such purshases un DTC's records The ownership interest of cech ectual purchaser of each Bund (,~Boneficlal Owner,,) is m 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 arc expected to receive written confirmations provldlug detmls of the trensactinn, 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 Bonds ere to be accomplished by entries mede on the books of 12 Participants ~tmg on behalf of Beneficlil Owners Beneficial Owners will not receive certificates representing their ownership ihtere~t~ In the ~onds, except m the ~vz~t thst u~ of the book~try sys~m described herei~ is discontinued To f~dl~{subsequ~t ~d~ ~1 Bends d~posl~d by D~r~t P~p~ w~th DTC ~ mgm~ m th~ n~e of DTC's p~e~p qomm~, Ced~ & Co ~e d=pos~t of Bunds w~ DTC ~d ~e~r mg~tmn m ~e n~ of Cede & Co eff~t no ch~g~ m bon~fici~ owners~p DTC h~ no ~owledge of ~e ~tu~ Benefic~ Owners of the Bonds, DTC's recor~ ~flect only ~e ~de~W of ~e Dl~ P~lc~p~ m whos= a~coun~ such Bonds ~e cred~d, which may or may not be the Beneficml Owne~ ~ p~c~p~ wdl r~n responsible for k~mg account of ~e~r holdmgs on behalf of ~e~r cusWmers Convcy~c~] of noUces ~d o~cr ~mm~catmns by DTC to D~ct P~c~p~ts, by D~ct P~c~p~ts to Indt~ct P~mp~, ~d by D~t P~ctp~ts ~d Indt~ P~e~p~ ~ Benefic~fl Owne~ wdl be governed by ~g~ ~ong ~em, subJeCt Redemptmn[noa~s shill be sent ~ Cede & Co If less ~ all of thc Bonds w~m ~ ~ssu~ ~ being ~dc~, DTC's pmeUce ts to d~c~o by lot th~ ~o~t of~e interest of~eh Dl~t P~e~p~t m such ~ssue m be ~d~ed Ne~ ~ nor C~e & Co wdl cons~t or vo~ w~ ~spect to ~e Bonds Un&r ~ usu& process, DTC minis ~ Ommbus ~xy to ~e C~ ~ soon ~ possible ~r ~e Record Date (he~m~er defined) The Ommbus Proxy ~s~s Cede & Co's eo~e~tmg or voting n~ to ~ose D~t Pm~e~p~ to whose accow~ ~e Bonds ~e c~dxted on ~e Re.rd Date 0denUfied ~9 a hsting a~ghed to ~e Ommbus Proxy) Prmc~pfl ~d mte~t pa~enm on ~e Bonds will be made m DTC DTC's pracnce ~s to c~dxt D~et P~e~p~ts' geo~ts on c~h pay~lb d~ m aeco~ee ~ ~c~r ~sp~t~w holdings shown on DTC's ~rds ~lcss DTC h~ r~on to bdmve ~at ~t will not r~xv~ paym~t on such pay~lc date Payments by P~xc~p~ts ~ Benefiesfl ~e~ will be governed by st~dmg ms~ctmnsj~d eu~om~ p~ctlccs, ~ Is the ~c w~ s~cs held for thc accosts of custom~ m bc~ fo~ or reg~e~d m "s~et n~e," ~d will ~ ~e ~spons~bfi~ of such Pm~cap~t ~d not of DTC, ~e Paying ~en~eg~s~m or ~e C~, subj~t ~ ~y s~tuto~ or ~gula~ ~m~ents ~ may be m effect from amc ~ t~me Payment of prmc~pil ~d retest to DTC ~s ~e ~ons~blh~ of ~e C~, dtsb~sement of such paymen~ to D~reet P~e~p~ shill be ~e rcsponsxbxh~ of DTC ~d disbu~oment of such payments to ~e Benoficifl Owners shill be ~o ~sponsibdl~ of D~ect ~d Indirect P~lcip~ DTC may ~s~n~nuo providing l~ sea,ecs ~ securlBes d~poslto~ wl~ respect to the Bonds ~ ~y t~mc by g~wng re~onable notice to ~o CI~ Und~ such circumst~s, m ~c event that a su~essor scc~lHcs d~posito~ is not obtmned, Bonds ~ required to bo printed ~d dchv~d The CIW m~y d~c~de to dlscon~nuc uso of ~o ~stem of book-ent~ ~sfcrs ~ou~ DTC (or a successor ~unties deposl~) In ~at even~ Bonds ~ll be primed ~d dehve~d Use of Certain Terms In Othor ~tioas of this O~cial Statement In reading this Officlfl Statement It should be ~derstood that while ~c Bonds ~o m ~e Book-En~ ~ly System, references m o~er sections of ~s O~clil S~tement to ~stered owne~ should be r~d m Include ~ person for which ~e Pmic~p~t gqmres ~ ~nte~st m ~e Bonds, but (0 all rl~ of o~crsh~p ~t be ex~cls~ t~ough DTC ~d ~e Book-Ent~ Only System, ~d (u) except ~ described above, not~ces ~at ~ to be g~ven to mglst~ o~e~ und~ ~e O~m~cc wdl be g~ven only to DTC Info~a~o~ ~n~mlng DTC ~d &e Book-En~ Only Sy~em h~ been ob~lned ~om DTC ~d ~s not ~teed ~ to ace~cy o~ comple~ess by, ~d is not m be cons~ed ~ a representa~on by ~e CiW or thc ~rch~ers Effect of Termination of ~ok*Eat~ Only Sys~m In the event that ~c Book-En~ Only Sy~em Is discontinued by DTC or ~e use of ~c Book-En~ Only Sy~cm Is dl~ntlnued by ~c CIW, ~e following provisions wd[ be apphc~lc to the Bonds ~e Bonds may be ~ch~ged for ~ equil ~g~e prlnclpfl ~ount of the Bonds m au~onzed denominations ~d of ~e s~o ma~rlW upon su~mdcr ~emof at ~e p~clpal office for payment of ~e Paymg Agen~egis~ ~e tr~sfer of ~y , f Bond may ]bo rogl~d on ~o books mmntmn~ by ~e Paying Agcn~eg~s~ for such pu~osc only upon ~o su~nder o such Bonito ~c Paying Agen~egls~ wl~ a duly oxccuted assignment m fo~ satlsfacto~ to ~c Paying Ag~cgis~ For ove~ ~xch~ge or ff~ of regls~a~on of Bonds, &e Paying Agcn~eglsW~ ~d ~e CI~ may m~o a ch~ge sufficient to re~mb~se~em for ~y t~ or o~ gove~tfl ch~gc required to be paid Wl~ respect to such cxch~ge or recitation of ~sfer ~ho Cl~ shill pay ~e fee, if ~y, ch~ged by ~ Paying Agcn~cgisff~ for ~e ~sfer or ~ch~g~ ~e Paymg Agen~eg~s~ will not ~ reqmr~ ~ W~cr or cxch~ge ~y Bond ~er l~ selection for rcdcmptton ~e CIW ~d ~c Paying Ag~egls~ may ~at ~e person m whose n~c a Bond Is rcglste~d as ~e absolute o~er ~cmof for all pu~oses, wh~er such Bond Is ove~ue or not, including for ~e pu~ose of recelwng payment of, or on ~count of, the pnnclpfl of, premium, iffy, ~d interest o~ such Bond 13 PAYING AGENT/P. EGISTRAR Tho initial Paymg Agnnt/Registrar is Bank One, NA, Dallas, Texas In the Ordinance, the City rctams the right to replace the Paying Agent/Registrar The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are duly paid end any successor Paying Agent/Raglstror shall be a commercial bank or trust company organized under the laws of the State of Texas or other entity duly quahflnd and legally authorized to serve as and perform the duties and services of Paying Agnnt/Regismu- for the Bonds Upon any change in the Paying AgantfRaglStrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first class, postage prepmd, which notice shall also give the address of she new Paying Agant/Raglstrar Interest on the Bonds shall be paid to the registered owners appearing on the raglstmtion books of the Paying Agent/Registrar at the close of business on the Record Date (defined below), and such Interest shall be prod (I) by check sent United States Mail, first class postage prepaid to the address of the registered owner recorded m the roglstrotton books nfthe Paying AgnnVR. aglstrar or (n) by such other method, acceptable to the Paying Agent/Ragistiar requested by, and at the risk and expense of, the registered owner Principal of the Bonds will be paid to the registered owner at thair stated maturity or easher redemption upon presentatlen te daslgnated paymant/trsnsfer office of the Paying Agent/Rcgisffar If tim date for the payment of the prmmpal of or Interest on the Bonds shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/Registrar Is located are authorized to close, then the date for such payment shall be the next succeeding day which ~s not such a day, and payment on such date shall have the same force and effect as If made on the date payment was due TRANSEEI~ EXCHANGE AND REGISTRATION In the event the Book-EnUy-Only System should be discontinued, printed certificates will be deliver to the registered owners and thereafter the Bonds may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar end such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other gnvemmental charges required to be prod with respect to such registration, exchange and transfer Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Raglstrer New Bonds will be delivered by the Paying AgnnffRe~nstrar, in lieu of the Bonds being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepmd, to the new registered owner or his designee To the extent possible, new Bonds Issued In an exchange or mmsfer of Bonds will be delivered to the registered owner or assignee of thc registered owner in not more than three business days after the receipt of the Bonds to be canceled and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, m form satisfactory to the Paying Agent/Registrar New Bonds registered and delivered In an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate designated amount as tho Bunds anrrendered for exchange or transfer See "Bunk-Entry-Only System' hereto far a dascrlpttun of the system to be utdized untially in regard to ownership and transfembthty of the Bonds Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for redemption, in whole or in part. within 45 days of the date fixed for redemption, provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance cfa Bond RECORD DATE FOR INTEREST PAYMENT The record date ("Record Date") for the mtereat payable on the Bonds on any Interest payment date means the close of business on the 15th business day of the preceding month In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City Notice of the Special Record Date end 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 prmr to the Special Record Date by United States mall, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/RaglStrer at the close of business on the last busntass day next preceding the date ofmalhng of such notice BONDHOLDERS' REMEDIES Except for the remedy of mandamus to enforce the City's covenants and obligations under the Ordinance, the Ordinance does not astublish other remedies or specifically enumerate the events of default with respect to the Bonds The Ordinance does not provide for e h~ustce to enforce the covenants and obligations of the City In no event will registered owners have the right to have the maturity of the Bonds accelerated as a remedy The enforcement of the remedy of mandamus may be difficult and time ennsemmg No assurance can be given that a mandamus or other legal action to enforce a default under the Ordinance would be successful Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U S Bankruptcy Code Although Chapter 9 provides for the recognition of a security Interest represented by a specifically pledged source of revenues, such provision is subject to judicial construction Chapter 9 also Includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the pmseentlon of any other legal action by creditors or bondholders of an enhty which has sought protect~un under Chapter 9 Therefore, should the City avad itself of Chapter 9 protection from creditors, the abthty to enforce any remedlas under the Ordinance would be sub.~ect 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 dlscretiunary powers of a Bankruptcy Court in administering any proceeding brought before (See 'Avoidance Pledge" herein) The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their c4ethtors 14 BOND INSURANCE Payment Pu~uant to Financial Guaranty Insurance Policy Ambac Assm race has m~o a comnutment to issue a financial guarenty msunmce policy (thc "Financial Guaranty Inennmce Policy") relatm~ to th~ Obligations effective as of tho date ofis~ence of the Obligations Under the terms of the Financial Guaranty Insurance Policy, Amble Assurance will pay to Tho Bank of, New York, m New York, New York or any successor thorato (the *'insurance Trustee") tha~ ~ortion of tho prmelpal of end mterost ca the Obligations which shall beceme Due for Payment but shall be unpmd by reason ofNo~ )ayment by tho Obh$or (as such tmns are defined m tho Fmencial Guaranty Insurance Pohcy) Ambsu Assurence will make such pi merits to tho Insurence Trustee on tho later of the date on wluch such principal and interest bacomas Due for Payment or within on business day fnllowmg the date on which Ambac Assurance shall have received notice of Nonpayment from the TrusteeJPaya g AgenL Tho insurance w~ll extend for~tha term of the Obhgattons and, once issued, cannot be canceled by Ambac Assurance Tho Fmanelil Oenrent~ Insurance Pohcy will ~ payment only on stated matunty dates and on mandatory sinking fund installment ci~, in the ease of principal, end on stated dates for payment, in tho case of interest If the Obhgattons become sob. teat to mandatory r~damptton and insufficient funds are evadable for redemption of all outstanding Obligations, Ambso Assurance will remain obh~ated to pay principal of and interest on outstanding Obligations on the originally scheduled interest end pnnclpal payment dates mcindmg mandatory sinking fund redemption dates In the event of any acceleration of thc pnnclpal of thc Obligations, ~hc insured payments will bo made at such times end in such amounts as would have been mede had there not been an acceleration I In the event tho [Trustee/Paying Agent/Obligation Rolpstras] has notice that eny payment of lmnclpal of or interest on an Obhgation which has become Duo for Payment and winch is made to a Holder by or on behalf of thc Obligor has been deemed a preferential transfar and thcretoforo roenvored from its regLStered owner pursuant to the United States Bankruptcy Code m accordance with a final no~nble order of a coast of competent jurisdiction, such registered owner will be entitled to payment tom Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise arm able The FlannctdJ Guaranty l~rence Policy does not insure any nsh other than Nonpayment, as defined in the Policy Specifically, thc Financial Oqarenty Insurence Policy does not cover paymellt on acceleration, as a result of a call for redemption (other then mandatory stoking fund redemption) or as a result of any other advancement of nmtunty 2 payment of any redemption, prepayment or accolenttien preimum 3 nonpayment of prmmpal or interest caused by thc insolvency or negligence of any Trustee or Paying Agent, if any If it become~ necessary to call upon tho Financial Guaranty Insurance Policy, payment of pnncipal requires surrender of Obligations to the Insorgnce Trustee together with en appropriate instrument of assignment so as to permit ownership of such Obligations to be registered m~the name of Amhao Assurance to the extent of the payment under the Fmanaial Ouanmty Insurance Policy Payment of interest pursuant to the Finencial Guaranty Insurance Pohcy requires pwof of Holder entitlement to interest payments end an appropriate ~aslgnment of the Holder's tight to payment to Ambso Assurance Upon payment of the msorance benefits, Ambac Assurance wdi become the owner of the Obhgatiun, appurtenant coupon, if any, or right to pay~nent of principal or Intere~ on such Obh~atton end will be fully subrogated to the surrendcnng Holder's rights to payment ~ Amhac AssUrance Corporation Ambac Aslurance Corporation (*'Ambac Assurence") is a Wlsennsm-domlcded stock insurance corporation regulated by thc Office of the Commissioner of Insurance of tho State of Wisconsin end licensed to do business in :50 states, thc District of Columbia, {he Territory of Guam and tho Commonwealth of Puerto Rico, with admitted assets of approximately (unanthted) end statutory capital of npproximately $'1,716,000,000 (unaudited) as of December 31, 2000 Statutory capital consists oflAmbnc Assurence's policyholders' surplus and statutory contingency reserve Standard 8. Poor's Credit Markets Services, a ]:)ivenon ofTbe MoOmw-Hlll Compenles, Moody's Investors Service and Fitch, Inn have each assigned a tripic-A financial attenffch rating to Ambac Assurance Ambac Assurance has obtained a mhng from tho Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance ~111 not affect the treatment for federal raceme tax purposes of interest on such obligation end that insurance proceeds reprcsantln~ malunnl~ interest paid by Ambac Assursnce under policy provisions substantially identical to those contmned in its financial .g~arenty msurence policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor of tho Obligations Available Information The parent company of Ambec Assurance, Ambac Financial Group, In¢ (the "Company"), is subject to gao mform~onal reqon~mcots of the Sonorities Exchange Act of 1934, as amended (thc "E~xchangn Act"), and m accordance ga~ files reports, proxy statements and other reformation with the Securities and Exchange Commission (tho "Commission") Such reports, proxy ~ and other iM'ormallon may be mspacted and copied at the pubb¢ reference facthtles maintained by gao Commission at 450 Fifth St~% NW, Washington, DC 20549 and at the Conureeslon's regional offices at 7 World Trade Center, New York, New York 10048 and Northwastem Alrmm Center, 500 West Madison Street, State 1400, Chicago, Illmms 60661 Copies of such material can be obtained from the public reference sccUen of the Commission at 450 Fifth Street, N W, Washington, D C 20549 at prescribed rags In edd~t~on, the aforementioned material may also be respected at the offices of the New York Stock Exchange, Inn (tho 'rNYSE") at 20 Broad Street, New York, New York 10005 The Company's Common Stock IS listed on the NYSE Copies of Ambac Assurance's financial statements prepared in accordance with statutol3, acceuntmg standards are available from Ambac Assurance Thc address of Ambac Assurance's admlmstratlvo offices and Its telephone number are One State Street Plaza, 19th Floor, New York, New York 10004 and (212) 668-0340 Ince~poraRon of Certain Documents by Reference Tho following documents filed by the Company with the Commission (File No 1-10777) am lncerporoted by reference in this Official Statement 1 ) Thc Company's Current Report on Form 8-K dated January 26, 2000 and filed on January 27, 2000, 2) Thc Company's CmTCOt Report on Form g-K dated March 13, 2000 and tiled on March 13, 2000, 3) Thc Company's Current Report on Form g-K dated March 21, 2000 and filed on March 22, 2000, 4) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and filed on March 30, 2000, 5) The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2000 and filed on May 12, 2000, 6) The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 30, 2000 and filed on August 11, 2000, 7) The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 30, 2000 and filed on November 13, 2000, and 8) The Company's Currant Report on Form 8-K dated January 24, 2001 and filed on January 24, 2001 All documents subsequently filed by thc Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be aviulablc for inspection in thc same manner as described above In "Available Information" 16 MANAGEMENT OF THE SYSTEM The System includes tho City's onl~r~ e~¢tstmg aleolric, light and power system end thc exl~ng waterworks and sewer system, together withi 811 future extensions, improved'neats, enlargements end add]t]ous thereto The Public Uttlitlex Board By City Charter, fuere has been created a Pubhc Utllmes Board (the "Board") composed of five members, appointed by frae C~ty Couned with the City Manager end the Assistant City Manager of UUhtles serving as ex-officio, non-voting n~embers of the Bosrd Thc Boalxi serves tho Department of Utlhties as a consulting, advisory and supervisory body The duties of'tho Board ara summarized as follows 1 Review of the Annual Utlll, ty Operating Budget and 5 year Capital Improvements Plea, end the transinlsslon thereof to the City Council 2 Review of recommended a expensiun of, ndthuons to, betterment of, or extsnsions to the System, b mcumng of debt, c issuance of bonds end d establishment of rates end charges All ac~ens of tho Board ar~ subject to final approval of the City Council Management of the Systein The System is man.ed by the Assistant City Manager of Utibttcs, who is responsible to the City Manager Tho System is orgenu~d into thr~ major services, Electric, Water and Wasteweter, and consists of approximately 308 employees In adthtlun, within UUhty Admmistra~un, there are various administrative staff, custoraer service, energy inanageinent, and financial administration responsibful~es Thc Elecinc,Utllity is composed of seven mare &visions I Elcc~c Production, 2 El~clnc Dismbut~on, 3 Eleclrl¢ SubstaUons, Eleclnc Engineering, Eleclnc Metering, Electric Admunsiratlon, and Eleetne Marketing Thc Watar/Wastewater Utilities are compused of six main divlslunS, each of which Is heeded bY n Division Manager They lnaludc Water Productlun, 2 Water/Wastewatar Field Service% 3 Watar/Wastewatar Engineering, Wastewator Tree, taunt Pleat, ,5 Municipal Laboretory~nvironmantal Services, end 6 Drainage Thc Systen~ utilizes the services of the City's Finance Deparlment for accounting, purchasing and warehousing The System utthzes thc services of tho Engmserlng end Transportstlun Department for desig~ of inlanr water/sewer lines, easement end/or right-of-way asquisltion ~nd lnape~tlon of developer-Installed watar end sewer haas Thc Systole also ut~hzes vunous admunstmtivc departments of the City for its personnel, and data processing needs UTILITY R&T~8 It IS the City's policy to review electric, water and wastewater rates on an annual basis to assure adequacy and equity lndopcodunt consullents arc generally used ove~' 5th yeer, with City staff completing the work in house dunng thc lntsrl~ R~ta re~ommcoda~lons ar~ submitted by the staff to the Pubhc Utthtles Board for review end approval, which then forwards a recommendallun to the City Council for final approval To date, the C~ty Councd has approved all rate recommendations of the Public Utlhtles Board 17 TIIE ELECTRIC SYSTEM INTRODUCTION The City has owned end operated ils electric light and power system (the "Electric System") for approximately 90 years During this time, the Electric System has experienced a steady growth m customers and output, rcqmring periodic additions to plant and distribution thcthties Over the threc most recently complctcd fiscal years of the City, the Electric System has generated an average of approximately 44% of the net revenues avmlabie for debt service produced by the Systec (sec "Table 9- System Statement of Cundensed Operatluns") In order to secure access to a long-term baseline electric ganerstmg facility, the Cities of Bryan, Denton, Garland and Greenville, Texas erected the Tasas Mumclpal Power AgancY ("TMPA") m 197-~; TMPA Is a Jomt power agency wlthunt taxmg power, and n separate municipal corporation and political subdivision of the State that operates in ascordance with Article 1435a, Veroon's Texas Civil Statutes, as amended (See "The Electric Systec - The Power Sales Contract" and "The Electric System - Texas Munlclpel Power Agency," below ) The Electric System, hke other municipal electric systems In the State, presently Is confronted by fundamental changes to the system of electric utthty regulation in the State brought about by the enactment of Senate Bill ? ("SB 7") by the Texas Legislature In 1999 As further described below, SB 7 provides for open competition m the provision of retail electric service in the State commencing Jenuary 1, 2002 Municipal utilities, like the Electr~e System, me not required to participate in the competitive market, although they may "opt m" to feted electric competition To date, tho City Council has taken no action with respect to openmg the City to retail electric competition as provided by SB ? See "The Electric System - Texas Municipal Power Agency - SB 7, TMPA end the Member Cities" and "The Electric System - Senate Bill 7," below While SB ? deregulates the generation and sale of energy in the State (subject to certain local option provisions, as described below), SB 7 mtuntams a regulated structure with respect to electric transmission and dlstrlbuttun services in the State As noted below, the City has formulated n business plan whereby the only electric facilities it will own are expected to be transmission and distribution facilities (but no generation assels other than certam small hydroaleetric faclhtleS), on the assumption that the City's existing and future transmission and dlsfftbut~un facilities will provide u regulated return on investment, whether or not the City Councd elects te open tho City to fufl retml electric servlee competition Managecent of the Eleatnc Systam is of the view that R IS positioned to continue to participate In the distribution of anergy within the City's service area, which in recent yems has experienced strong growth trends, particularly with respect to energy sales to the City's primarily residential customer base As described in more doted below Electric System menagemant anticipates that the City's most significant challenge will arise from ~ts long-term power purchase agreement w~th TMPA, under which the City IS obligated to purchase or pay for 21 3% of TMPA's fixed costs, including debt service, as well as TMPA's variable costs relating to the energy that the City takes from TMPA The bond ordinances of the C~ty under which It has ~asued the Parity Bonds end the Ordmence contain a covenant (the "No Competition Covenent") that provides that, to the extent the City legally may, it will not permit the operation of any electric, water or wastewster facilities in the City that would compete with the Utihty System Such covenant, unless repealed or amended, may deny to the City Councd the option of opting in to competition As described herein under "The Bonds - Proposed Amendments to the Ordmenee" the City has implemented a program to amend in certain respects the bond ordinances under which the City has issued the Parity Bonds end the Ordmence, mcludmg the repeal of the No Competition Covenant The amendment program is plenned to conclude with the issuance of tho Bonds The planned repeal of the No Competition Covenent is being undertaken by the City for the purpose of providing the City with flexibility in connection with the enactment ofSB ? Such action, however, is not intended to signal that the City Intends to open its boundaries to competition, as the City Council has not formally considered taking such action FACTOI~ AFFECTING THE ELECTRIC UTILITY INDUSTRY The electric utility industry In general has been, or in the future may be, affected by a number of factors that could impact the financial condition and competitiveness of an electric utility and the level of utilization of generating and transmission faclhtles Such factors Include, among others, (a) effects of compliance with rapidly chengmg environmental, safety heensmg, regulatory end legislative requirements, (b) changes resulting from conservation and demend-side management programs on the timing and use of electric energy, (c) changes resulting from a national energy policy, (d) effects of competition from other electric utilities (including increased competition resulting from mergers, acqmsitians, and "strategic alliances" of competing elactilC and natural gas utilities and from corapetltors transrmtUng less expensive electricity from greater distances over an Interconnected system) and new methods of, and new facilities for, producing low-cost electricity (e) the proposed repeal of certain federal statutes that would have the effect of increasing the competitiveness of many mvastor-owned utilities (0 Increase competition from Independent power producers end marketers, brokers and federal power marketing agencies, (g) "seff-ganeration" by certmn industrial end commercial customers, (h) issues relating to the abihty to issue tax-exempt obhgatmns, including severe restrictions on the ability to sell to non-governmental cnt~tlas electricity from generation projects and transmission service from transmission line projects financed with tax-exempt obligations, (Q effects of lnflst~on on the operating and maintenance costs of an electrm utility and its faedltles, (j) Increases In costs and uncettam avmlablllty of capital, (k) sh~fts m the avndablhty and relative costs of different fuels (including the cost of natural gas), and (1) sudden, drastic increases in the prlcc of energy purchased on thc open market that rosy occur In times of high pubhc demend m an area expermnclng such high peak demand Any of these factors (as well as other factors) could have an effect on the financial condition of any given electric utility end likely w~ll affect individual utlhtlas in different ways The City cermet predict what effects such factors wdl have on the operations and financial condition of the Electric System, but the effects could be slgnlfiCent The dlscasston of such factors herein does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof Extensive information on the electric utlhty industry is, and wdl be, evadable from the legislative end regulatory bodies end other sources in the public dorsam, end potential purchasers of the Bonds should obtain and revrew such reformation 18 TABLE 1 - HISTORICAL OPERATING AND FINANCIAL DATA The table be~ow sets forth certain operating and financial dura with respect to the Electric System for each of the five most recently completed fiscal years Average Number of Monthly Year Ended September 30 Customers by Serv~c~ Classification (1) 2000 1999 1998 1997 1996 Restdentnl i 29,436 29,353 28,515 27 624 26,888 Commerc~a~ and Industrial 3,606 3,754 3,621 3 466 3,387 791 1,446 1,404 1,496 1,330 A~nual Magawat~ Hems Sales ' by Service Clusssfication Sales for R~sale 33,347 50,701 58,472 83,450 97,805 Total Sales I 134,362 I 073,481 1 065,708 985,626 I 003,604 Loss and Uga~ounted 14,780 25,037 48,941 51,116 27,453 AnnuallRevenua by Service Classification ($ in Thousands) Residential, $ 31,609 $ 28 121 $ 28,903 $ 25,224 $ 24,107 Total $ 75,105 $ 68,405 $ 67,740 $ 62 199 $ 60,104 ,Analys~s of Elacmc Billing Residential Customers Avg Monthly kwh per Customer l 061 1,012 1071 943 987 Avg Mpnthly Cente per kWh 8 44 7 88 7 89 8 07 7 57 Avg Iv~onthly Bill per Customer $ 926 58 $ 821 29 $ 821 85 $ 819 35 $ 814 41 Avg Monthly Cenls par kWh 5 95 5 90 5 92 6 12 6 00 Capacity and Energy M~x (rounded to nearest MW) Capacity Owned Capacity (MW) 178 178 178 178 178 Firm Pure~nse (MW} - TMPA 98 98 98 98 98 Ftrm Part,use (MW) - Other 30 12 0 0 0 Total ] 306 288 276 276 276 Annual pe~k Demand 265 259 239 229 219 Energy Owned Cspa~lty (MWH) 257,903 316,190 273,699 234,305 248,107 Fnm Purchase (MWH) TMPA 636,718 552,183 659,018 593,433 543,219 Total 1,149,142 1,098,519 1,114649 1,036 743 1,031 057 (1) Thea~eragenttmber~fm~nthlycastumarsappearst~h~vedacreasedmth¢yearendedSeptembar3~2~ Thisdacrease ts a resultlof mstalletiun of new customer nformatmn anth,~are at the begmmng of fiscal year 2000 Tho previous software system co6nted actual number of billings produced The new software counts customers who receive multiple bills as a single customer, ~esulting m the apparent decrease an customers Total number of balls produced for the year ended September 30, 2000 was 36,897, an increase of 7% over the prewuns year 19 TAm. g 2- Cvm~z~;r ELECTRIC RATE SCHEDULES Approximately 96% of the Electric System customers are billed under the rote schedules summarized below Special rate schedules are available for customers with unique load curves such as city street hghtlng, etc Resldanlml Service Rate (Effective October I, 1994) Applicable to any customer for all clecmc service used for residential purposes m an individual private dwelling or an individually metered apartment, supplied at one point of delivery and measured through one meter Also applicable to any customer heating with electric energy, resistance or heat pump Not applicable to resale service m any event, nor to temporary, standby, or supplementary service except In conjunction with the applicable rider Faclhty Charge Single-Phase $ 7 73 / 30 days Three-Phase $15 45 / 30 days Energy Charge - Winter Rates F~rst 1,000 KWH 4 34~ / KWH Additional KWH 3 94~ / KWH Energy Charge - Summer Rates First 3 000 KWH 5 61~ / KWH Additional KW~I-I 6 21~ / KWH Ener,~v Cost Adjustment See description below Oeneral Service Larse (Effective October 1,199:5) Applicable to any commercial or mdustrad customer having a minimum actual demand of 2:50 KVA or 225 KW for all alectr~c service anpphed at one point of dehvery and mea,sured through one meter Customers with an average actual demand equal to or greater than 200 KVA or 180 KW during the previous twelve mouth period may be allowed service under this rate, subject to the minimum billing provision Customers other than commercial and industrial may be allowed service under this rate, subject to the minimum billing prows~on Facthty Charge $60 60 / 30 days Demand Charge $ 8 64 / KVA (Minimum of 2:50 KVA billed) Energy Charge 1 41¢ / KWH Eoer,~y Cost Adjustment See description below Minimum Billing An amount equal to the facility charge, plus a demand charge billed at the above KVA rate, where demand ~s determmed by whichever of the fo]lowmg methods yields the greatest result numerically (I) the actual monthly KVA demand, (2) 250 KVA, or (3) seventy percent (70%) of the maximum monthly KW/KVA actual demand for any month during the previous billing months of May through October In the ~,velve months ending with the current month 2O General Scrvlcc Small (Effective October 1, 1995) This rate is ~pphcable to any commercial or industrial customer having a maximum demand less than 225 KW for all clcctnc service supplied at one point of delivery and measured through one meter Facility Charge Single Phase $15 15 / 30 days Thrce Phase $20 20 / 30 days De,hand Charge $ 8 00 / KW (First 20 KW not Billed) En~rgy Charge Customer with 20 KW or below Block I - First 2,500 KWH 6 75g / KWH Block 2 - All Additional KWH 3 00g / KWH Customer above 20 KW Block 1 - First 2,500 KWH 6 75~ / KWH Block 2 - Next 3,500 + B2T* KWH 3 00g/KWH Block 3 - All Adthtaanal KWH 2 65g / KWH M!nunum Billing An amount equal to the facility charge plus the greater of (1) the actual monthly KW demand charge, or (2) seventy pcrccnt (70%) of the maximum monthly actual demand charge for any month during the previous billing months of May through October m the twelve months ending Energy Cost A~lustment (Effective April 1, 2001) All monthly KWH charges shall be locressud or decreased by an amount equal to "X" cents per KWH, to bo known as the energy coat ac0ustmant (ECA) Thc ECA shall bo computed during the last month of anch fiscal year quarter (December, March June and September) to be applied to thc quarter immediately following The City shall m no case change the energy cost adjustment more than once in any three (3) month period The ECA shall be calculated using the following formula ECA Projected energy cost for next quarter ProJeCted KWH sales for next quarter In the evea~ that actual plus estimated cumulative costs of fuel, variable costs of TMPA energy and purchased energy (excluding TMPA's fixed charges) are greater than or less than thc actual and projected ECA revenues by $500,000 or moro during the next qua~er, thc IDirector of Electric Utilities or his designate shall recompute the Energy Cost AdJustment and, with Pubhc Utilities Board approval, may astabhsh an ECA that collects or returns such difference over the next three month period Such change in ECA shall ~e apphed evenly to each month during thc three month period The third quarter FY 2000-01 ECA rate is 4 00g / KWH ELECTRIC UTILITY SERVICE AR~,A In 1976, the Pubhc Utility Comrmsslon of Texas (the "PUC") issued the City a Certificate of Convealenan and Necessity ("CCN") to serve electric, water and wastewater to a 150 square mile area encompassl~lg the City's then city boundaries, plus its extraterritorial jurisdiction area ("ETJ") The ET/ ceraficatiun aran extended approximately two miles beyond the City s 1976 city boundaries or to a neighboring city s boundary, whichever was closest Th~Cityisthe~xc~usivepr~vider~fe~octric~waterandwastewat~rservIcest~theereainc~udedwIthmthe 1976city boundary area, with the exception of a small area where certification was granted to Texas Power and Light Co (now TXU Electric Cotupany, and referred to herein as "TXU Electric"} and/ur Denton County Electric Cooperative, Ina ("CoServ") due to their exlstlllg service in the area. Dual and oceaslonal triple certification presently exist in the ETJ Approximately 69% of the City's electric service area is multiply certified According to records of the Electric System, approximately 96% of the new residential subdivisions and large industrial accounts in the multiple certified service area have bocorae customers of the City during the last two fiscal years SB 7 provides that the City may file with the PUC for a recertlfication of its service area based upon the municipal bunndanes as of February 1, 1999 The City has made a filing with the PUC for the purposes of having its service area recertlfied under this provision of SB 7 Thc effects of the rocertlfieatian will primarily affect new customers as SB 7 does not !require existing costomers of another utthty to bacorae easterners of the City See "The Electric System - Texas Municipal Power Agency - SB 7, TMPA and thc Member Cities", below 21 For the year ended September 30, 2000 the Electric System provided electric service to a monthly average of 33,833 customers locetsd m the City Driven bY the economic magnets of the Dallas-Fort Worth International Airport, Dalles Love Field Airport, Fort Worth's Alliance Airport and the major business districts in thc northern parts of the Dalles metropolitan area, Denton and the Dalles-Fort Worth metropohtan area ("DFW") have m recent years cxp0rlanced significant ¢l~trlo load and population growth Since 1990, Dentun's employment has grown by approximately 31% due to strong performances in its industrial, commercial, medical, and education employment sectors and accompanying population growth In total, the DFW metropolitan ama oxpermnced a 25% lncreese in employment between 1990 and 1998, and more recently experienced a 13% increase in employment between 1995 and 1998 For the year ended September 30, 2000, the cusU~mer base that wes served by the Elecmc Systam meesurcd by number of accounts is approximately 87% residential and approximately 11% commercial and industrial in composition, although comraerolal and mdestnal accounts provided approximately 53% of the rata revenues of the Electric Systam For the year ended September 30, 1999, the top ten customers of the Electric System provided 22% of the terrified rate rovenuns of thc Electric System and pumhased 28% of the energy sold by thc Electric System Two State mstltot~ons of higher educetlon, the Umverslty of Narth Texes and Tcxes Woman's University (collectively, the "UmversltleS"), were included nl tho top ten customers of the Electric System for each of the five most reccntiy completed fiscal years For thc year ended September 30, 1999, the Universities provided 8% of the tstrlffed rate revenues of the Electric System and purchesed 11% of the energy sold by tho Electric System State law provides that municipal uttht~en that provide electric service to agencies of the State, such as the Umvarslties, must do so in accordance with rate tariffs that are equal to the utilities' lowest rate, less an additional 20% discount As a result of thc discounted servlen that the City must provide to the Universities, the Universities' cost of energy Is less than the costs manrmd by thc Electric System for providing such energy CONTRIBUTIONS TO THE CITY OF I}ENTON The Electric System enterprise fund annually ffansfers an amount to the General Fund of thc City to reimburse for the Electric System's share of admmlstratrve overhead of the City, es determined by an independent consultant engaged for that purpose The Electric System also makes an annual transfer to the General Fund In lieu of a franchise payment equal to 4% of the Electric System's tamffed rate revenuen In eddltiun, the City Chartar provldas that the City shall be entitled to receive annually on the net investment from excess revenues, If any, of the Electric System not more than slx (6) percent of thc net Investment as a "return on Investment" In satisfaction of this Charter requirement, the Electric System annually makes an additional transfer to the General Fund of the City m an amount calenlatad at 3 5% of tsrnffcd rate revenues The amount transferred to the General Fund for administrative overhead is an operating expense of the Electric System, while amounts transferred in lieu of a franchise tax and as a rotors on Investment are mede after the Elantrlc System hes prorated for the payment of operating expenses and debt service requirements EXISTING GENERATION FACILITIES Although the City presently owns 178 MW of generating capacity, including five natural gas generation units (known as the "Spencer Units") and two hydranlectnc umts (each of winch are further described below) thc Electric System is a net purchaser of electric energy As further described be ow under "The Electric System - Environmental Regulation - State Implementation Plan for DFW Ozone Non-Attmnment Status," Spencer Units 4 and 5, the largest of the five Spencer Units, have been Identified by the Texas Natural Resource Conservation Commission (the "TNRCC") es having annual heat lnput that exceeds thc State exemption level Thc Spencer Umts are older units and other than general mmntanance and overhaul have never been renovated The Spencer Units are generally inefficient to operate, having high heat Input rates Consequently, the Electric System has In recent years generally utthzed thc Spencer Units only for penlong purposes during periods of Ingh demand See "The Electric System - lnterenanectlons and Power Dispatch" for a description of the general manner m which Spencer Unit energy Is dispatched Each of the five units at thc Spencer plant utilize natural gas es their primary boiler fuel with No 2 fuel oil backup plus two thenel generators that provide backup capability The City has contracted with TXU Lone Star Pipeline, a division of TXU Gas Company, for transportation of natoral gas and with several gas supply companies for spot market purchase of natoral gas The current gas transportation agreement expires January 1, 2002, but will cuntmue in effect thereafter unless mutually tenmnsted or unless unilaterally terminated by one of the parties thereto upon delivery of notice of termination to the other par~ at least 120 days prior to the termination date The Electric System buys treated water from the City's water treatment plant located next to Spencer Station for makeup water to the boilers Reverse osmosis units located next to the Spencer Station generating units process the treated water rote dcmmerahzed water for make up water to the bo~lers A table describing the Spencer Units IS set forth below Number of Name Plate Year Placed Type Units Capacity kW in Service Steam Turbine 5 Unit I 12,650 1955 Unit 2 12,650 1955 Unit 3 22,000 1962 Umt 4 61,162 1966 Umt 5 65,483 1973 Roberts Hydro I 1,250 1991 Lewlsvllle Hydro I 2,892 1991 7 178,087 22 The City's capacity requirements are calculated based upon the City's peak summer demand, plus a 15% margin that is reqmred for membersl~ip In the Electric Raliabthty Council of Texas ("ERCOT"), the regional reliability coordinating organization for alactnc power systems in Texas For the year ending September 30, 2001, the City's capacity requirement IS 30:5 MW, based upen the sunllltar 2000 peak demand of 265 IvlW, pies the 15% ERCOT margm Tbs City presently providas approximately 33% of its c4~pacity requirements from TMPA in accordance with the City's "take-or-pay" power pul'chase agreement with TMPA (thc "~I'MPA Agreement") The City's remaining capacity requirement is presently supplied from electric generation of its Spencer Units (approximately 60%) and from twelve month firm power purchase capacity contracts (approximately 7%) In recent years, file City has supplied approxmmtely 1% of its energy from hydroelectric units of the City that 8J~ located on nearby Lake Ray Roberts and Lake L~wlsville Because the hydroelectric units operate on surface water reservoirs that provide municipal water supply and water ceunot be mleasad solaly to operate such hydroelectric units, thc electric generation capacity of tbs umts clutaot bc taken rote acenunt for purposes of determmmg the City's alectric capacity During the three most recently completed fiilcal years of the City, the Electric System has purchased an average of 5:5% of its energy from TMPA, taken approximately 25% of its energy from its own generation facilities end acquired approximately 20% of Its energy under spot markcf or shglt term purchasa arrangements Sce Table 1, above Since 1998, ~he City has not had sufficient alectno capacity through the combination of the TMPA Agreement and its own generation facilities Accordingly, the City has developed a strategy that includes the purchase of additional capacity through one year colttracts on the assumption that the devolopmg wholesale market in Texas will continue to expand and provide more economical enargy in the future than the City could provide through other long-term arrangements To satisfy load growth, Denton purchased an additional 12 MW' of capacity for 1999 and an additional 30 MW of cepaclty for 2000 end an additional 40 MW of capacity for 2001, In each instance though one year firm power purchase capacity agreements See "The Electric System - The Development of the Competitive Market and the Electric System's Response to thc Changing Legal and Busmass Envlronman~s" below for a description of additional capacity that Is undar construction or for which planned consUuction has been ennen~ced w thin the State The Elactnc System purchases energy under its firm power purchase capacity agreements, as well as froaslotber utilities In Texas In the energy "spot market" In recent years, the Electric System has supplied approximate y 5% of its energy from spot market purchases 1 The Electric System also makes periodic sales of energy by marketing energy that s temporarily in excess of tis needs, prlmari y energy that Is produced by the City's alectnc generation unite during times of high demand Such energy sales typically represent lass then 5% of the Electric System's annual revenues from the sale of energy OFI~ER TO g~LL THE ClTY*S GENERATING ASSETS, REPLACEMENT POWER ThC City's strategy has been to move towards a more tradm~nal municipal electric system concept, whereby energy required for distribution over the municipal alectnc system is purchasedlthlough mid and long term whalasale contracts ratber than continmng to dcvalop Its own generatlun resources The Clty presantly has two mam sourcas of wholesale power Thc first is its purchased power agreerncnt wlth TMPA for 21 3%of thc output of the Gthbuns Creek plant (see "Tbs Power Sales Contract") Tbs second ts its ownership of thc Spencer Generating plant (see "l~xlstmg Generation Feclhties") Since thc Spencer Plant no longer represents an ctltclent, cost effective source of wholesale power for thc City, the City is present y nsgotiatlng for the sale of the Spencer Umts and tho replacement of the cocrgy end capacity therefrom The proposed powar sale ~grenment would provide the City with the right to receive an amount of replacement capacity end energy equal to the output of the Spencer I. Inlts No assurances can be given that a sale of the Spencer Units will be consummated, or that if such units a~o sold that the City will receive any particular compensation therefrom In the event that a sale does not occur, the City's options would malude but not be limited to continuing to operate thc Spenser Units in accordance with past practice of thc Electric ~ystem, c|osm~ the Spencer Units end augmenting the alectnc System*s energy end capacity requirements with firm power purchase capacity agreements, or spot market energy purchases without regard to the disposition of the Spencer Units The City pl~ns to continue to utihze its share of the TMPA Gibbons Creek plsot oatput to SOpply its customars It is poasible that en entity will be ratamed to manage the TMPA resource along with any other wholesale resource the City may obtain in the emerging competitive environment 1NTERCONNECTIONS AND POWER DISPATCH The City is mterconnacted with two TMPA138ky lines, one TXU Electric 345kv line interco mectiun end tho Brazes Electric Power Cooperative 138 kv transmission system The TMPA transmission system servas the ( lty via a 138 ky loop around the City TMPA furnishes coergy to the loop via a 345 ky transmission system and two 138 kv ties also interconnected with the TXU Electric transmission system Proceeds of tbs Bonds aggregating approximately $12:5 mdh *n w be used by the Electric System for the purpose of constructing approximately $3 5 million of transmission facilities as ~ approxlmatal¥ $9 million of distribution facthtias, including, in each case, substations, lines end feeders Such lmproveme its are cOnSlSteat with the Ctty*s strategy of reducing its owuership of generation facthtias, while continuing thc City's cone Iitment to its distnbutlon system, which can continue to provide a Clty-estabhsbed rate of return for the City See "Thc Elenli c System - Th*,' Development of the Competitive Market and the Electric System's Response to the Changing Legal and Busme ~ Envlroaments" The City lL a member oi the Texas Municipal Power Pool ('TMPP"), which also includes the cities of Bryan, Garland, Greenville ~md the Brezos Electric Power Cooperative, Ina of Waco, Texas ('*Brazns") each of which has its own production transmlasloll mid thstrlbution facilities Tho City palticlpatcs with Garland and Greenville as a "subcontrol group" within TMPP for purposes of serving their combined loads with their combined generation resources and sharing the benefits of improved operational[ efficiency This pool of loads and generation resources, referred to as DOG, has been tn existence since January I, 23 1997 Thc City of Garland, in its mit as pool operator, makes all dispatch and commitment dccanons regarding the Electric System's generation DGG oparatas as a "sub-control area'* to thc TMPP control area rapresented by Brozos As a sub-control area, DGG performs the functions of an ERCOT certified control area, including balancing load and generation in real time, monitoring and controlling transmission, maintaining required levels of operating reserves, developing end submitting daily operation plans, and echcduhng transantions Thc typical dispatch order for DGG resources has thc City's Spencer Urat 5 coming on linc after Glbbuns Creak end the City of Garland's Ohngcr Umts 2 end 3 DGG typically calls on Spencer Umt :5 for cychng duty Spencer Station Units 3 and 4 typically operate for summer dally cycling duty, whereas DGG typically dispatches Spencer Station Units 1 and 2 only the few hours in any glvan year when all available capacity ts required Tho City is also a mcmbar of ERCOT ERCOT has only a total of 600 MW of direct current mterconnections with other power pools Historically and at present, thc members of ERCOT have oparatad as an *'island,'* whereby no significant amounts of electric energy have been unportcd into or cxportad from thc ERCOT member ntdities See "The Electric System - ERCOT" below VOLTAGE SUPPORT ISSUES Management of thc Electric System and thc ERCOT Indcpandent System Operator have noted the potential of eertmn voltage support issues duc to a lack of anffiaient VAR (or voltsg¢*ampcrage reactive) souroes in the four county area of North Texas that includes Dallas, Tarrant, Colho and Denton Counties, which Is also n Cleon Air Act ozone nonattammant area This has arisen due to thc failure of thc electric utilities in thc arcs to construct transmission faotht~es to keep pace with thc rapid growth of energy demand in the aran~ The situation is cxancrbated by resistance to the construction of high voltage transmlssain hncs in areas of dense population as well as the absence of new generation sources In areas of North Texas that bc within the four county nonattammcnt area~ Thc voltage support situation presents the possibility that during times of peak suaimer energy demand there could be periodic transmission system collapses If energy sufficient to meet thc voltage requirements of thc transmission system is not available In cormectlon with the State lmplcmantatton Plan ("SIP*') being developed by the TNRCC with respect to thc DFW ozone nounttammcnt status (sec "Thc Electric System - Environmental Regulation - State Implementation Plan for DFW Ozone Nun*Attainment Status**), In which certain of the Spancor Units have been cited as being In violation of emission standards, City officials have filed comments to the effect that the cuntinuad operation of the Spencer Units (whether by thc City or a subsequent owner) will bc rcqmrcd to alleviate the voltage support situation in the absence of other measures to address the situation MANAGEMENT OF THE ELECTRIC SYSTEM The Public Utilities Board servas thc City's Departroent of Utilities as a consulting, advisory and supervisory body All actions of the Public Utilities Board arc sub. loot to final approval of thc City Council Thc City's Director of Electric Utthtles manages the Electric System with mspoaslblhty for productmn, distribution, engineering, substations, marketing, planning and safety operatiuns Thc staff of thc Electric System includes approximately 130 full time and part tune pmfassional end administrative staff, 37 of whom are thmctly associated with Spencar Station and thc City's hydroelectric facilities THE DEVELOPMENT OF THE COMPETITIVE MARKET AND THE ELECTRIC SYSTEM*$ RESPONSE TO TIlE CHANGING LEGAL AND BUSINESS ENVIRONMENTS The full Impact of SB 7 on all electric ntihtias in the State, including, in pastioular on thc Electric System, cannot bc determined at this time, as a variety of factors that will impact both the statewide electric market and the Electric System are stdl evolving Included among thc key factors that have not been determined at this time is whether thc City Council will open thc C~ty to full retml electric competition In addition, virtually all partanpants in thc electric industry In the State are presently formulating strategies for mtull electric competitiun and am assessing the provisions of SB 7 which in general provide for thc commenccmant of retail electric competition on January 1, 2002 SB 7 Is a complex bill, the enactment of which took alto account Input from various affected pamas In recent months, some of the parties affected by SB 7 have expressed differing views of thc raeanmg of certain provisions of thc bill, end a number of administrative filings end juthclal ectaius are currently pending before the PUC and vunous state courts that will address such dlffcnng mtcrpretatluns of SB 7 Such legal proceedings will also affect the structure of the electric utility industry m thc State and to some extent the financial strength of market participants As a result of such unknown factors, no assurances can be given as to the impact that these changing legal and business environaients will have on the Elecmc System Notwithstanding the evolving lasuas concerning retail electric coaipetltlun ai the Stmc and thc City's own responses to the options contmnad in SB 7, however, as described below, the Electt~c System has taken a number of steps in anticipation of the changing legal end business environments In which It operates As noted below, a 1997 amendment to the TMPA Agreement provides flexthd~ty to thc Electuc System, while at thc same tune cstabhshmg a firm pcrcantage obligation for the Electric System with respect to ~ts TMPA paymant obligations except in Instances whan TMPA ~s unable to pay debt service Prair to the amandment of thc TMPA Agreement, the City's proportain of Agency costs fluctuated from year to year (although It typically was between 21% and 23% of TMPA costs) Except as described below under "The Power Sale Contract - Thc Debt Service Guarantee Percentage," under the 1997 amendment to the TMPA Agranmant, thc City has a fixed obligation to pay for 21 3% of TMPA's annual system costs, including the payment of TMPA's debt service mqmreaients and oparataig and maintenance: expanses and, in connection with such obligation the City is entitled to receive the same percentage of TMPA's available output of cnargy In addmun, the 1997 amandmant repealed provisions of thc TMPA Agrecmant which had prohibited thc Member Cmos froai purchasing energy from others or from constructing new generating fecthtlas of their own It should be noted, however, that thc resolutions under which TMPA has issued its outstandaig first lien revenue bonds (collectively, thc "TMPA Resolution") contains covenants for the protection of its bondholders and the tax-exempt status of its debt which could affect thc means avadablc to TMPA and tho Member Cities in responding to further legal and market changas 24 In recent yea ~, the City has taken as much of its energy as possible from TMPA due to the mlatwaly low cost of thc coal-fired generating fe :iltty of TMPA While thc TMPA A~reement pmvidas a substantial portion of the City's capacity, and whale the City is obhg~ ted to pay its fixed percentage of TMPA*s annual system costs, as noted above, the City may purchase energy from another elect ic provider, and tt is the policy of the Electric System to purchase energy from the most ceonomlcal source. The Electric ~ystem is ~ommitted to msmtmnin~ its electric rates at levels that are competitive with other supphcrs, whather or not the City 2unncil eventually determines to open the City to competitmn Management of the Electric System has identified the cost of ~rchased power as the single most important factor in its ablhty to provide competitive service to its customers, p~colerly i ~ light of tho Clty*s long-term power purohase agreement with TMPA Management of the Electric System notes that TMPA tas reduced its operation and malnt~mnco expenses m recent yeers through certain measures, including those described he ~ln under "The Eleetnc System - Texas Municipal Power Agency,'* end management balievcs that the variable costs of TM] ,A energy em likely to be competitive i'or the furesanable fatuse However, the City's sherc of TMPA's fixed costs, particularly i ~s debt service mqmrements, may result in the total cost of tho City's purchased power t~om TMPA exceeding thc cost of pow* r that may bo marketed within ERCOT in the near term As shown below under "The Electric System - Texas Municipal P iwer A6encY -Outstendmg Debt," the debt service on TIv~A*s Revenue Bonds, as currently structured, increases from approx mataly $84 million m tha fiscal yom' enthng September 30, 2000 to approxunatcly $118 million m the ycor ending September 3 ), 2007 Beginning in fiscal year 2008, the debt service on TMPA's Revenue Bonds will be approximately $123 million per } car In 1996, the ~lty astablish~d a mtn stchihzatton fund (the '*Rate Stabilization Fund") by tmnsferrmg eppmxunately $45 1 mlllmn from the un eee~'ed fund balances of the Electric System In gcocml, the Rata Stabilization Fond was ercetcd to serve as a reserve that could be drawn upon, at least m pa~, m lieu of increasing alcem¢ rotes in the full amount required to provide funding to I ay the cost of pumhascd power from TMPA as the TlViPA debt service (end thus thc City's contract paymants) increases ! t September 30, 2000, the City had epproxunataly $54 million on deposit in the Rate Stainhzation Fund Since the fund was ct~ atcd, the City lms mcrmmed the balance each year through September 30, 1999 However, the fund was reduced during fisca year 2000 due to high gas pr~c~ end the usc of the fund to install Nox emissions equipment mqmred by thc TNRCC TlteCltycxpectstomeransethe fundfurtheflscalyenrenthngSeptember30,2001 and mtends to bagm nat reductions in the fund ~ommencmg in the fiscal year ending ~September 1, 2002 Management of thc Electric System anticipates that thc proceeds rel sired fl~m,the sale of the Spencer Units, if any, wculd be deposited mtn thc Rata Stabdizstmn Fund The use ortho Rate StabllL aflun Fund is expected to bo a component of the City's efforts to maintain competitive electric ratas after the advent of SB 7 The Eleetn¢ System has competed successfully for costom~rs with TXU Elcetnc and CoScrv in dual certified areas since 1976 In 1999, 10 l% of the new housing subdivisions that located m dual certified areas chose thc Electric Systam as thnlr electric anlasly, all major industrial loads added to the City's electric service area have chosen the Electric System as their supplier S: electric suPl liar The Elcctrl~ System continues to work diligently to prepare for a competitive environment It has instituted a campaign to raise the awureness of lis c~omers of the quality of its service and to its commitment to the local community A marketing program targeted fortlerga commercial end industrial customers has been put in place In addition, the Electric System has established a program wl~ereby financial incentives are provided to developers to encourage the usa of various energy conservation measures in new construction projects in the City In anticipst on of the changes to be effected by SB 7, the Electric System has engaged m an extensive examination of the financial Iff I~hcatlons of retail electric deregulation on its operations, under a variety of assumptions for the major components of Its expe~ I~s This analysis has bean made only for mtamal plenmng purposes, and with an objective of desigumg a strategy to pwteat flo Electric System from the volatility of the deregulated market while assuring that its capacity and energy supphas ere compcti :jvc with the ansi of those resources to other competitors operstmg m ERCOT Pnncipal pohcy mmatives that are being purs~ ~d in connection with this review mcindc the divestiture or assignment of generating assets where cost effective sales or asstgnm~ ets can be m~e end purchasing new copanity from the expanding wholesale generation market within £RCOT Accorthng o published reports, over 11,000 MW of new, more-efficient, gas fired generation is scheduled to be brought on line in ERCOT ~ June 1, 2001 The Electric System ~ltrategy ts intended to provide the Electric System with a relatively safe cash flow from t distribution business, which will not be subject to competition, while reducing its risk of holding unneeded capacdy in the event the City Council should elect to open the Electric System's service territory to rctml power competition The Electrl: SyStem's analysis shows that its greatest challenge ts the above market (stranded) cost of thc TMPA Agreement The EI~; System intends to recover this cost through the use of the nonbypassablc competitive transition charge that SB7 allows mm ialpal elanmc utilities to place on their distribution rates While the April 1998 Report to the Texas Senate Interim Comunt~ce on Electric Utility Reetmctunng entitled "Potentially Strendablc Investment (ECOM) Report 1998 Update" (thc *'PUC Stra~ dad Cost Report'*) indicated a base market cost for the City's stranded costs of approximately $143 million, SB 7 does not rc ffriat tho City's stranded costs to the emouats included in thc PUC Stranded Cost Repor~ Instead, SB ? allows the City to dct~ rmine the amenat of its smmded costs end the best manner m which to cellcat its strendad costs At preeant, there ara a number c ~' variables that will need to be resolved before the City can definitively establish its stranded costs and the manner in winch thc ]~leatrlc System will seek to recover the costs While SB 7 provides that the City Council has exclusive jurlsdictien to r~asunabiy determine the amount of the Electric System's stranded investment, it is possible that any datermmstion by the City of such stranded ansts could be chstlenged through some lagal proceeding See "Thc Development of the Competitive Market and thc Electric System s Response th the Changing Legal end Business Envlmnm THE POWER SALES TMPA AGREEMENT The City's rights and obligations with respect to TMPA are sat forth In the TMPA Agreement Under the TMPA Agreement, the City Is obligated to take or pay for its percentage share of the energy genemtad by TIVlPA, and TMPA is obligated to devote its bast efforts to the generation and dnhvery of energy from the generating fantht~as of TMPA, but the failure of TMPA to provide energy under the TMPA Agreement will not reheve any Member City of its obhgatlons under the TMPA Agreement, as such obligations are unconthtlonal and absolute The Tal~e nrPay Percentage Under the TMPA Agreement, each of the Member Cities is unconditionally obligated to pay to TMPA, without offset or counterclaim and without regard to whether energy Is dnhverad by TMPA tu the Member Cities, their percentage of TMPA's annual system costs, including the payment of TMPA's debt service requirements and operating and mamtanance expenses, as set forth below City of Bryan, Texas 21 7% City of Denton, Texas 21 3% City of Gerland, Texas 47 0% City of Greanvllle, Texas 10 0% A City may choose to take or not take energy from the capacity ofTMPA ganeral~ng assets, as it sees fit The Debt Servree G#a~ntee Percentage In any Instance where the amount of money on deposit m TMPA's Bnnd Fnnd created by the Prior Lien Resolution is not the full amount then reqmred to be on deposit therein, without giving consideration to transfers made from other than TMPA's revenue fund or from proceeds of Its bonds (provided that transfers may be made from TMPA's Reserve Fund for not more than two (2) consecutive calendar months) the Member Cities are obligated to make their pereentage share of a payment to TMPA The aggrogcte amount of such payment is the amount that is necassmy to astabhsh or reestablish the amount then required, under the terms of the Prior Lien Rasolutmn, to be on deposit in TMPA's Bond Fund, Reserve Fund and Cnntlngancy Fnnd The percantage share of the payment to be made by each Member City under the TMPA Agreement is determined by calcolatmg the percentage rolutmnshlp that each Member City's Nat Energy for Load (as defined in the TMPA Agreeman0 for the contract year Immediately preceding the contract year m which the calculatann is being made bears to the total aggregate Net Energy for Load of all Member Cltlas for such contract year, and the sum of the adjusted percentages shall equal 100% .41location of Energy by TMPA Each Member City shall he ent~fled to schedule and receive, each month for its own account, the pwpomnn of the available energy from TMPA's generation facthtlas equal to the Take or Pay Percentage, as such percentage may be from time to time adjusted in accordance with the provisions of the TMPA Agreement TMP,4 Agreement Term The contract term of the TMPA Agreement is for a period of thirty-five years from September 1, 1976 or until ell bonds and certmn other indebtedness of TMPA is prod, whichever occurs later At present, the final maturity of TMPA's mdebtednass is September 1 2018, although It Is possible that TMPA could restructure Its debt to shorten or extend the schedule of Its debt retirement Consteuctlon of New Projects The TMPA Agreement provides that TMPA must give notice of intent to each Member City containing a general daserlptlon of any new proposed project, the projected sources and uses of funds In connection therewith, and a statement of TMPA's opmlnn that such proposed pro. tact is necessary for TMPA to meat its commitments under the TMPA Agreement and ~s economically feasible Each Member City is required thereafter to notify TMPA, w~thln 60 days, of its approval or d~sapproval of the project If eash Member City apprevas the preJeet, TMPA may thereafter issue bonds to finance the project without further approval of the Member Citrus Any Member City disapproving a proposed project is required to ¢leet one of two options set forth In the TMPA Agreemem The TMPA Agreement includes provanoas that differ from those described above for the shnnng of energy and costs in the event that a new project is proposed and one or more Member Cities do not determine to participate m the project There are no entrant plans for TMPA to initiate a new generatlon project Agency Rates The TMPA Agreement provldas that the rates and charges for power, energy and services charged to each Member City by TMPA shall be (1) nondlsernnmatory, (2) fmr and reasonable and be based on the cost of providing the power, energy and services with respect to which the rates or charges are based and (3) an amount sufficient to (l) pay TMPA's annual system costs, (il) make the deposits to the funds required by the Prior Lien Resolution and the Resolution, (Ul) fund the annual capital budget of TMPA, and (iv) with respect to other funds or other accounts established by the board of directors of TMPA (the "Board of Directors") and not required by the provisions of the Prior Lien Raso]utlnn, fund such funds or accounts In an amount not greater than 3 5% of TMPA's annual system budget, or such greater amount as may be npproved by the affirmative vote of at least slx members of the Board of Directors with at least one member of the Board of Directors appointed by each Member City voting in favor of any such Increase 26 Rebate of EXcess Rewm~s to tha Memb~ Cllle~ Except for ~nds held for p~oses of ~lf m~, ~y ~nds held by ~A on Se~temb~ 30, 2000, ~d ~y f~ held by ~A on ~e 1~ day ofe~h fisc~ y~ thor over ~d above ~e ~oun~ ~ m co~on ~ ~bs~ons (i), (i0, (el) ~d 0v) of clau~ (3) of ~e p~mg p~h ~1 be ~m~ to ~e M~b~ Ci~ wi~in 120 days of ~ch ~t~ in ~e s~e per~n~e ~ ~c ~en~o ~ch Cl~ con~b~ to ~ch ~o~ Funds held p~mt ~ close sure.on (iv) of clau~ (3) of ~e p~cedmg p~aph, ~f approved by ~e vote of at I~ s~ mm~ of ~o Bo~d of D~rs wl~ ~ le~ one memb~ of ~e Bo~ of Dl~o~ ~pomt~ by e~h Member C~ veins m ~z ~ve, may be us~ ~ ~duce ~e debt of ~A TMPA ~ P~O Con~f~ ~ ~ of th~ ~ ~e T~A ~ent provides ~at all paym~ by a Member C~ ~d~ ~e ~A A~t, ~cludmg ~y paym~ts ~qu~red ~ be ~e to T~A's Bond, ~e~e ~d Con~n~m~ ~ds, ~1 ~nsti~te ~ ~mg ~pen~ of ~ el~c ~ payable solely ~om the ~venu~ ~d ~p~ of su~ elecmc ~y~m R~e C~n~ sn~r ~ TMPA Ag~nt Under ~ T~A A~ e~h M~b~ C~ h~ covm~ted to e~hsh, mmnmn m~ colle~ r~es ~d ~ges for ~e el~mc ~ of ~ el~mc ~s~ which shall pmdu~ ~venues at le~ suffic~en~ roSe.er wi~ o~ ~venue avml~le ~ such ele~c ~em ~d available el~c ~s~m rashes, to ~le ~t ~ pay to ~ wh~ due, ~[ ~o~ payable by ~ch Cl~ ~der ~e ~A A~ent S~e or A~ of E~c ~ Under ~e ~A A~ent ~d ~e Prior L~ ~esolu~on, no sal~ or o~ d~spos~on by s M~b~ C~ of ~ el~c ~li~ d~butmn sy~ ~ a whole or subs~tl~ly ~ a whole may b~ome effective w~out ~e ~n~t of ~1 ~e Memb~ C~fl~ ~d ~A d~mg ~e t~ of ~e ~A A~ent A Member C~ may ~s~ i~ ri~ ~der ~e ~A A~t but such ~s~ment sh~l not relmve ~ch M~ber Ci~ of ~ fin~c~ obhgatmns ~d~ ~e ~A A~ent d~ng ~e ~ ~y Agency Revenue Bonds ~ out~mdmg Tx~ M~C~L POWZR A6~N~ ~A is gorged by a Bo~ of D~tors m~e up of ~o ~n~t~ves ~om e~h Member Cl~ ~d is empowe~ ~ pl~ fiu~ ~qu~, ~c~ o~, opiate ~d ~m~n f~llt~ to be used m the business of ~m~on, ~sml~lon ~d ~e of el~c en~ ~ ~e M~b~ C~es The T~A A~mment ~m~s T~A to p~ ~n~ budgets, pmje~ng ~ ~nu~ Sys~m Cos~ for ~e succ~ding ye~, including debt se~ce ~qmremen~ on bonds, ~d t~ submit ~e s~e ~ ~e M~b~ Cities B~ed on ~ese ~d ~r budg~ f~s ~d e~mat~, ~A rotes ~d ch~ges to ~ p~d by the Cram for ~ ~mg y~ TMPA's G~o~ U~ ~A's ~w~ supply so~ cons~ of ~e G~bbons C~k S~ Elecmc Statmn Iocst~ m ~m~ Cou~, Text, ~d mclud~ a single n~ 462 megaw~ ("MW") Wyoming Powder ~v~ B~m co~ ~eled ~e~ el~c pl~ rese~0ir, rmlro~ ~, ~at~ ~smi~ion f~lh~, ~ adjac~t su~ace mine no Iong~ m use ~d ~lat~ propem~ ~d e~umm~t ("G~bbons ~k") Gibbons ~k ~ co~c~ opera, on on O~ber 1, 198~ For ~e fisc~ ye~ ended S~te~b~ ~,~ 20~, O~bbons C~k's ~ ~ ~d avml~d~ w~ 8~ 25% ~d 83 90Y~ respe~lvely MODIFICA~O~8 ~ P~ ~O OP~O~ G~bbons Cr~k w~ d~ed to b~ hgmte mined ~ a mine located on appromma~ly 18000 ac~s adj~ent to ~e f~di~ (~e "Otbbons Cr~k Mine") ~d o~ed by TMPA In 1996, commen~d~ v~ious modiflcatmns ~ Gibbons ~ including ~e conversmn of ~e p ~t to bum we~m co~ mined m Wyomm~ Pgwd~ ~v~ B~m ~ mod~fi~ons mclu~d ~e m~la~on of ~ adv~c~ design ste~ pa~ turbine ~d ms.la, on bf ~d~on~ ~perheut sectlom ~ese m~fic~ions have metered ~e genem~on cap~ ~d the opemtmg effic~cy of ~e pl~t ~ mod~fi~o~ made ~ Glb~ns C~k ~latmg to ~e ~cl convemion w~ complet~ m ~e summer of 1997 ~m~g operations we~ h~t~ by ~A ~ ~e Gibbo~ Cr~k Mm~ m Febm~ 1996 In 1997, T~A t~n~ed sev~al lev~ed le~ for ~n mining eq~pm~t by acqu~g ~e ~mpm~nt ~d ~en ~llmg ~t m o~er ~ ~uce ope~ng expenses at ~e O~bbons C~k Mine ~ mod~fioa~ons to the pl~t ~d ~e ch~e m ~el were m~e w~ ~e ~pe~t~on they would ~mwde ~el co~ savin~s in comp~mn~wl~ ~e op~on of~e G~bbons Cr~k Mine for ~el, ~ redu~ ~e pl~ ou~e cycl~ at Gibbons C~ek ~d ~ ~low ~A to ~h~eve comph~ce w~th the f~al Clem A~r A~ w~out ~e need for add~tmn~ s~l~r d~omde allow~ces Ov~ ~e p~nod ~om fiscal ye~ 1992-9~ to 1998-99, ~A h~ und~en to r~uce operating ~d ~n~ce cos~ of plan~ including ~rou~ ~e r~uctmn of ~ploy~s ~d pe~o~el costs During such t~me, ~e n~ber of ~gu[~ employees been reduced by approx~a~ly 61Y~ The 1~$~ f~or m the r~uc~on of p~rso~el h~ been ~e closmg of~e G~bbons Creek Mine, wh~c~ redu~d ~e numb~ of ~gm~ng ~d operations employees, ~d ~e related ~ductmn m admm~ative suppo~ ~ ~e ~999-00 fisc~ y~ budg~ for ~A I~cludes 135 employees, down from 346 m ~e 1992-9~ fiscal In Nov~b~r 2000, TMPA ente~d m~ ~ ~ement w~ K~ncco~ Ener~ Comply for a 36-month supply of co~ from Powder ~ B~m, ~encmg on Jmu~ 1, 2001 ~e so~s of ~ under the agreement ~e ~e Cordero ~ojo Complex ~d ~e ~ac~bs R~ch Mine m Wyoming In October ~995, T~A en~ rote a ~ ~spo~lon a~eement w~ the ~urllngton No.em ~dro~ Comply, now the Burhngton ~o~ern S~ Fe ("BNSF") under whlgh BNSF ~s obhgated to provide md ~anspo~t~on for ~e Wyoming Powder ~v~ B~m co~ pumped by T~A ~e 199~ ~ment ~p~res on M~ch 31,2001 T~A pursu~ negotmt~ons w~ BNSF 27 2000, but was unable to secure a satisfectoty new or extended conlrant arrangement to take effect upon agreement Therefore, in July 2000 TMPA formally requested BNSF to establish rates and terms for transportation service to Gibbons Creek, In both shipper end camer-supphed rallcars, effective at the current contract In August 2000, BNSF gave u parttsl response by quoting a common carrier rote in ears TMPA considered this reta to be unacceptable, and in October, 2000 petJtioned thc fadoral Surface (STB) to compel BNSF to set reasonable rates for tho Olbbuns Creek service m both camer-supphed and A final decision by the STB is expected by Febran~, 2002 In the meantime, TMPA will usc the service quoted by BNSF as necessary to trensport coal once the current contrant expires, subject to and, as applicable, reparations payments by BNSF once the STB determines the proper rote T~..~VS~lSSSo~,F.~csLtrIES TMPA-owned transmission system consists of 345-kV end 138-kV switchyard factht~as end facthtlas in the vicinity of the Gibbons Creek Station, as well as additional 345-kV and 138-kV lines and Brazes Colhn, Dallas, Denton, Grimes, Hunt, Muntague, Robcrtaon, Rockwall, and Wise counties of provide 345-kV ties to TXU Electric and Reliant Energy, Incorporated at several points throughout the facihtles provide ties to the Member Cities, TXU Electric, Reliant Energy, Incorporated, end Brezos at o ERCOT system Between October 26, 1998 end Jenuasy 13, 2000, Duke/Fluor Daniel ("DFD") managed the ~perati~nandmalntenanc~~fGthbunsCreekunderatemp~rary~peratiunsandmmutananeeagreement On Junuary 13,2000, replaced the temporary agreement with a new five-year operations end ramntenenee agreement (the Agreement") undar which DFD will contmue to manage the operation and mamtananee of Gthbuns Creek DFD's expanded under the new Employment Agreemcot In addition to managing Gibbons Creek, DFD is, Employment Agreement, responsible for managing the trensmlsslon system as well as menagmg materials procarement of fuel and fuel trensportation servicas The Gcoeral Manager of TMPA will contmue to Creek Mine and Lake, TMPA Finance Departmant and related admmlstratlve ftmctrens The new authorizes TMPA to terminate the Employment Agreement for convemanee at any time following a Under this provlsmn, TMPA is permllted to terminate the Employment Agreement for convenience delivering a notice to DFD wtthm 30 days after the end of the third year of the initial term of the Agreement, thc end of the third year of any renewal term In all other cases, in order to terminate the Employment convenience, TMPA is obligated to pay to DFD a termination fee DEBT TMPA had approximately $1 billion in outstanding first lien revenue bond debt (the "Revenue Bonds") and outstandmg subordinate lien commercial paper (the "Commercial Paper") Thc Revenue Bonds and the a final maturity of September 1, 2017 end September 1, 2018, respectively The debt service with respect to its Revenue Bonds arc set forth below F~scal Year Ended 9/30 Pnnclpat Interest Total 2001 $ 48,585,000 $ 49,623,544 $ 98,208,544 2002 58,540,000 47,446,125 105,986,125 2003 59 689,556 50,900,072 110,589,628 2004 51,339,943 63,849,757 115,189,700 2005 57,156,604 62,627,756 119,784,360 2006 63,477,512 60,903,228 124,380,740 2007 70,157,046 58,831,724 128,988,770 2008 77 635,854 55,953,743 133,589,598 2009 79,916,319 52,929,449 132,845,768 2010 81 633,277 49,728,348 131,361,625 2011 85,081,710 46,289,378 131,371,088 2012 88,953,705 42,700,995 131,654,700 2013 48,491,069 83,112,056 131,603,125 2014 39,668,931 91,932,569 131,601,500 2015 32,186,232 99,961,768 132,148,000 2016 30,294,810 101,853,190 132,148,000 2017 28,514,358 103,633,642 132,148,000 2018 221,200,000 8,848,000 230,048,000 $ 1,222,521,926 $ 1,131,125,343 $ 2,353,647,269 28 In accordcuc~ with the TMPA Agreement, the City is responsible for a proportion of the costs of TMPA, Including debt service, as dsscrthed/hove Whde TMPA has no curt-eot plans to issue additional mdshtedness wlthm the next twelve month period, the TMPA Board is cunm~tiy reviewing engmcenng and finanomal options m connect~un with certain Gibbons Creek modifications that may be made necessary to meet more stringent nitrogen exlds emission requ~ruments Such ,m, othflcations could be bond financed Se~ ,,The Electric Syatem- Texes Municipal Power Agcucy- Clesn Air Act Comphence The TMPA Resolution provides that TMPA shall ilmd certain funds and accounts, moludmg a bond reserve fund, and shall ennnsily maintain rates to produce net revenues equal to at least 1 25 times the debt service on the Revt~nue Bonds At September 31 2000, TMPA's debt service reserve fund was valued at $ million Amounts collected by TMPA i¥om the Member Citt ~ over and above its requirements for the expenses of oparal~ens and maintenance, the payment of debt service end maintaining he funds and accounts relating thereto are rebated back to each Member City as described below under "The Electric Sys~ m - The Power Sales Contract" SB 7, TMP, [ sad the Member CItle~ Several provisions in SB 7 pertain to TMPA and its Member Cities One of these provisions (t ~e "Debt Retu~ment Provision") provides that TMPA shall "set as an objective the extinguishment of the agency's debt by Sapl mlber l, 2000," and further provides that, in the event thc object,ye is not met, TMPA must "provide datmled reasons to th ~ electric utility restructuring legislative oversight committee by November I, 2000, why the agency was not able to ' the meet this object,ye" The Debt Retirement Provision goes on to state that each municipal power agency shall extinguish agency's indebtedness by sale of the clcetttc facility to one or more purchasers, by way of a sale through the issuance of taxable or tax.exempt debt to the member cltqes, or by any other method" The Debt Retirement Provision does not provide for any penalty or retocdtal acttoo to be taken against a municipal power agency for the failure to meet the object~ve of extinguishing its debt by September 1, 2000 Pursuant to the Debt Retirement Provision of SB ?, TMPA, m July 1999, established n Debt Retirement Committee to study and recommended to the Bonnl of Directors options under which TMPA may accomplish the objacttve of extinguishing its debt by September 11 2000, ,,including but not hmlted to the sale of the Agency's assets" To date, the Dcht Retirement Commfltee has not made ally re~omnlendatiuns to the TMPA Board concerning the extinguishment of TMPA's debt The opttuns that are available to TMPA may be affected, and possibly limited, by eertmn provisions of the TMPA Agreement that relate to asset sales and preVlSlO~ts of the TIaA Resolut~un that require it to comply with federal requirements that govern the use of faclhtlas that have been fillenced with proceeds of tax-exempt bonds, among other pwvisions In addition, ISB 7 provides that TMPA may, at its option, use the rate of totem method for calculating its transmission cost of service If the rate of rctorn method is used, the return component for the transmission cost of service revenue requu'ement shall be sefficlen~ to meet the trensmiasiun functiun's pro rata share of levchzed debt service end debt service coverage nme end other annual dsbt[obligatiolts, pwvlded that the total invehzed debt service may not exceed the total debt service under TMPA's current paylnent schedule Any additional revenue generated by this methodolo~' must be applied to reduce TMPA's outstanding ,indebtedness This provision of SB 7 allows TMPA to take into account in determining the ~'ensmission revenue requirement, a portion of the transmission system*s share of TMPA debt service as if such debt service was level instead of increasing over time (~ "The f~iectrlc System - Texns Municipal Power Agency - Outstanding Debt"), which accelerates the recovery of ~hnt postion of debt service vis.a-vis actual debt requirements TMPA has filed with the PUC to use the rate of returo method nslt~$ the leveltzed debt service approach penmtted by SB 7 In its filing, TMPA has calculated its cost o,f. providing trensmisslo~,servlce using the levehzed debt service appwach to be approximately $43 9 million ennanlly TMPAs presently approved triulsmlssion cost of service is approx[matety $18 mdhon annuallY The final determination of TMPA's ttansmissiun cost of service and transmission rate revenues will be dependent upon the response of the PUC to the TMPA filing and to filings made by vnrions intervenors in that rate case, and no assurance can be given as to the amount of rate revenues that will be produced as e result of TMPA's pending application using this pathcular provision of SB 7 SB 7 also provides that the PUC, If requested by a Member City of TMPA, shall examine all areas within the Member City's service ama that are also certificated to one or more other ratml eleatnc utilities and, after notice and hcenng, the PUC may amend the retail electric utilities' CCNs so that only one feted electric utdlty is certificated to provide dlstnbotmn services in the area, provided that an appheatmn is filed w~th the PUC pnor to September 1, 2000 and is limited to smile eertffieat~on of the area within the Member City's boundaries as of Februnry 1, 1999 and that the right of an electric utility or an electric cooperative to serve its]existing customers, including any property owned or leased by any customer, is preserved The City has made a filing with be PUC to have those portions of its cemficated service area that are double and lrlp[e certified recertlfied for service by the City The Cl{y believes that the cntena apecffied in SB 7 for consideration by the PUC in its ennslderotiun for recertlfleatl~n will permit the City's service area to become singly certified for all new customers Clean,41r~ctCompllsacu Whde Oibbuns C¥cek presently mects the emission standasds of the Cleon Air Act with respect to nitrogen oxides ("NOx,), the proposed SIP of the TNRCC requires that Gibbons Creek con,'el NOx below 165 lbs./mmBtu's by May 1, 2003 See "The Electric System - Environmental Regulation - State Implementation Plan for DFW Ozone Non- Attamment[Stetos" While the emission standards contained in the proposed rule could be modified as a result of the rolemakmg process, thSpreposed SIP includes a reexlmum limit of 25 lbs/mmBtu, n 24-hr rolling average of 165 lbs/mmBto, end a 30- day rolhnl~]average of approximately 366 tons of NOx Currently, Gibbons Creek emits 45 to 50 lbs/mmBtu's of NOx during peak gcuerltion periods of the summer 29 To achieve the required level of emissions, Gibbons Creek must undergo significant modification Staff engineers of TMPA have prehmmardy reviewed various technology options available to TMPA to reduce NOx to the levels that are included In the proposed SIP Among the options are to hmit the fonnstton of NOx through modfficetlon of the combastlon process combined with a low cost "post-combustion" NOx control system, tho use of a mom costly Select~va Non-Calalyfic Reduction ("SNCR") or gas re-bom pmcass, which chemically removes NOx after being formed, and the Selective Catalytic Reduction CSCR") process, which is the most costly process identified to date, but which also has the highast individual removal efficiency TMPA management has directed its engineers to make a format recommendation es to the cost of comphanee with the NOx standards Management of TMPA expects that the TMPA Board will shortly anthonee a contract for engineering services to assist TMPA staff in developing engineering solutions and the costs thereof to address the NOx emission standards However, precise cost estimates are not expacted to be devaloped prior to the Summer of 2001 Winle the evantuai cost of meehng the Inwer emission standards will be dependent upon the mcommeedations of the engineers, the development of tho final emission standards by the TNRCC and the EPA, and other factors, preliminary estimates of comphanco costs range ~om less than $20 million to over $50 mflhon m capitai costs pins eddthoanl ~umual operating and mmntenance expanses that ranga from $2 mlthon to $18 mllhon It is possible that some portion of the cepnal costs would be debt financed by TMPA PROPOSED NEW MERCURY E~SS;ON Sr/.VDA~OS Thc 1990 Clean A~r Act emeedments also provide for possthlo fwthar regulation of toxic mr emissions from electric ganemtmg units, including potentml mr emissions of mercury compounds from coal-fired electric atdlty boilers In accordance with these statutory requn'ements, the U S Envrmnmantal Pmtaclmn Agancy promulgated a regulatory d~rmmatlan in December 2000 announcing that it was developing new rules to regulate mr emissions of mercury from coal-fired powar plants EPA mdiceted that Is would hkely adopt final mles m 2004, and comphance requirements would hkaly be reqmred no earhar than the 2007 time fnune These new roles may reqmre mothficatmas to the Gibbons Creek facthty SENATE BILL 7 Introduction Recent Changes In Regulatory Environment The electric industry in Texas has oxpenancod dramatic statutory and regulatory changes in the past several years, sigmficanfly impacting the City, and, in pamcolar, the operations of the Electric System Legislation, enacted by the Texas Legislature m 1995, deregulated wholesale electric rates and services In order to promote wholesale electric competition, such legislation directed the PUC to adopt roles requmng all transmission system owners to make their transmission systems avadable for use by others at prices and terms comparable to each respact~ve owner's use of Its system for Its own wholesale transactaons The PUC implemented its mltlal transmission opan access PAlos in January 1997 and updated those roles in April 1999 Overall, the opening of the ERCOT transmission system and the increased competition at the wholesale level is expected to be a benefit to the Electric System it increases optmns avmlable to the Electric System for acqmnng ganeratmg capacity to serve ~ts customers without bowng to r~sk tho large capitol investment required to braid new generation Dunng the 1999 legislative session, the Texas Legislature enacted SB 7, which provides for retail electric open tempe/a/aaa beginning in 2002, continues electric transmission open access and fundamentally redefines and rastructores tho Texas electric industry SB 7 includes provisions that apply directly to municipally owned utthtms ("Mumcipai Utthties"), such as the Electric System, as well as other provisions that will govern investor owned utihtles ("lOUs") and electric cooperatives ("Electric Coops") SI] 7 allows retail customers of 1OU's to choose their electric supplier bagmnlng January 1, 2002, as well es the fermi customers of those Municipal Uttht~es and Electric Coops that have elected to partlcipata in retail electric compet~taon Provisions of SB 7 that apply to the Electric System (including the TMPA Agreement), as well as previsions that apply only to IOU's and Electric Coops are described below, the latter for the purpose of previthng information concerning the overall reztpActorad electric utthty market in which tho Electric System could choose to directly participate in the future General Provisions ofSB 7 Unbundllng SB 7 requires IOUs to separate retail energy service activmcs from regulated utility act~vlties by September 1, 2000 and to unbundle generation functaons from transmission and distribution functtons into separate companies by January 1. 2002 An IOU may choose to sell one or more of its lines of business to independent ent~ties, or it may create separate but affiliated companlas, and possibly operating divisions, that may be owned by a common holding company, but which must operate largely ~ndependcot of each other The services offered by such separate entities must be avmlabla to other parties on a non-d~scnmmatory bas~s Certain Texas river authorities that operate ¢lactno guneratton and transmission systems are also required to unbundle their alectnc operations but need not operate such separated functions independently from one another Municipal Utthtlcs and Electric Coops which opt into competition are not reqmrcd to unbundle their electric system components UnbundledCompanies Generating assets will be owned by "Power Ocoeration Companies,. which must register with the PUC and must comply with certoan PAles that are intended to protect consumers, but they will otherwise be unregulated and may sell alectrtcRy at market prices Owners of transmission and/or distribution facilities will be "Transmission and Distribution Utilities'* and will be fully regulated by the PUC Retail sales activities will be performed by new companies called "Retail Electric Providers" ("REPs") which are the only entities authorized to sell electricity to retail customers (other than to customers of Municipal Utilities and Electric Coops that have not opened their service areas to retail competition) REPs must register with thc PUC, demonstrate financial capabilities and comply with certain consumer protectmn reqmcemeets They will buy electricity from Power Generation Companies, power marketers or other parties and may resell that electricity to retml customers 3O at nay iocuticm in the State,(other than customers of Municipal Utilities end Electric Coops that have not opened their service areas to retaiI competition) Transmission and D|stributiun Utilities will be obhgatcd to deliver the clestn?ty. The PUC is required to approve the construction of new trnngmisaion facthties, nad may order the constn~ctien of new ragUlties to relieve transmission bottlenecks Transmission and Dls~lbution Utlhties will be required to provide accczs to both their transmission and distribution systems on a non-thsorlmmatol~/basis to all eligible customers Rates for wholesale transmission systems of MtmlClpal Ufilmes and Electric Coops shall be determined by the PUC, rates for the use of the dtstrthutlon systems of such entities will be determined,by such entities Each type of unbundled compnay is prohibited from providing services that arc provided by the other types of unbtmdled companies Metlsul'~ tO [FoYer Cog~ti~t~tion trod ,4~#re $~Ce SB 7 also provides a number of consumer protection previsions Every area of the State wdl have a *'Provider of Last Resort* approved bY thc PUC The Prevlder of Last Rasort Is a REP thet must offer to soil ~lzetrioity to any retml customer m its deslguated ares at a stendard sate epprevod bY thc PUC The Prevlder of Last Resort must also serve any customer whose REP has failed to provide service Each Municipal Utility and Electric Coop that opts into opqn competition shall appoint itself or another entity as the provider of last resort for such service tomtory and thc respective Municipal Utility or Electric Coop shall set the rates for such respective provider of last resort rather than the PUC Mnaagemna~ of the Electric System believes that if the City opts in to retail electric competition, the City will deslgueto thc Electric SystOm as the distributor within the City as well as the provider of last resort within the City Beginning S~,ptember 1, 1999, each IOU must freeze lis existing rates (except for a fuel factor passthrongh) nad must continue to serve its retail customct9 et such fetes until 2002 Begmmng ar 2002, thc unbundlcd REP of the IOU thst bold the anrtificuto to provide retail service to an area (the "Affiliated RI~P") must reduce electric rates by 6% below the frozen rates and offer that reduced retel(the ,,price to bsut,,) to all retail customers in tbe area formerly served by the IOU Tbe Affiliated REP muat serve all rasidcntog and commercial ans~mers who do not choose a different REP at such reduced rate The Affiliated REP may not sell electricity to residential or commercial customers (generally small businesses) at any other rate until either 40% of thc rasidcutlal or commercial customers in the area have enuscu to be served by other REPs or untd Jnauary 1, 2005, whichever occurs first Although the Affihsted REP may~thcreattcr compete by offerm8 pnces that differ from tho reduced rote, it must continue to ~,ffer such rate until January 1, 2007, to assure a maximum price that consumers will have to pay SB ? dons allow Affiliated R~ ~,Ps to compete for lndasirlal customers, and for certain aggregated commercial loads owned by a common entity The price to beat previsions of SB ? will have no direct impact on the Electric System If the City Council decides to opt in, Electric Sys~ ~m management believes that TXU Electric would be the most likely immediate competitor, given its proximity to the City's se ~'lce area. While TXU Elesttie could offer service at a rate lower thna thc City's rates, management of the Electric System dce~ not expect that TXU Elnamc or other potential competitors would substantially undercut the City's electric service rate to rasid ~ntlal or commercial customers, although large industrial load customers would likely be aggressively recruited by potential en ilpedtors Presently, the City's customer base is only 11% industrial/commercial in composition, based upon the number of * ustomer accounts, although for the year ended September 30, 2000~ approximately ..._% of the City's electnc service revenue was generated by coramerCial nad industrial customers It is possible that competitors could use factors other than price l~t efforts to obtain desirable customers Such factors could include service packages and combinations of venous ntthty sorvlqes in addition to electric service To prevent ~oncentratlon of generation in a single Power Gen~eom/.tion Compnay, SB 7 requires IOUs to hold penoth¢ '*Capacity Auctions,~' ~upervisod by the PUC, in which they must sell 15~ of thmr energy to others Affiliated REPs are not allowed to purchase energy from a related Power Generation Company The Capacity Auctions will end four years after retail competition begins SII ? also provides protection by limiting the amount of generation that any single Power Generation Compnay, or group of co nmonly owned Power Generation Companies, may own to 20% of the available generation within a "power region" which will I*e created by the PUC SB ? requires nay IOU (or affiliated Power Generation Company) that owns more that 20% of thc msia] ,ed elnatrio gancretlon within a power region to file a mitigation plan with the PUC by December 31, 2001 whereby (l) its excus t generation plants will be sold at na independent sale, (ii) tis excess generation capacity will be auctioned off to na mdependen party In a Capacity Auction, (Iii) it soils lis*excess capacity for at least a four year period to an independent party, or (iv) it imph ments some other reasonable mitigation method The City is not subject to SB ?'s Capacity Auction requirements or thc 20% mi ~lmum generation ownership within a power regtun restriction SB ? presol es the PUC'a regulatory natimnty over electric transmission facilities nad open access to such trsusmissmn facilities SB ?provu eS for a trnasmlsston system operator that would be mdependnat of market participants and which will be responsible for directing nad contrelimg the operation of the transmission network within ERCOT In addition, SB ? directs tho PUC to determine electric transmission open access rotes on a 100% "postage stamp" pricing methodology StrandedC~ecoPery Under SB ?, IOUs may recover a portion of their "strnaded ousts" (the net book value of certain "non' economic'* lasers lass market value nad certain '*above market" purchased-power costs) and "regulatory assets,'* which recovery is intended to panmt recovelT of the difference bctwcen the amount necessary to pay for the assets required under prior alnatnc regulation * nd the amount that cna be collected through market based rates in the open competition market Such stranded costs a~ based, tn large measure, on the amount of stranded costs associated with the respective lOUs determined in the PUC Stranded C ~st Report SB 7 astabhshes the precedure to determine the amount of stranded costs nad regulatory assets Once determined the stranded costs will be collected through a nonbypassable competition transition charge collected from the end retad alactrto users within the IOU's service terntolT' as it existed on May 1, 1999, through, primarily, an eddltional component to the rate for the use of the retail electric distribution system delivering electricity to such end user 31 IOUs may recover a certain portion of their respective stranded costs through the Issuance of bonds, with a maturity not to exceed 15 years, whereby the pnnaipal, interest and reasonable costs of issuing, servicing and refinancing such bonds is secured by a qualified rate order of thc PUC that creates the "competition transition charge" Neither the State nor the PUC may amend the qanhfied rate order in any manner that would impair the r~ghts of the "securttlzad" bondholders Provisions of SB 7 that apply to Municipal Utilities and Electric Coops Municipal Utihhcs and Electric Coops are largely exempt from the requirements of SB 7 While IOUs will be subject to open competition on Sanuary 1, 2002, the governing badles of Municipal Utilities and Electric Coops have the sole discretion to determine whether and when to open their service terrltorms to retail competition However, ifa Municipal Utility or Electric Coop has not voted to open its territory, it will not be able to compete for retail customers at unregulated rates outside its traditional service territory While IOUs must uabundle their generation from transmission and distribution and from retail sales activities, Municipal Utilities and Eleutrlc Coops retain the discretion to detennme whether to unhnndle those business aetlvit~as The greatest potential impact on the Electro System from SB 7 could result from a decision by the City Council to participate or not to participate In a fully-competitive market The potential effects of a decision to compete Include thc potential loss of customers to other REPs resulting in a reduced electric load, while the City's obligations under the TMPA Agreement would require thc contmuntion of the City's take-or pay obhgatlons On the other hand, If the City's retail rates and its ablhty to dehver dependable service are competitive with those of othcr REPs, the City may be successful m retmmng existing customers Any decision of thc City Council to participate in full feted eompet~tion would also permit the Electric System to offer electric service to customers that are not presently within the certified service area of the City A decision of the City Council not to compete may have other consequences such as decreases m economic development activity within the City due to the "protected" rate strantorc of the Electric System If the rate structure is higher in cost than rates in areas that an: open to competition As discussed above, Municipal Utilities and Electric Coops wall also continue to determine the rates for use of their distribution systems after they open their territories to competitaun, although the PUC will determine the terms and conditions for access to those systems Additionally, Municipal Utilities and Electric Coops that do not elect to participate m open compatttlon am required to offer dlstnbutlun services upon conditions and tenns established by the PUC SI3 ? also permits Municipal Utlhtics and Electric Coops to recover their "stranded costs," through collection of a nonbypassable transition charge from their customers if so determined by such entities m a similar fashion to IOUs Unhkc IOUs, the governing board of a Municipal Utihty (In the case of the Electric System thc City Council) determines the amount of stranded costs to be recovered pursuant to rains and procedures established by such governing board The stranded costs of Electric Coops is determined by their board of threcturs pursuant to rules and procedures established by the PUC Municipal Utilities and Electric Coops arc also permitted to recover their respective stranded costs through the issuance of bonds In a similar fashion to the IOUs Additionally, as a Member City ofTMPA, SB 7 permits the Texas Pubbc Finance Authority to Issue bonds payable from a nonbypassable charge of thc retail electric customer of a Member City to recover such city's stranded costs es determmed In the PUC Stranded Cost Report Miscellaneous Provisions ofSB 7 SB 7 requires all old "grandfathcrad" power plants - plants that have not prewously been required to comply with mr quality emissions standards administered by the Texas TNRCC that are owned by IOUs, Municipal Utilities and Electric Coops - to be brought into compliance with the air quality emissions standards by May 2003 The cost of bringing the old plants into compbance may be included In the determination of stranded costs of an IOU, Municipal Utility or Electric Coop (See "Thc Electric Systcm- Environmental Regulation - State Implementation Plan for DFW Ozone Non- Attainment Status" and "The Electric System - Texas Municipal Power Agency - Clean Air Act Comphanco" for a discussion of certain generation units of thc City and TMPA that do not presently meet air quality emission standards ) Thc Electric System management estimates the cost of brmgmg the Spencer Units rote compliance with the new emission standards contained in SB 7 and in thc proposed rainmaking represented by the SIP at approximately $3 mllhon SI] ? also sets goals for thc development of renewable generating technologies that do not burn oil and gas and do not produce air pollution, requires that the amount of renewable energy triple in Texas by 2009 and sets cortmn renewable genemtion target lcvels If thc Electric System owns electric generation but has not met its requrmd renewable guneratlon loyal, tt may be required to purchase renewable energy credits established by thc PUC to comply with SB 7 ERCOT ERCOT ~s one of 10 Regional Reliability Councils In the North American Electric Rehabtllty Council Thc ERCOT bulk electric system is located entirely within the State of Texas and serves more than 14 7 million customers, represeutmg approximately 85% of Texas' electrical load Thc ERCOT service region covers more than 75%, or 200,000 squnre miles of the State and contains a total of approximately 35,000 miles of transmission lines, including moro than 7,000 miles at 345-kV ERCOT is connected electrically to other reliability councils through two direct currcot ("DC") lines, prowthng only limited Import/export capability In response to legislative directive, ERCOT amended Its articles of Incorporation to establish an Independent System Operator ("ISO") in 1996 Under ERCOT's organizational structure, the ISO reports to the ERCOT Board of Directors ISO 32 responsibthties maludz security operations of tho bulk system, facilitation and efficient use of the transmission system by all market perti~tpants, and coordination of regional transmission planning among transmission own ng uttht os and prey dars Prior to the enactment of SB 7, tho ISO's primary msponsththty wes to ensure local reliability throughout ERCOT, to re-dispatch gcoeratmg u~its to ensure that local rehabthty criteria wore inet and to mitigate emergency conditions Thc ISO also assisted control ere~ by coordmatmg transactiun schodtties, prevldmg communication interface, performing operating condttlun surveillance, land serving es ERCOT's contrallZ~X[ source for information on system security SB 7 provrd~s that the PUC shall certi~ an mdopcodcot system operator (and the PUC has certified tho ISO within ERCOT) or other person[that is sufficiently independent of any producer or seller of electricity and which is governed by a hoard that has three repres0ntativas from each segment of the electric market to perform certain functions specified by SB 7 Such functions include astablishmg and enfermng procedures relating to the reliability of tho regional electrical network and accounting for the production and delivery of olactranty among generators and all other market participants Tho procedures ere anbjcct to PUC oversight ~md review The PUC may anthor~zc tho independent organization that is cemfied for this purpose to charge a reasunablo and competitively neutral rate to wholesale buyers and sellers to cover the independent organlzattun*s costs SB 7 provides that n retail electric provider, mumclpally owned utility, electric cooperative, power marketer, transmission and dlstrlbutren utility, or power generation company shall observe all scheduling, operating, planning, rehabthty, and settlement policies, rul0s, guidelines, and procedures established by thc independent system opcrotor FEDERAL RgGULATION Ol~ F. LECTRIC TRANSMts~ION SI~RVICI~S The£nergyPollcyActoflP9~ Tho federal Energy Poh~y Act of 1992 (the "Energy Ant'% greatly expands tho anthurity nf the United States Federal Energy Rognlatory Commission (tho 'FERC') tc order utthtles, mcluding utihties within ERCOT, to provide trol~smisslon service for other utthties, qualifying faclhtias, and mdependcot power producer~ Tho FERC also has authority to determine the prices that may bo charged for transmission, but has generally deferred to tho PUC olcctrlc transmisston open access roles for access and pricing within ERCOT I~elall ~,/he~ng The authority to order retml whcelarg, which allows a retml customer to he located in one utihty's service area and to obtmB power from another utthty or non-utility source, is specifically excluded from tho enhanced anthor~ty granted to the FERC unde~ the Energy .Act However, while tho States may have authority to determine whether retml wheeling will he permlt~d, FERC has datormmed that it has.~erlsdictiun over the ratas, terms and conditions of r~ml whcelmg F£RCF~nalRules~dPeoposed~ulemal¢lng$lnFederalRegulationofF, lectrtcUtlll#es To estabhsh foundations ncce~a~ to develop ~ anmpetitivo wholesale elactrlClty market and effcctaato the transmission ascess provanuns of the Energy Pohsy Act, on April 24~ 1996, FERC issued two final rules ('FERC Rules") on non-diser~mmatory open access transmisslun services by public utilities and stranded cost recovery rales Tho first of the FERC Final Rules, Order No gg$, requiras all public utilities that own, control or operate faclhties used for transrmttmg electric energy m interstate commerce to (l) file open-access, non- discriminatory transmission tariffs contelmng, ~ n munmum, the non-price terms and conditions set forth in tho order and (ii) functionally unbundle wholesale power ~ervlcas by (I) applying unified transmission tsnffs system to all customers, (2) providing Separate rste systcms for wholasal¢ generation, transmission and aned[a~' services and (3) relying on the same electronic information dissemmatlon network that lis transmission customers rely on in selling and purahesmg energy Tho second final rule, Order No 889, requires all puhhc utlhtiss to establish or purtlClpate in an Open Access Same-Time Inforroatlon Systere (OASIS) that meets certain spaclficetloas, and coreply with standards of conduct designed to prevent employees of n puhho utility (or any employees of its a~'~hates) engaged In wholesale power marketing functions from obtaining preferentialI access to pertinent ~ranamlssion system information The FF, R~ stated that its overall ob~etlvo is to en~ure that all pa~toipants in wholesale electricity markets have non- thscrlmloatosy open ascoss to traasraisSlOn service, includll~g network transmission service and anclllmy services The FER(~ also mthen~od that it inlands to apply tho principles set fetch m the FERC Rules to the maximum extent to municipal and other non-FERC regulated utilmcs, both in dccldlng ces~s brought under the Federal Power Act and by requiring such utiimcs to agree to provide open access ~'ansmisslon service as n condition to securmg transmission service from jurisdictional mvastor-owned utilities under open access tariffs In addmon, on ~ay 12, 199~ the FERC released a Notice of Proposed Rulomakmg to establish Regional Transmission Organizations ('RTOs') Tho proposed rulemakmg contemplates RTOs es voluntary pertlclpation associations of power transmission owning antilles, comprising public and non-public utility entities, which would more efficlcotly address operational and rohability issuas confronting tho industry m particolar by improving grid rehabthty, increasing efficlencias in ~msmlsslon grid management, preventing diserimmatosy practices and improving market performance ^lthough the FERC Rules do not threatly regulate mumclpelly owned and other non-F~RC-regulated utilities such es thc ~lcct~c System, tho FERC Rules have a significant impact on such utilities' opemtiuns Tho FER~ Rules have significantly changed tho competitive climate in which the non-FERC regulated utilities operate, giving their customers much greater access to altcroatiYe sour~as of elactrl¢ translBlsslOl~ Services The r~les require them to provrdo open access transmlssloo service 33 confarmrog to thc reqrorcrocnts for investor-owned utilities whenever they are properly requested to do so under the Energy Poh~, Act or as a condition of taking lrensmlasron service from an investor owned utility In certmn clmurostancas, thc non- FERC-regulated utilities are required to pay coropensatron to their present suppliers of wholesale power end energy for stranded costs that rosy arise when the non-FERC-regulated utilities exarclse their option to switch to an alteroattve supplier of cl¢ctxanty Proposed Federal Legislation Many bills have been introduced in the United States House of Representatives and the United States Senate to deregulate thc electric utility mdust~ on thc federal or state level, Including bills supported by thc Clinton Admrolstratlon Many of tho bdls provide for opan coropct~tlon m the furnmfung of electricity to all ratml customers (t e, ratall wheshng) In addition, various bdls have been artroducod that weald anpact the lssuenco of tan-~xearpt bonds for trensm~ssion end generation facilities No prediction cea be made as to whether these bills or any future proposed federal bills will banoroe law or, If they become law, what their final form or effect would be ENVIRONMENTAL REGULATION Electric utthtms arc subject to continuing anvlronmantal regulation Federal, state and local standerds and prncodures that regulate the envlronmantal lrapact of electric utthtms are subject to change These chenges may arise frora contromng legislative, regulatory andjudlmal action regarding such stendards end procedures Consequently there Is no assurance that the Electric System units in operation, or which rosy bo constructed, will remain subject to the regulations currently In effect, will always be In compliance with future regulations or will always be able to obtaro all required operating permits The1990 Clean Air ~4ct Amendrnents The Clean Alr Act (CAA),orlgroatrog re 1967 with the Air Quahty Act, has grown most notably in volume but also in specificity, scientific sophlstlcatron, end regulatory oversight to its present-day version Thc grewth in regulations concerning air quality over the last three decades reflects the public's growing awareness end concern for the quality of their natural cnvlronmcot There is no mthcot~on that this concoro will lessen nor that regulations governing envlmnraental quality will decrease Instead, citizens are rocrcasingly becoming more active in the pohtlcal process responsible for thc development and implementation of cnv~ronmcotal laws and regulations Thc moat recent and far-reechmg change to thc CAA is the 1990 amendments, or the CAA Amendments of 1990 (CAAA) Besides overhauling the hazardous au' pollution regulations, thc CAAA also addressed acid rain and ozone depiction (global climate) An additional section was crafted creating a comprehensive program fur operatrag permits, combmmg all espects of mr quality requirements for a single source into a single permit Of specific interest to owners of electric generation, the 1990 Amcndraents seek to improve the ambient air quality throughout the United St~es by the year 2000 through the reduction of sulfur dlomdc and nitrogen oxides emissions from electric utthty power plants, particularly those fueled by coal Wlth respect to sulfur dioxide ero~ssions, the 1990Amendroantsprevidefor ntwo-pha~eapproach forlmplamcntat~on Phascl took effect Sanuary 1, 1995, and requires 110 coal-fired units to reduce sulfur dioxide emissions to certaro tonnage levels provldedmth¢ 1990Amandroents Thc 1990Amendmantsldcotlfyspeclfic"affactedumts"whlchmustmectthePhaselsalthr dioxide emission limits by the beginning of Phase I Phase II, implemented January 1, 2000, requires affected utility units to meet roore stringent saltier dioxide emission limitations than in Phase I The EPA issued a final rnlc implementing the nitrogen oxide acid rmn provisions under Santlon 407 of the FCCA on March 22, 1994 The talc establishes parformanco standards for controfung emissions froro coal-fired dry bottoro and tangentially fired boilers (Group 1 boilers, similar to those operated by TMPA ) Phase I units wore required to begin complying with these annual nitrogen oxide emission hm~ts beginning January 1, 1995 In December 1996, the EPA issued a rule lroplemcotmg the second phase of the nitrogen oxide acid rasn program The rule lowers the mtrogco ox~de control standards for Phase II units with Group I boilers end became effective on Jenuac¢ 1, 2000 However, the final rule issued in March 1994 provides an "early election" option for thos~ Phase I1 units that are capable of achieving early compliance w~th the Phase I nitrogen oxide standards As an InCentive for early ¢omphence, the early election pmgram will allow part~cipatmg units to defer coraphance with any more stnngcot nitrogen oxide Phase II standards until January 1, 2008 The owners and operators of all affected utility units under the acid disposition control program of the FCCA will have to obtain a permit from the EPA or from a state agency w~th an EPA-appreved permitting program to emit sulfur dioxide and nitrogen oxide The permit will bc apphcable for no more then five years To obtain the permit, owners'and operators also will have to subant a compliance plan to the permitting agency Another aspect of the 1990 Amendments applicable to the electric utdlty industry is the requirement that continuous cmissron momtors CCEMS") be installed and operated on all affected units The EPA proroulgated final CEMS roles effective January Il, 1993 The C~ty has completed mstallatien of new CEMS systems at all affected units and submitted final certification decuroents to the EPA StatelmplemeatatlonPlanforDFWOzoneNon-AttalnmentStatns TheDallas/Fort Worth ozoan nonattalnment area(Cothn, Dallas, Denton, and Tarmnt Counties), was originally das~guated "rooderate" under the FCAA amendments of 1990, and thus 34 was requimd~to attain the one-hour ozone standard by November 15, 1996 (n one hour standard Is an EPA mencore that specifies that certain pollutants not be at or above a particular level on more than three days over three years) As resulted by the FCAA, the State submitted an attainment demanstnttlon plan (a SIP) m 1994 which projected attainment of thc ozone air quality standard by ~996 This plan was based on a volatile organic compounds ("VOC") reduction strategy DFW did not attain the ozone atandai'd in 1996 Thc EPA Ia i~thorlzed to redeslgnate an area to the next higher classification ("bump up") if it fads to attain by the rcquired date Coascoucotlv, in March 1998, and m accordance with FCAA, the EPA rcclasslfied DFW from moderate to acnous, baaed on monitor'ed ~eedances of the ozone standard betw~n 1994 and 1996 The reclassification required the Stat~ to submit a revised StatsimplententationPland~nonstuttms attalumant of the ozone stendard bylqovcmber 15, 1999 BacauceDFW continued to cxcsed the ozone standard in 1999, the EPA r~utred submittal of a revised SIP by May l, 2000, demonstrating attainment Should EPAldat~mlme that the SiP fuds to dernonstmta attaiumant, EPA may bump up the area ta the severe clasaiflention (The FCAA provides various punitive measures for ames that ar~ classified as "severe ' Two of these measures involve thc ions of federal highway funding and the tmplum~ntation,of a more strmgcot environmental pernltRing prograrll for commercial and industrial Clthties, possibly retarding soonomic growth in such areas ) Regardless, the EPA and FCAA requu'c that the State submit a rovl~d SIP which demonstrates that the ama will attain thc ozone standard as expedltioasly as practicable After coll~lng and incorporating enmmants ~om the public, on April 19, 2000, thc TNRCC adopted a new SIP The SIP will be submitted by TNRCC to the EPA by May l, 2000 The EPA will have only two weeks to daternuim whether the SIP demanstrnteS attainment with the National Ambient Air Quality Standard for ozone On May 15, 2000, EPA must determine wh~her the DFW nonaltalumcot area will be "bumped-up" to a "severe" nonattsmment classlficataon According tO the new TNRCC SIP, significant mtrogan oxides ("NOx,) reductions will be necessary to attain the ozone standard m DFW ~ae current air quality modeling also shows that achieving the ozone standard in DFW will be challenging Despite the overall reduced missions since 1990, the arce's rapid growth has offset thc emission reduction achievements for DFW Because mo~011e source categories dorolnate the missions inventory m DFW, an increasing population translates directly into more vehicles on thc road and more ozonc-ennsmg emissions for the atmosphere However, TNRCC's air quality model indicates th~.t as cleaner-burnmg cars and cleaner burning fuels are introduced to the area, these overall emissions will decrease despite poptllation growth Acesrdlng to the TNRCC, m~or stationary sources contribute about 15% of the total NOx lo DFW during the ozone season, and the~fure must be included In these maximal efforts The proposed NOx emission lunlts for electric ut~hty and large Industrial, commercial, and institutional ("ICI") bmlers approach thc maximum practicable erelsslan reductions for these sources Thc proposed NOx emission limits for lane-burn engines effectively limits thc emissions from an unregulated category of ma. tot stationary sources of NOx in DFW The SIP prOposes an anllSSlOn limit for utihty boilers In the DFW area for "large systems," which are systems that have a combined ~aneration totahng in excess of 500 MW, with maximum rated capacity of 40 ImnBtu/hr or granter of 0 033 lb NOx/mmBtu The SIP proposes an emission limit for utility boilers In the DFW area for "small systems," i e, the City of Denton and the City of Garland, which have a combined generation totaling less than 500 MW, with maximum rated capacity of 40 mmBtu/hr or greater of 0 06 lb NOx/mmBtu The SIP proposes to effect an 88% cmlsslun reductren, calculated from the average cnttssions of the utility boilers In the arex during the baseline period, is expected to necessitate selective catalytic reduction ('ISCR'), post combustion technology, on the affected large system DFW utility beliers Due to thc City's status as a small system, the City believes that tt will be able to reduce the current NOx emissions from Spencer Units 4 end 5, fi.om levels ranging from 0 45 lb NOx/mmBtu to 0 60 lb NOx/mmBta, to the 0 06 lb NOx/mmBta level required by the new SIP with tac~ology that is less expensive than the SCR technology The City estimates the cost of bringing the Spcocer Units Into compliance at approximately $3 mdhon Thc TNRCC SIP notes that system-wide emission averaging for alcotnc utilities will not be allowed in the proposed emendmants because this averaging may not produce thc intended reductions Units which require extsnslvc controls often have higher oporstmg Ousts than units with less emission anntrol equipment If units selected for less control ere subsequently operated more, or if units solcoted for more control are subsequently operated less in order to mimimzc operating costs, the designed emlsslen r~duedoax may not be achieved Instead, a system cap ("System Cap") is proposed with thc new NOx limits which evolds the issue of equivalent eimssloas reduatians that Is associated with emission averegmg The proposed System Cap would create a flexible new alternative paltemed on the existing source cap compliance option for ICI combustion sources Thc System Cap sets ttalts on total pounds of NOx allowed to be emitted by an electric utility system The cap will have the advantage of allowm thesourceownertocontro~theactivIty~evals~ftheregninted~qmpmentasamcans~fcomphanco Tins may mclude g mstalhng It:ss extens ye omission controls on a pler.~ of equipment and choosing to operate It less and/or upgrading its efficrency to reqarre ~ass fuel finns The affected alactne otihty beliers in DFW are currently monitoring NOx emissions continuously under thc ~edeml acid ram rules Aceerding to the TNRCC, the absence of adthtlonal cost for new NOxraunlturs Is expected t° make the System Cap an attractive option for electric utilities The proposed amendments contain a schedule for compliance with tho n~w DFW emission specifications for electric utility boilers For electric utility boilers in DFW, the proposed five-year implementation schedule sets a future thrao-step phase-m of the radantiuns Thc existing 0 20 lb NOx/mmBtu reasonably available control technology ("RACT") limit r~qulras a reduetlon °f ab°ut 30% fr°m thc currant DFW utihty average of 0 28 lb NOx Per mmBtu by March 3 I, 2001 Next, two-thirds of the total reduetiuns required to comply with both the large system and small system aRarnmant demonstration emission specification would be required by May 1, 2003 The final one-third of the reduction would be required by May 1, 2005 FederalEnergy Regulatory Commission Reg#latlon Thc City submits various reports to the FERC and substantially conforms to the FERC Uniform System of Accounts m maintaining its books of account Tho City received a 50-year hydroelectric license from the FERC on March 20, 1985 as amended for the construction, operation and maintananco of the Ray Roberts Dam Hydmalectnc ProJect and the City received a 50-year hydroelectric license from the FERC on March 20, 1985 as amended for thc construction, operation and mmntenance of the Lewisvdle Dam Hydroelectric ProJect Historically, electric utilities operating In Texas have not had any interstate connections other than in certain emergency situations and hanco investor-owned utilities and the City's dams and other electric facilities have not been subject to tho FERC regulatory or licensing raqmremanta on the basis of such interstate connections Over the past several years, various efforts havu bann raedc to provide some interstate connections These efforts have resulted in protracted judanal and administrative proceedings mvolvmg ERCOT members The FERC has issued orders, which, among other things, permit the BRCOT members to avoid federal regulation of rates as thc result of the ordered aiterconneetlons with another interstate connected utility £1eetrlc and Magnetic Flehts Tho City is aware of the ongoing research effort focusing on biological effects of electric and magnet~¢fie~ds(~'EMF'~)sudth~seiantIficandanv~rt~determmeifsucheffectshaveany~npheet~~nstohumanhan~th At this time, It Is a matter of scientific uncertainty as to whether human exposure to EMF poses a slgmficant health risk 36 THE WATER SYSTEM The Water System provtdas retail water service to all customers located within the city limits, as well as wholesale treated and mw water s~rvlce of epprorametely 924 MOD to the Upper Trinity Regional Water District ('*UTR~:VD") The water dlsmbutmn ~ystem consists of 431 miles of water mains, 7 million gallons of ground storage, and 4 36 million gallons of elevated stor~o The City continuas to operate in compliance wflh all State and Federal water quality requirements Water Supply The present municipal supplies are obtained pnmarlty from surface sources, but ground water sources (water wells) are' -ay- atlable for drought, emergency, end back-up purposes The City has conservation storage rights in Lewlsvllle Reservoir which was ennstm~ced by the U S Corps of Engineers This Reservoir cuntams a total of 436,000 acre feet of conservatmn, storase The city holds the rights to 21,000 acre rant °f stemse, with the balanan bums hald by the CIty °f Dallas ("Dallas") Based on the safe yield of 90 20 million gallons per day, the City receives 4 34 million gallons per day m water rights from Lewisvtlle Reservoir The City als0 has 20?,896 acre feet of annual withdrawal rights from the Ray Roberts Reservoir (?99,600 acre feet) located nine mdes upst~am from the Lewlsvdle Reservoir The City and Dallas beve determined end agreed by contiact that the safe ylald of Ray Roberts[ Reservoir Is ?6 million gallons per day, and that the Clty*s share is 26% or 19 ?86 million gallons per day, and Dallas' shar~ is ?4% or :56 24 million gallons per day Due to the City's surplus reservoir water supply, tho City has contracted with the UTRWD to provide over 6 MOD of raw water, or more, if available supplies pcnmt, The City coOtmues to maintain a mw water enntmct with Dallas under which it is obligated to purchase at least 500,000 gallons per day This is a ntlnunum contract volume that the City maintains m order to keep open a long term option to purchase addltiunal raw water from Dallas in the future The water contract with Dallas is similar to the contracts for fermi and/or wholesale water that Dallas supplies to eighteen (18) other North Texas mumaipalltles Dallas' wholesale water purchase price to thc City ii currently 0 4166 cents par 1,000 ~alluns The City maintains and utthzcs Its ground water well system as a contingency supply tn the event of a drought, unusual shortage or in un umergenoY reedmass occasion due to u natural disaster which may disrupt the water treatment plant and/ur transmission system from the water treatment plant Dunng the drought of 2000, thc City activated three ground water wells for five days, recaivmg approximately 1 07 MOD The combmed 24 62 M~3D of currantly available surface water volume from Lewlsvdle Lake (4 86 MGD mcludmg wastewater effluent returns and Ray Roberis Lake (19 ?6 MOD) are sufficiant to serve Denton's needs for until approximately twelve to fifteen years The City is conducting a long-range water supply study to determine the water reqmrements and supply altemattveslbayond this period The Clty,s retail and wholesalc treated water volume dunng 2000uvcragedapproxlmatety 14 MGD Water ~affnent Plant(s) Tbo Denton water treatment plant is capable of treating and pumping 28 75 MI3D The maximum volume pumped to date was 2? 85 MGD in 2000 The City has contracted for the design of a 20 MOD water treatment plant to be located near Ray Roberts Lake Construction of this plant, booster pump station, and transroission facilities are forecasted to bcgm construction designs during fiscal year 2001 The City projects, using forecasted growth rates, that it has sufficient available capacity in the existing 28 ?:5 MOD water treatment plant and Its ground storage wells to meet Its retail customer Peak usc requirement until thc summer °f 2003 The new 20 MOD w~ter plant is projected to bo ~,vailable for usu by May, 2003 Upper T~lnlO~ Regional Wafer D~t~lct The City, m coepcretien with 32 other Denton County cities, towns and water supply entitles, on [June 16, 1989, effected the creation of the UTRWD through enabling State Legislation Thc UTRWD's purpose is to provide future raw water supphas, wholesale water and wastewatcr services to entities prunanty, but not limited to, Denton County UTRWD is controlled by a Board of Directors representing the cities in the region Additional Directors may be added when a city contracts with the UTRWD for planmng or wholasale water and wasteweter survlces The UTRWD will also plan, acquire or develop future raw water supplies or reservoirs for its paroctpatmg members Wholesale treated water sales to thc UTRWD began m June 1994 The current contract provides for trentcd water sales to thc UTRWD for resale to the City of ganger Treated water sales in 2000 totaled 225,400 gallons per day The UTRWD water treatment plant has been completed and the City is selling mw water to thc UTRWD for treatment based upon excass available capacity af~erservmgtheClty'senstomers Total raw water saleswereepproximetely9 18 MGD In 2000 37 TABLE 4 - WATER USAGE (GALLONS) Average Maximum Year Day (Sales) Day 1996 13,143,592 25,814,000 1997 12,631,382 24,758,000 1998 13,519,826 26,439,000 1999 12,639,838 26,204,000 2000 14,217,910 27,850,000 TABLE 5 - To~' TEN WATER CUSTOMEI~ (1) 1999 Annual Consumption Name of Customer (Gallons) Revenue Upper Trinity Regional Water Dlstrtct (Raw) 2,313,810,000 $ 1,260,579 University of Nerth Texas 269,716,080 853,225 Texas Woman's Umvemty 145,592,260 450,565 City of Denton 65,312,580 207,263 Peterbilt Motors 57,425,380 168,852 Upper Trinity Regional Water Dls~'lct (Treated) 55,754,000 108,304 Denton Independent School D~strlct 52,344,520 173,853 Denton State School 49,597,200 144,518 Clayton Homes 36,145,700 105,684 Woodhdl Apmanents 33,493,700 101,443 3,079 191,420 $ 3,574,286 (1) 2000 numbers not avmlable due to sofosare conversion TABLE 6 - WATER RATES (EFFECTIVE OCTOBER I, 1995) Residential Inside C~ty Ltmlts Outside City Limits Facility Charge 3/4" meter $ 9 55 per month $11 00 per month 1" meter 11 40 per month 13 10 per month I 1/2" meter 16 25 per month 18 65 per month 2" meter 18 10 per month 20 80 per menth Volume Charse Summer Winter Inside City Lmaits (May-October) (November-April) First 15,000 gallons $2 60 per 1,000 gallons $2 60 per 1,000 gallons Next 15,000 gallons 3 50 per 1,000 gallons 2 60 per 1,000 gallons Over 30,000 gallons 4 35 per 1,000 gallons 2 60 per 1,000 gallons Outside Cay Limits F~rst 15,000 gallons $3 00 per 1,000 gallons $3 00 per 1,000 gallons Next 15,000 gallons 4 05 per 1,000 gallons 3 00 per 1,000 gallons Over 30,000 gallons 5 00 per 1 000 gallons 3 00 per 1,000 gallons Commercial and Industrial (Inside City Limit) Facility Charge 3/4" meter $20 20 per month 1" meter 22 20 per month I 1/2" meter 25 75 per month 2" meter 31 65 per month Volume Charge 2 87 per 1,000 gallons 38 TH~ WA~TEWATER SYSTEM The wsstewatur system provides fermi wsstewater collection and uentment service to City citizens, ss well ns thc City's two wholesalewnlltewatercostomers, the Town ofCormth and the UTRWD The collection system consistsofapproxonately 381 milos of grawty wa~tewater lines, 18 miles of force mains, and 23 1 ft stations Fr'ast~water Treatment Plant In 1994 the City completed a $9,500,000 expansion of its wnstewatar treatment plant. The plant Is operational f~r permitted trea~nent of up to 15 MGD, and is deagned to surve the City up to a popul0aon of 110,000 The wsstewat~r syatem is ~fl¢loatly uperatod and maintained, and is tn comphance with all State and Federal discharge pernuts A 6 MOD plant ~npanslon is soheduled for compl~on in 2002, bringing total perrmtted treatment capacity to 21 MGD The City's wsstewater troatment plant recotved a tht~e-yenr &scharge permit from the Texas Natural Reanurce Conservation Curnnnsslon on April 11, 1997 and has a permit ~ tho Envtronmemal ProtecOon Agency dated November 26, 1991 These discharge pe~tts lmpos~ smngant Ionltattons on the removal of ammoma, dechlormation, end sludge conditioning and ~entm?~$ The City's p~rmtt panonaters fur wastowater treatment are currently 10 milligrams per liter for Biochemical Oxygen Demand, milligrams p~r liter for Tmal Suspended Solids, 3 milhgnuns per liter for Ammonia, and 5 milligrams per liter for Dissolved Oxygen The City's ~t~ated wsstewater effluent volume av~aged 12 03 MGD in 2000 Wholesale Custorn~rs The City has contix~'ts to treat wholesale wnstawater for the Town of Curmth and the Upper Tnmty Regional WaturDismct ln2000, thowholnsalelrentment volume averaged approxtmately I 06MGD TAELE 7 - WASTEWA~RR RATES (~IglrECTIVg OCTOBER 1, 199S) Residential Commerclal/lndusmal Facility Cl~argo $6 20 per month Facility Charge $16 20 per month Volume Chargo 2 37 per 1,000 gallons Volume Charge 3 08 per 1,000 gallons (Bnsed onl98% of aven~se water consumpUon billed during (Based on 80% of monthly water consumption) DecemberlflU. oughFebmmy) (indnsmal surcharge based on concentration of biochemical oxygen demand and total suspended solids of effluent) Rssldantlal Customer Outside City Limits Faclh~ Charge $7 15 per month Minimum Billing $7 15 per month Volumo Charge $2 73 per 1,000 gallons Rote RegulaIlon Within Its boundaries, the City has exclusive jurisdiction over the water and wsstewater system rates 39 DEBT INFORMATION TABLE 8 - DEBT SERVICE REQUIREMENTS Fiscal Year Total % of Ended Outstandtn8 Debt(0 The Bondsll) Outztandin8 Principal 9~30 Principal Interest Total Principal Interest Total Debt Retired 2001 $ 5850000 $ 9 168 375 $ 15 018 375 $ 15 018,375 2002 6 145000 8 192 897 14 337 897 $ I 200000 $ 3,333 301 $ 4533 301 18 871,198 2003 6,255,000 7 858 569 14 113 569 I 615,000 2 888 543 4,503,543 18 617 111 2004 6 345 000 7 512 869 13 857 869 I 695 000 2,805 793 4,500,793 18 358 661 2005 6 140 000 7 167 764 13 307 764 2 110 000 2,710 668 4 820 668 18 128,431 17 12% 2006 6,240 000 6 832 591 13 072 591 2 200 000 2 602,918 4 802,918 17 875,509 2007 6 670 000 6 494 598 13 164 598 2 280 000 2 499 468 4 779 468 17 944,065 2008 6 225 000 6 156 523 12 38t 523 3 420 000 2 365 518 5 785 518 18 167 040 2009 5 990 000 5 830 738 I 1 820 738 3 570 000 2 190 768 5,760 768 17 581 505 2010 6 145 000 5 504 736 I I 649 736 3 740 000 2 008 018 5 748 018 17 397 754 38 41% 2011 4465000 5223,420 9688420 3915000 1,816643 5,731643 15420.063 2012 4 685 000 4 984 103 9 669 103 4 100 000 I 616 268 5 716,268 15 385 370 2013 6 465 000 4 685,484 I 1 150 484 2 755 000 1 444 893 4 199 893 15 350,376 2014 6 790 000 4 323 664 11 113 664 2 895,000 I 303 643 4 198 643 15 312 306 2015 6 810 000 3 946,468 l0 756 468 3 040 000 I 155,268 4 195 268 14 951,735 59 45% 2016 6385000 3572046 9957046 3200000 999,268 4199268 14156314 2017 6 745 000 3 193 540 9 938 540 3 365 000 835 143 4 200 143 14 138,683 2018 7 120 000 2 793 434 9 913 434 3 335 000 665 558 4 000 558 13 913 992 2019 7 160 000 2 387 567 9 547 567 3 515 000 490,027 4 005 027 13 552,594 2020 7 575 000 I 974 725 9 549 725 3 700 000 305 143 4,005 143 13 554 868 83 32% 2021 3 630 000 I 660 675 5 290 675 3 895,000 105 165 4 000, 165 9,290 840 2022 3 840 000 I 451 669 5 291 669 5 291 669 2023 4 065 000 I 230 422 5 295 422 5 295 422 2024 4 300 000 996 228 5 296 228 5 296,228 2025 4 550 000 748 359 5 298 359 5 298,359 94 45% 2026 2 180 000 565 031 2 745 031 2 745 031 2027 2 295 000 450 359 2 745 359 2 745,359 2028 2 415 000 329 666 2 744 666 2 744 666 2029 2 545 000 202 566 2 747 566 2 747,566 2030 2 680 000 68 675 2 748 675 2,748 675 100 00% $ 158705000 $ 115507,757 $274212757 $59545,000 $ 34 142,007 $93687007 $ 367,899 764 (I) "Outstanding Debt" does not include lease/purchase obligations Excludes the Refunded Bonds (2) Avoragehfeoftheiasue-ll 322years Interest on the Bonds have been calculated at the rates dlustrated on the cover page hereof 40 VOTZD Birr UNlSSUZD R~W,W'I~ BONOS Tho City has no voted but umssucd rcvcnuo bonds Apmcn. Am~ lssuAwcz o~'P. zw, m~ BOI~'DS Tho City has dsveloped a five yenr cap~tal ~mprovcment plan for thc System (thc "CIP") Th¢{CIP includes improvements that will be funded w~th rcvenens of the System as well as through thc issuance of Addstlonal BOnds Thc City presently intends to apply funds on deposit in the rato stsbthzat~on funds of thc System and ofucr scrvtc¢ fens ~nd collections m hcu of mcrcas,ni~ utility ra~as over thc course of thc period covered by thc CIP Tho CIP ts a plaenm$ tool end the City ts not obhF, a~d to fund thc CIP Thc thndm8 of the CIP will bc dependent m part on continued demand for sprvic~s, economic con&ttons in the City and the iinenclal ability of the System to support thc funding of thc CIP, amens other factors Thc following sets forth thc enpccted issuance schedule of Add~Uonal Bonds to fund a portion of thc CIP Pto~ected Canitsl Proieots (O00'sl 2001 2002 2003 2004 2005 ElectncL~taht~es $ 20,000 $ 16,000 $ 8,700 $ 8,400 $ 10,300 Water Ut~lttias 18,000 17,500 5,700 7,400 6,300 Wastewater/Drmnag¢ Utthtias 9,000 12,800 5,:500 8,300 10,600 $ 47,000 $ 46,300 $ 19,900 $ 24,100 $ 27,200 41 FINANCIAL INFORMATION TABLE 9 - COMPARABLE CALCULATION OF NET REVENUES AVAILABLE FOR DEBT SERVICE The table below provides comparable calculations of Net Revenues available for debt service for the periods shown Such c~lenlat~ons include all operating revenues plus interest income, less operatmg expenses For purposes of the calculation, depreciation, amortlzaEon and payments in lieu of taxes are excluded from operating expenses Fiscal Year Ended September 30, ~ross Revenues 2000 1999 1998 1997 1996 ElectncSerVlCe $ 83 739,948 $ 78 654 866 $ 77 570 951 $ 72,048,516 $ 69,533 180 Water Service 19,269 891 17,829,251 17 248 400 14 700,321 15 328 596 Wastewater Service 12 066 564 10815175 10,432,408 9,889807 9997665 Interest Income 7 020 081 7 116,779 5 741,008 5,280 534 5 082 643 Other Income 1 724 174 530,763 483,959 695 122 511,383 Total Revenues $ 123820,658 $ 114946834 $ 111,476726 $ 102614300 $ 100453467 £1~ctrlc System Fuel and Purchased Power(~) $ 58219188 $ 52521369 $ 48611,430 $ 45,737864 $ 47511851 Oth~ Operann8 and Admm~sUat~ve Expenses 17 787 364 15 883 336 17,248,747 13,652 393 14 442 837 $ 76 006 552 $ 68 404 705 $ 65 860,177 $ 59,390 257 $ 61954688 Water System Fuel and Purchased Power $ 666449 $ 526 995 $ 619 880 $ 570 289 $ 566 832 Water Purchased 146 135 97 797 72 299 77,227 80 290 Other Operating and Adm~mst~anve Expenses 7 559 307 7 309 160 4,251 361 3 833 171 4 113 722 $ 8371891 $ 7933952 $ 4,943 540 $ 4480687 $ 4760844 $ 6740696 $ 6268600 $ 4405504 $ 4124381 $ 3692,420 TotelExpenses $ 91119139 $ 82607257 $ 75209221 $ 67995325 $ 70407,952 Electric System 38 06% 36 19% 43 81% 48 47% 38 07% Electric Customers 33 833 35 549 33,540 32 585 31 605 Wastewater Customers 19 325 18,259 17 799 17 271 16 887 (1) Thc cleet~lC system's fuel and purchased power was understated for the fiscal year ended September 30, 1999 m thc amount of $3,201,693 Prior year retained earnmgs has been restated on the Comprehensive Annual Fmancail Repurt fur the fiscal yeer ended September 30, 2000 to reflect this amount Likewise, fucl and purchased powar have been restated m thc Net Revenue calculation for thc fiscal year ended September 30, 1999 to more accurately represent thc Net Revenues Available for debt service 42 TABL~. 10 - (~OV~RAOE AND FUND BALANCE8 (1) Average Annual Principal and Interest Requirements.~ 2001-2030 $ 12,263,325 Coverage of~verage Requirements by 9/30/00 Net Avtulable 2 67 times Maximum Principal and Interest Requtmmimts, 2002 $ 18,871,198 Coverage o~Meximum Requirements by 9/30100 Net Avcilable 1 73 Umes Waterworks und Sower System Revanue Bonds Outslimdmg ns of 3/1/01 $ 212,400,000 Interest and pinking Fund, ns of 3/1/01 $ 6,384,864 Reserve Fund, ns of 3/I/01 $ 12,846,869 Emergency ~und, ns of 3/1/01 $ 248,251 Extension nild Replacement Fund, ns of 3/I/01 $ 4,838,410 (1) lncludeslthe Bonds, excludes the Refunded Bonds I~A~CL~L pOXAC~S Basis of A~coimtm8 The ncenuntmg policies of the City conform to generally accepted accounting principles of thc Governmental Accounting Stand.ds Board and program standards adopted by thc Governmcot Finance Officers Assocm~im of the United Sta~e~ and Canada. The GFOA has awarded a Cer~lfientc of Achievement for Excellence m Financial Reporting to the City of Denton for ~lch of the fiscal yanrs ended Septmnber 30, 1983 through September 30, 1999 The City's current report has been submitted to GFOA to determine its eligibility for another Certificate The City hits also received the GFOA's award for Dlstmgnished Budget Presentation for lis 1996 annual appropriation budget, receiving tt~ fughcst radag to date The City has submitted its 2000 budget to the GFOA m determine its eligibility for another Cer'aficoto Thc measultemant focuses for the Enterprise Funds, Internnl Service Funds and Nonexpendable Trust Funds arc income determmatlSn and cost of service, respectively Accordingly, the accrual basis, whereby revanims and expenses arc iden~fied In the accoimtmg ~e__rl_od m which they tire earned and recurred and net income, is uhitzed for these funds The modified accrual basis, whereby revenues are recognized when they become both mensurable and available for use during thc year and expenditures ere recognized when the related fund liability is mcom~, IS used for all other funds Budgatasy Procedures As prescribed by City Charter the City Manager, at least 60 days prior to the begummg of each fiscal year~ submits to ~e City Council a proposed budget for the fiscal year bcgmmng tho fatlowmg October I The budget includes proposeo expcnthtore~ and r~venues required to fund the expenditures Following Council considerations, emendmim~ a~..d rc, fineme.nis, a. public henr~ng IS ordered end conducted for the putpuse of obtmnmg taxpayer conunents The budget IS rmany epprovco anu adopted by,passage of tm ordinance by the City Council prior to the begiimmg of the fiscal year Thc budget is adopted on a bnsis consistent vtith ganerally aCanl~d accounting principles The City ln~/ests its mvnstsble funds in mvestmants authorized by Texas law m accordance with mves~nent policies approved by the City Coimctl of the City Both state law end the City's mvnstment pohctns are anbject to change 43 LEGAL INVlgSTMENTS Under Texas law, the City Is authorized to revest m (1) obhgatiuns of the United St~es or its agencies end instrumentalities, (2) d~rect obhgatmns of thc State of Texas or its agencies end mstramentahties, (3) collaterallzed mortgage obligations directly issued by a federal agency or mstsumentahty of the United States, the underlying seeunty for which is guaranteed by en agency or instrumentality of the Umtod States, (4) other obhgaUons, the principal of end interest on which arc unconditionally guaranteed or insured by, or backed by tho full faith end credit of, the State of Texas or thc United States or their raspcctive agencies end instrumentalities, (5) obligations of states, agencies, counties, cities, end other pohtical subthvis~ons of any state rated as to investment quallW by a nal~unally recognized investment mtmg firm not less than A or its cquivalant, (6) certificates of deposit that arc guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obhgations described m the preceding clauses or tn any other manner and amount provided by law for City deposits, (7) cemficates of dapusit and shaze certificates issued by a state or federal credit umon domiciled tn the State of Texas that a~ guaranteed or insured by tho Federal Deposit Insurance Corporation or the National Credit Umun Share Insurance Fund, or are secured as to principal by obhg~ons described m the clauses (l) through (5) or m any other manner and amount provided by law for City deposits, (8) fully collaterahzed repurchase agreements that have a defined termmaUon date, arc fully secured by obhgations described m clenso (1), and arc placed through a primary government securities dealer or a f'menclal m~totion dome business In the State of Texas, (9) bankers' acceptances w~th the remamarg 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 crctht reang agency, (10) conunercad paper that ts rated at least ^-1 or P- 1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one antionally recognized credit rating agency ffthe paper is fully secured by en irrevocable letter of credit issued by a U S or state bank, (11) no-load money market mutual funds regulated by the Securities and Exchange Commission that have a dollar weighted average portfoho matunW of 90 days or less end 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 en average weighted maturity of loss than two years, invests exclusively m obbgat~ons described m the preceding clauses, and are continuously rated as to mvestment quality by at least one nationally recognized investment mtmg firm of not less than AAA or its equivalent, (13) bends issued, assumed, or guaranteed by the State of Israel, end (14) guarentaed investment contracts secured by obhgations of the Unttad States of America or its agencies and instrumentalities other than the prohibited obligations described m the next succeeding paragraph The City may invest m such obligations directly or through government investment pools that invest solely m such obhgat~ous provided that thc pools are rated no lower than AAA or AAAm or en eXlutvalent by at least one naUunally ~cogmzed rating service The City is specifically prohibited from rovestmg m (I) obligations whoze payment represents the coupon payments on the outstanding pnncipal balance of thc underlying mortgage-hacked security collateral and pays no principal, (2) obhgat~ons whusc payment represents the principal stream of cash flow from the underlying mortgage-becked security end I~ars no mtorast, (3) collateral~zed mortgage obbgatmns that have a stated final matimty of greater than 10 years, and (4) collaterahzed mortgage obhgations the interest rote of whlch is determined by an index that adjusts opposite to the chengas m a market rodex INVE~qTMENT POLICIES Under Texas law, the City is requned to mvast its funds under written mvastment policies that prunanly emphasize safety of principal and liquidity, that address investment diversification, yield, maturity, and the quality and capability of investment management, and that lncindes a list of enthonzed investments for City funds, maximum allowable stated maturity of any individual investment and the maxunum average dollar-weighted roaturtty allowed for pooled fund groups All City funds must be invested In a manner consistent with a formally adopted "Investment Sm~togy Stat~nent" that speetfically addresses each funds' investment Each Investment Strategy Statement will desenbe its objectwes conc,~rorog (1) suitability of investment type, (2) preservaUon and safety of principal, (3) hquidJty, (4) marketability of each investment, (5) d~varsrficatien of tho portfolio, and (6) yield The City hss adopted an Investment Strategy Statement that r~flerales the strategies objactives Under Texas law, City investments must be made "wtth judgment and care, under prevmhng circumstanees, that a person of prudence, discretion and mtelhgence would exereiac m the management of the person's own affairs, not for speculation, but for investment, constdermg the probable safety of capital end the probable income to be derived" At least quarterly the investment officers of tho City shall submit an mves~nont report detmlmg (1) the mvsstment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, eny adthtiuns and abenges to market value end tho enthng value of each pooled fund group, (4) the book value and market value of each zepamtaly listed asset at the begummg and end of the reporting period (5) the matonty 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 tho mvastment portfolio as it relates to (a) adopted investment strategy statements and (b) state law No person may invest City funds without express wrfltan authority from the City Council 44 A19DmONAL PROVISIONS Under Texas law the City is adthtrenally required to (I) annually review its adopted poh¢les and stratego% (2~ require any investment officers' with personal business relationships or relatives with firms seeking to sell securltlce to the clltlty to disclose the relationship and file u statement with the Texas Ethics Commission and thc City Council, (3) require thc registered prhlelpal of finns sankmg to sell seenntias to the City to (a) receive and review the City's mvestmant pohcy, (b) acknowledgelthat reasennble conlrols and procedures have been ~nplemanted to preclude rmprudt~t mvastment acUvmes, and (c) deliver a walton statement nl~tmg to these reqmremante, (4) perform an annual audit of the manage~annt crm~rols on mvestmants and adheren~ to the City's mveslroant poh~y (5) provide specific investment ~rmnmg for the Treasurer, Chief Financial Officer and mveztmant officers, (6) reamer reverse repurchase ag~ements to not more than 90 days and reztrict the mvesUnant of reverse repurchase agrse~ant funds to no greater than the term of the reverse repurchase agreement, (7) re. zm~ the mvesm~ant in mutual funds m the aggregate to no more than 80% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service and fu~her restrict the mvestmant in non-money market mutual funds of any pomon of bond proceeds, ras~vas and funds held for debt service and to no more than 15% of the ent~ty's monthly average fund balance, excluding bond proceeds and raserves and other ftmds held for debt service, (8) requwe local government mvestmant pools to cenfunn to the new d~sclosure, tatmg~ net asset value, yield celcul~on, and advtsery board requuemenl~ TAnLE 11 - CURR~NT INVESTMENTS AS of March 31, 2001, the following percentege~ of the City's mvestable funds were mvest~ In the following cntegone~ of lnves~nants [ Book Market , Dascaptmn Percent Value Value ' Federated/Money Market I 72% $ 3,500,000 $ 3,500,000 U S Federal Aganey Coupon 58 72% 119,354,889 120,807,436 U S Federal Agency Discount 15 87% 32,259,662 32,213,048 U S Federal Aganey Callables 22 68% 46,091,374 46,359,770 U S Treasury Securities Coupon 1 01% 2,048,227 2,055,721 100 00% $ 203,254,152 $ 204,935,975 AS of such date, the market value of suoh mveslmanls (as determined by tho City by reference to published quotnt~ons, dealer bids, and comparable information) was over 100% of their book value No funds of the City are invested in dertv~ve ~ceunt~ez, i e, securities whose rote of rcOnn is dstermmed by reference to some other mstrumant, index, or commodity SELECTED PROVISIONS OF THE BOND ORDINANCE On the date of the sale of the Bonds, the City Council will adopt the Ordinance anthorizlng the Bonds, which will be in substantially tho same form as the ordinances authorizing the outstendmg Parity Bonds Selected provisions of the Ordinance arc set forth below The complete Ordinance Is avedable from the City, tho City's Financial Advisor and, dunng the offering period for the Bonds, from the Underwriters, upon request Reference Is mede to "THE BONDS - Proposed Amendments to tho Ordmanen" for a description of certain amendments that the City has proposed which would effect modifications to Section 27(g), Section 27(m) and Section 270) of the Ordinance and comparable provlslans in the ordinances pursuant to which the City has issued the outstanding Panty Bonds Section 8 DEFINITIONS As used in this Ordinance the following t~ms shall have the meenmgs set forth below, unless the text hereof specifically indicates otherwise (a) The terms "City" and "Issuer" shall mean the City of Dentoth in Denton County, Texas (b) The term "City Council" or "Council" shall mean the governing body of the City (c) The term "Bonds" shall mean collectively the ImUal Bond as defined and described in Sactaun 2 of this Ordinance and all substitute bonds exchanged therefor, and all other substitute bonds and replacement bonds, issued pursuant to and es provided in this Ordinance (d) The term "Panty Bonds" shall mean collectively (1) the outstanding City of Denton Utility System Revenue Bonds, Series 1992 authorized by ordinance passed on March 3, 1992 (tho "Series 1992 Bonds"), (l0 the outstanding City of Denton Utility System Revenue Bonds, Sanes 1993, authorized by ordinance passed on March 16, 1993 (the "Series 1993 Bonds"), (in) the outstanding City of Denton Utility System Revenue Refunding Bonds, Series 1993-A, authurm.~d by ordinance passed on June S, 1993 (the "Series 1993-A Bond"), (iv) the outstanding City of Denton Utility System Revenue Refunding Bonds, Taxable Series 1993-B, authurlzed by ordinance passed on June 8, 1993 (the "Series 1993-B Bonds"), (v) the outstanding City of Denton Utility System Revenue Bonds, Series 1996, authorized by ordinance passed on May 7, 1996 (the "Series 1996 Bonds"), (vi) the City of Dentun Utlhty System Revenue Rethndmg Bonds, Series 1996A, anthorlzed by ordlnanen passed on May 7, 1996 (the "Series 1996A Bonds"), (vii) the City of Denton Utility System Revenue Bonds, Series 1998, anthonzed by ordlannce passed on March 24, 1998 (the "Sanes 1998 Bonds"), (VUl) the City of Danton Utlhty System Revenue Refunding Bonds, Series 1998A, authorized by ordinance passed on July 21, 1998 (the "Series 1998A Bonds"), (Ix) the outstanthng City of Denton Utdlty System Revenue Refunding bonds, Series 1998B authorized by an ordinance passed on August 4, 1998 (the "Series 1998B Bonds"), (x) the outstanding City of Denton Utility System Revenue Bonds, Series 2000A, authorized by an ordinance passed on April 2:5, 2000 (the "Series 2000A Bonds"), (ix) thc outstanding City of Denton Utility System Revenue Bonds, Taxable Series 2000B, authorized by an ordinance passed on April 2:5, 2000 (the "Series 2000B Bonds"), and (xn) thn Bonds (e) The term "Additional Bonds" shall mean the additional parity revenue bonds which the City reserves the right to ~sane in the future, In accordance with Section 25 of this Ordinance (f) The term "System" shall mcan (1) the City's entire existing waterworks and sewer system and the City's entire existing electric hght and power system, together with all future extansions, improvements, enlargements, and additions thereto, and all replacements thereof, and (2) any other related facilities, all or any part of tho revenues or raceme from which do, In the future, ut the option of the City, and in accordance with law, become "Pledged Revenues" as hereinafter defined, provided that, notwithstanding the foregoing, and to the extent now or hereafter authorized or permitted by law, the term System shall not mean any water, sewer, electric, or other facilities of any kind which are declared not to be a part of the System, and which are acquired or constructed by the City with the proceeds from the issuance of "Special Fecthties Bonds", which are hereby defined as being special revenue obligations of the City which are not payable from or secured by any Pledged Revenues, but which are secured by and payable from liens on and pledges of any other revenues, sources, or payments, including, but not limited to, special contract revenues or payments received from any other legal entity in connection with such facilities, and such revenues, sources, or payments shall not be considered as or constitute Gross Revenues of the System, unless and to the extent otherwise provided in the ordinance or ordinances authorizing the issuance of such "Special Facilities Bonds" (g) The terms "Gross Revenues of the System" and "Gross Revenues" shall mean all revenues and income of every nature derived or received by the City from the operation and ownership of the System, Including the interest income from the investment or deposit of money in any Fund created by this Ordinance (h) The terms "Net Revenues of the System", and "Net Revenues" shell mean all Gross Revenues after deducting therefrom an amount equal to the current expenses of operation and maintenance of the System, including all salaries, labor, materials, repmrs, and extensions necessary to render efficient service, provided, however, that only such repmrs and extensions, as in the./udgment of tho City Council reasonably and fairly exerelsed by the edeptlon of approprmte resolutions, are necessary to ke,~p the System ~n operation and render adequate service to smd City and the inhabitants thereof, or such as might be necessary to meet some physical accident or condition which would otherwise enpair the Bonds or Additional Bonds, shall be deducted In determining "Net Revenues" Payments required to be mede by the City for water supply or water facthties, sewer 46 services or s~wor facilities, fuel supply, and for the purchase of electric power, which payments under law constitute opemtiun end miontengnen expenses of any part of the Syste~ shall ennstitute and be regarded as expenses of operation and maintenance of the System under this Onhnence Deprocletton and amo~.tzation shall not constitute or bo regarded as expenses of opcratlun end mamten~en of the System (i) [The term "Pledged Revenues" shall mean (1) the Net Revenues, plus (2) any additional revenues, income, or other resources which are expected to be avmlabl¢ to thc City on a regular periodic basis, including, without limitation, any grants, donations, or income received or to be received from tho United States Government. or any other public or private source, whether pursuant to en agreement or otherwise which in tho future may, at the option of the City. bo pledged to the payment oftbe Parity Bonds or Additional Bonds (J) The term "year~ or "fiscal year" shall mean the fiscal year used by thc City in connection with thc opcrotico oftbe System (k) The term 'tGovainmunt Obligations" shall mean direct obhgut~uns of the United States of America, including obligations the pnnolpal of end mterest on which aiz uncondntunaliy guaranteed by thc United States of America. winch may be United States Treasury obligations such as its State and Local Government Series, end winch may be in book-entry form Section 9 PLEDGE (a) The Bonds are "Additional Bonds" as permitted by Sections 24 and 25 of the ordinance passed on March 10, 1983, enthonztog the City of Denton Refunding Bonds, Series 1953 (tho "Series 1983 Bonds"), end it is hereby determined, declared, and reanlvad that all of tho Panty Bonds (including the Bonds) are secured and payable equally and ratably on a[panty, and that Sections 8 through 28 of th~s Ordinance arc supplemental to end cumulative of Sections 7 through 27 of thc aforesaid ordinance passed on March 10, 1983, with Sections 8 through 28 of this Ordmence being applicable to all of the Panty Bonds (bi The Panty Bonds end any Additional Bonds, mid thc interest thereon, Including any interest coupons appertaining thereto, are lend shall be secured by and payable from a first lien on end pledge of the Pledged Revenues, end the Pledged Revenues are further pledged to tho astabhsharent and maintenance of the Funds created by this Ordinance, and any Funds crented by any ordmenco anthorizmg the lssuenen of any Adthtional Bends Thc Parity Bonds end any Adthtioenl Bcods arc not and will net~ bo secured by or payable from a mortgage or deed of trust on any real, persoenl, or mLxed properties constituting thc System SCetlon 10 SYSTEM FUND Thoro hcreWfore has been and is hereby created end thc~ shall be astabhshed and maintained on tho books of the C~ty, end accounted for separate end apart from all other funds of thc City, a special fund to be entitled the "City of Denton Utility System Fund" (the "System Fund") All Gross Rcveenas shall be crethted to the System Fund unmedletnly upun receipt, unless otherwise provided m this Ordioencc AIl current expenses of operot~on end maintenance of the Syst~to shall be paid fi.om such Gross Revenues credited to the System Fund as a first charge against same Before making an~ deposits hereinafter required to be made fi.om the System Fund, tho C~ty shall retain in the System Fund et all times an amount at least equal to one-sixth of tho amount budgeted for the then current fiscal year for the curt'ant operation end maintenance expenses of the System S~etren 11 INTEREST AND SINKING FUND For the sole purpose of payiog the pnnclpal of and mterest on all Parity Bonds and Additional Bonds, there heretofore has been end is hereby created end there shall be astabhshcd and maintained]on the books of tho City, end eccoanted for separate end apart from all other funds of thc City, a separate fund to be entitled the "City of Denton Utility System Revenue Bonds Intel'est end Sinking Fund~' (tho "Interest and S~nkmg Fund") Section 12 RESERVE FUND There horetofure has been, and is hereby, created, end there shall be established and maintmncd[at any national or state bank having a capital and surplus in excess of $25,000,000, a separate fund to be entitled the ,,City of D~nton Uttlity System Bends end Addlflnaal Bunds Reserve Fund' (the "Raserve Fund") Tho Reserve Fund shall be used to pay the principal of end interest on any Parity Bonds or Additional Bonds when end to the extent the amounts in thc Interest end Sinking Fund available for such payment are msefficiont for such purpose, end may be used for the purpose of finally retiring the last of any Panty Bonds or Additmnal Bonds f~cctlon 13 EXTENSION AND IMPROVEMENT FUND There heretofore has been anti is hereby created and there shall be established end maintained on the books of tho City, and accounted for separate and apart from all other funds of the City, a separate fund to be entitled the ~'C~ty of Denton Utility System Extension and Improvement Fund*' (the "Extension and Improvcm~t Fund") The Extension end hnprovement Fund shall be used for the purpose of paymg tho costs of Improvements, enlargemeOts, extensions, additions, replacements, or other capital expenditures related to the System, or for paying the costs of unexpected or extraordinary repairs or replacements of the System for which System funds are not available, or for paying 47 unexpected or extraordinary expenses of operation end maintenance of the System for which System funds are not otherwise available, or for any other lawful purpose Section 14 EMERGENCY FUND There is hereby created and there shall be established and maintained on the books oftbe City, end accounted for separate end apart from all other funds oftbe City, a separate: fund to be entitled the "City of Denton Utility System Emergency Fund" (the "Emergency Fund") The Emergency Fund shall be used for the purpose of paying unexpected or extraordinary expenses of repair, replacement, opemtlen, and mmntonance of the Systec for which neither System funds nor the moneys In the Extension end Improvement Fund a~ available There was deposited In the Emergency Fund simultaneously with the delivery of the Series 1983 Bonds to the Initial purchasers thereof frem lawfully available funds of the City the amount of $250,000 All investment interest Income from the Emergency Fund shall be transfen'ed to the System Fund as received Section 15 DEPOSITS OF PLEDGED REVENUES Pledged R~veouas shall be credited to or deposited In the Int0rest and Sinking Fund, tho Reserve Fund, the Extension end Improvement Fund, and other funds when and as required by this Ordinance end any orthnence authorizing the issuance of Adthtional Bonds Section 16 INVESTMENTS Money in any Fund established pursuant to this Ordinance or any ordmence authorizing the issuance of Additienal Bonds, may, at the option of the City, bo placed In time deposits or cemficetos of deposit secured by obligations of the type hereinafter described, or be invested in Government Obligations (as defined in Section 8 hereof') or obligations guaranteed or insured by the United States of America, which, in the opimon of the Attorney General of the United States, are backed by its full froth end credit or represent Its general obligations, or invested In obligations of msttumentahtlas of the United States of America, including, but not limited to, evidences of indebtedness issued, insured, or guaranteed by such governmental agencies as the Federal Lend Banks, Federal Intermediate Credit Banks, Banks for Cooperatives, Federal Home Loan Banks, Govemmant National Mortgage Association, United States Postal Servwa, Farmers Home Administration Federal Home Loan Mortgage Assoclatmn, Small Busmass Administration, Federal Housing Association, or Participation Certificates lO the Federal Assets Financing Trust, provided that all such deposits end investments shall be made in such manner as will, In the opinion of the City, permit the money required to be expended from any Fund ~ be available at the proper time or times as expected to be needed Such mvastmants (except United States Treasury Obhgatlons--State end Local Government Series investments held In book entry form, which shall at all times be valued at cost) shall be valued in terms of ecrrent market value as of the last day of cash fiscal year Unlass otherwise set forth harem, all interest end mcomo derived from such deposits end investments Immediately shall be credited to, and any losses debited to, the Fund from which the deposit ~rmvestmentwasmade~andsurplusesmenyFundshall~rmaybedIsp~sed~fashereInafterpr~vIded Such investments shall be s01d promptly when necessary to prevent any default m connection with the Parity Bonds or Additional Bonds consistent with the ordinances, respectively, authorizing their issuance Section 17 FUNDS SECURED That money in all Funds created by this Ordinance, to the extent not invested, shall be secured in the manner prescribed by law Section 18 PRIORITY OF DEPOSITS AND PAYMENTS FROM SYSTEM FUND That the City shall make the deposits end payments from Pledged Revenues In the System Fund when and as required by this Ordmence and any ordinance authorizing any Additional Bonds, end such deposits shall be made in the following manner and with the following irrevocable prluntles, respectively First to the Interest end Stoking Fund, when end in the amounts required by this Ordmence and any orthnence authorizing eny Additional Bonds, Second, to the Reserve Fund, when and in the amounts required by this Ordinance and any ordinance authorizing any Additional Bonds, end Third to the Extension end Improvement Fund, when end as required by Section 21 of this Ordinence Section 19 INTEREST AND SINKING FUND REQUIREMENTS The City shall cause to be deposited to thc credit of the Interest end Sinking Fund the accrued interest end eny premmm received from the sale of the Initial Bond, end on or before the 25th day of each month, the City shall cause to be deposited to the credit of the Interest and Sinking Fund, m approximately equal monthly payments, amounts sufficient, together with eny other funds on hand therein to pay all of the interest or principal and interest coming due, including the principal amount of eny Parity Bonds required to be redeemed prior to maturity pursuent to any mandatory redempt~un requirements, on the Parity Bonds end eny Additional Bonds on the next succeeding interest payment date Any moneys so deposited m the lntorest and Sinking Fund with respect to a mandatory redemption reqmrement, together with other lawfully available funds of the City, may be used by the City, to purchase, In advance of a mandatory redemption date and at a price not exceeding the pnnetpal amount thereof plus accrued interest thereon to the date of purchase, Parity Bonds which would be subject to being chos0n for mandatory redemption on such mandatory redemption date The Paying Agent shall cencal any Parity Bonds so purchased 48 Section 20 RESERVE FUND REQUIREMENTS There Is now on hand In the Reserve Fund an amount of money and Oevarm~ont Obligations which is in excess of $3,000,000 and which is at least equal to thc nvarage annual principal and mterast requirements of the outstanding Series 1992 Bonds, the Sones 1993 Bonds, the Sones 1993-A Bonds, the Taxable Sones 1993-B Boules, tho Series 1996 Bonds, the Series 1996A Bonds, the Series 1998 Bonds, the Series 1998A Bonds, the Sanes 2000A Bund~ and the Series 2000B Bonds (the current **Required Reserve Amount**) Following the issuance and delivery of the Imtial Bonds tho Required Reserve Amount shall become and be an amount of money and mvastments equal to the average annual principal and interest requimmants of all the;untstsndmg panty Bonds and Additional Bonds, provided further, however, that the Required Reserve Amount shall never be less than $3,000,000 if the maximum annual pnncipal and interest requirements on nil outstanding Parity Bonds and Addthonal Bonds excceds $3,000,000 Immediately alit the ISSUanen and deliver/of ti e Initial Bonds thoro shall bo deposited to the credit of the Resarve Fund, from the procesds of the sale of the Initial Serius 2001 ] lend, uiuney sufficient to cause the Reserve Fund to contain an nggmgnte amount of mouey and investments equal to thc Requil ed Reserve Amount for nil then outstanding Panty Bonds After the detivecy of any future Additional Bonds thc City shall ca mo tho Reserve Fund to be merensed, if and to the extent necessary, so that such Fund will contain an amount of money and I: tvealments equal to the Required Resolve Amount Any increase in the Required Reserve Amount may be funded from Plodse~ t Revenues, or from proceeds from,the sale of any Additional Bonds, or any other available source or combination of sources All or any part of the Required Reserve Amount not funded initially and lmmediatcly allcr the dchvery of any installment qr issue of Addlfiunal Bonds shall be funded, within not more than five years from thc date of such dchvcry, by deposits of l~lodged Rovanues ui epproxunately equal munthly installments on or bofure thc 2$th day of cach month Principal amounts of Itho Parity Bonds and any Additional Bonds which must be redeemed pursuant to any applicable mandatory redempttun ~qutrements shall be deemed to bo nmtorins amounts of pnnmpal for the purpose of calculating principal and interest requ remunts on such bonds When and so long es thc amount m tho Reserve Fund is not less then the RequLr~d Reserve Amount no * epoalts shall be mede to the credit of the Reserve Fund, but when and if ibc Reserve Fund at any Ume contmns less than the Roe aired Reserve Amount, then the City shall transfer from Pledged Revenues In the System Fund, and deposit to the credit of thc Reserve Fund, monthly on or before the 25th dny of each month, n sum equal to 1/60th of the Required Reserve Amannt, an111 tho Resarvu Fund is reatored to the Required Reserve Amount The City spexlflcally covenants that when and so long as thc ~,esorve Fund contains the R~qulrcd Reserve Amount, thc City shall cause all amounts in excess of the Required Rascrve Am lunt to be deposited to the credit of the Interest and Sinking Fund Section 21 EXTENSION AND IMPROVEMENT FUND REQUIREMENTS During each year, subject and subordinate to making the required deposits to the credit of the Interest and Sinking Fund and the Reserve Fund, thc City shall be required to deposit to tho credit of the Extension end Improvement Fund, from Pledged Revcoues in the System Fund, an amount equal to 8% of tho '*A41ueted Gross Revenues of the System", which term is hereby defined to mean the following the Gross Revenues of the Syatcm for such year al~er deducting from such Gross Revenues an amount equal tel tho current expenses of operation and maintenance of the System for such year which are d~rectly attributable to (i) all fuel costs related to the production of electric energy by the City and/or (ii) the purchase o~ electric energy by tho City Additional ~xcess Pledged Revenues may, at the option of the City Council, be deposited to thc credit of the Improvement Fund as permitted by Section 22 (b) hereof, but no such additional deposit is required All investment interest income from thc Extension md Improvement Fund shall bo ratauied m and remora n part of such Fund S~ctlon 22 DEFICIENCIES, EXCESS PLEDGED REVENUES (it) If un any occasion there shall not be sufficient Pledged ReVenues to make the required deposits into the Interest and Sinking Fund or the Reserve Fund, such deficiency shall be mede up as ~seon as possible from the next available Pledged Revenues (~) Subject to making the required deposits to the credit of the various Funds when and as required by this Ordinance or any ordinanen anthorlzuig the issuance of Additional Boeds~ any surplus Pledged Revenues mny bo used by the City for any lawful purpose Section 23 PAYMENT OF PARITY BONDS AND ADDITIONAL BONDS On or before December 1, 2001, and scmisonanl~y on or before each June I and December 1 thereafter while any of thc Parity Bonds or Additional Bonds arc outslandmgend unpaid the City shall make evmlabla to the Paying Agents therefor, out of the Interest and Sinking Fund, or if necessary, 9ut of the Reserve Fund, money sufficient to pay, on each of such dates, the principal of and interest on the Parity Bonds andlAddltiunal Bonds as the same maluresland comes duo, or to redeem tho Parity Bonds or Additional Bonds prior to uiatarlty, e{thor upon mandatory redemption or at the option of the City At the direction of the City the Paying Agents shall either dshYur paid Parity Bunds and Addltlanal~Bunds, and any interest coupons eppertommg thereto, to the City or destroy all paid Pant~ Bonds and Additional Bonds, and any coupons appertmmng thereto, and furnish the City with an appropriate certificate of cancellation or destruction Section 24 FINAL DEPOSITS (a) Any Parity Bond or Additional Bond shall be deemed to be paid, retired, and no longer outstanding within the meaning of this Ordinance when payment of the prmmpal of, redemption premium, if any, on such Parity Bunit or Additional Bond, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, 49 upon redemption, or otherwise) e~ther (l) shall have been made or caused to be made m accordance with the terms thereof (including the giving of any required notice of redemption or provision for the proper giving of such notice having been made), or (Il) shall have been provided by irrevocably depositing with or making available to a Paying Agent therefor, In trust and irrevocably set aside exclusively for such payment, (1) money sufficient to make such payment or (2) Government Obligations which mature as to principal and interest in such amounts and at such t~mes as will insure the avmlablhty, without remvestment, of sufficient money to make such payment, and all necessary and propar fees, compensation, and expenses of such Paying Agent pertaining to the Parity Bonds and Additional Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfact~on of such paying agent At such time as a Bond or Addmonal Bond shall be deemed to be paid hereunder, as aforesmd, It shall no longer be secured by or entitled to the benefits of this Ordinance or a lien on and pledge of the Pledged Revenues, and shall be entitled to payment solely from such money or Goveromant Obligations (b) Any moneys so deposited with a paying agent may ut the direction of the City also be Invested In Government Obligations, maturing in the amounts and timas as hercurbcfure set forth, and all income from all Government ObhgatlnnS in the hands of the paying agent pursuant to this Section which Is not required for the payment of the Parity Bonds and Additional Bonds, the redemption premmm if any, and interest thereon, with respect to which such money has becn so deposited, shall be turned over to thc City or deposited as directed by the City Section 2~ ADDITIONAL BONDS (a) The City shall have thc right end power at any time and from time to t~me, and in one or more series or issues, to anthorlze, issue, and deliver additional parity revenue bonds (heroin called "Additional Bonds"), in accordance with law, in any amounts, for uny lawful purpose, Including the refunding of any Parity Bonds or Additional Bonds, or other obligations Such Adthtmnal Bonds, If and when authorized, issued, and delivered In accordance with this Orthnunce, shall be payable from and secured by an irrevocable first lien on end pledge of tho Pledged Revenues, equally and ratably on a parity in all respects with the Parity Bonds and any other outstanding Additional Bonds (b) The principal of all Additional Bonds must be scheduled to be paid or mature on December 1 of the years in which such principal is scheduled to be paid or mature Section 26 FURTHER REQUIREMENTS FOR ADDITIONAL BONDS Additional Bonds shall be Issued only In accordance with this Ordinance and no Installment, Series, or issue of Adthtional Bonds shall be issued or delivered unlass (u) Thc Mayor of thc City and thc City Secretary sign a wnttun certificate to the effect that the City IS not in default as to any covenant, condition or obbgation m connection with all then outstanding Parity Bonds end Additional Bonds, and the ordinances anthor~zlng same, and that the Interest and Sinking Fund and the Reserve Fund each contains the amount then required to be therein (b) An independent certified pubhc accountant, or independent firm of eemfied public accountants, acting by and through a certified public accountant, signs a written certificate to the effect that, In his or its opmlnn, during either the next preceding fiscal year, or any twelve consecutive calandar month period out of the 18-mnnth period immedmtely preceding the month m which tho ordinance authorizing the issuance of the then proposed Additional Bonds is passed, the Pledged Revenues were at least (0 1 95 times an amount equal to the average annual principal and interest requirements, and (Il) I 10 times au amount equal to the principal and interest requirements during the fiscal year durmg which such requirements are scheduled to be the greatest, of all Parity Bonds and Additional Bonds which are scheduled to be oatstendmg after the delivery of the then proposed Additional Bonds It is specifically provided, however, that In calculating the amount of Pledged Revenues for the purposes of this subsection (b), ~f there has been any increase in the rates or charges for sarvleas of the System which is then in effect, but which was not in effect durmg all or any part of the entire period for which the Pledged Revenues are being calculated (hereinafter referred to as the "entire period") then the certified public accountant, or tn lieu of the certified pubb¢ accountant a firm of consulting engineers, shall determine and certify the amount of Pledged Revenues as bamg the total of (0 the actual Pledged Revenues for the entire period, plus (ii) a sum equal to the aggregate amount by which the actual billings to customers of the System during the entire period would have been Increased If such Increased rates or charges had been in effect during the entire ported (c) Provision shall be made In the ordinance unthorizang their issuance for increasing the Reserve Fund to the Required Reserve Amount as required by Seetsnn 20 hereof (d) All calculations of average annual pr~ncipal and Interest requlremcots of any bonds made m connection with the Issuance of uny then proposed Additional Bonds shall be made as of the date of such Additional Bonds, and also in making calculations for such purpose, and for any other purpose under this Orthnunce, prmelpal amounts of any bonds which must be redeemed prior to maturity pursuant to any applicable inundatory redemption requirements shall be deemed to be maturing amounts of prmcrpal of sach bonds Section 27 GENERAL COVENANTS The City further covenants and agrees that In accordance with and to the extent required or permitted by law 50 (a)l Perform~ce It will f~uthfully ,perform at all times any and all covenants, undertakmgs, stipulations, and provisions cdntalnad in this Ordinance, and cech ordinance authorizing the issuance of Additional Bonds, and in each and every Parity Bond ~_d Additional Bond, that it will promptly pay or cause to be paid the principal of and interest on evel~ Parity Bond and Addltio~al Bond, on the dales and in the places and manner prescribed in such ordinances and Parity Bunds or Adthtiunal Bonds, and t~at tt will, at the times and in the manner prescobed, deposit or cause to be deposited the amounts required to be deposttcd into the Interezt and Smkin$ Fund and tho Reserve Fund, and any holder of the Panty Bonds or Additional Bonds may reqmre the qity, its offialals, and employees, to garry out, respect, or enforce thc covenants and obligations of this Ordinance, or any ordman~ authoriztag the issuance of Additional Bonds, by all legal and eqmteblc means, including specifically, but without limitation, ~e use and fitil~ of mandamus proceedings, in any court of competent jurisdlctmn, against thc City, tis officials, and employees I (bi City's Legal Authority The City is a~daty created and existing home role city of thc State of Texas, and is duly anthunzed under the laws of thc State of Texsa to create and issue the Panty Bonds and Additional Bonds, that all action on its pm for the ~renfion and issuance of the said obligatious has been or wdl be duly and effectively taken, end that said obligations in the hands ~fthe holders and owners tharcof are and will be valid end enforceable special obligations of the City in accordance with their terms (c) Title The City has or will obtmn lawful title to thc lands, bailthn~s, structures, and facilities enustitotiag the System, that tt warrants that it will defend the title to all the aforesmd lands, buildings, structures, and facilities, and every part thereof, for ~e benefit of the holders and owners of the Parity Bonds and Additional Bonds, agmust the claims and demands of all persons whomsoever, that it is lawfully qualified to pledge the Plcdgnd Revenues to the payment of the Parity Bonds and Additional Bonds in the manner prescribed herein, and has lawfully exercised such rights (d) Liens The City will from tune to time end before the same become delinquent pay and discharge all taxes. essessmcots~ and governmental charges, If any, which shall be lawfully imposed upon it, or the System, that it will pay all lawful clauns for rents, royalties, labor, materials, and supphas which tf unpaid might by law become a lien or charge thereon, the lien of which would be prior to or interfere with the liens hereof, sa that the prmrlty of the liens granted hereunder shall be fully preserved tn the manner provided herein, and that it will not create or suffer to be erented any mechanic's, laborer's, materialman's, or other, hun or charge which might or could be prmr to the liens hereof, or do or suffer any matter or thing whereby th~ hcos hereof might or could bc impaired, provided, however, that no such tax, assessment, or charge, end that no such cinuns winch might be used as the basis of a mechanic*s, laborer's, materialman's, or other lien or charge, shall be required to be paid so long as the validity of the same shall be contested m good faith by the City (a~ Operation of System, I~1o Free Service While the Panty Bonds or any Additional Bonds are outstanding and unpmd the City shall continuously and efficiently opamta the Syst~n, end shall maintain the System in good condition, repair, and workarg order, alt at reasonable cost No free service of the System shall be allowed, and should the City or any of its agencies, m~tsumcotalifies, lessors, or conceesionalras make use of the services and facdlties of thc System, payment monthly of the stondar~ retail price of the services provided shall be mede by the City or any of its agenmes, mstromcotaltties, lessors, or concessionmres out of funds t¥om sources othes than the revenues of the System, unless made from surplus Pledged Revenues as pcrmltred b~ Section 22(b) hereof (0 Further Encumbrance While the Parity Bonds or any Additional Bonds are outstanding and unpaid, the City shall not additionally encumber the Pledged R. evenuas in any manner, except as permitted in this Ordinance m connection with Addmonal Oonds, unless said encumbrance is made .tumor and subordinate in ali respects to the liens, pledges, covenants, and agreement~of this Ordinance and any ordinance anthorizmg the issuance of Additional Bonds, hut the right of the City to issue revenue bobds payable from a suborthunto lien on surplus Pledged Revenues is specifically recognized and retained, as pem~ltted under Sectibn 22(b) hereof (i) Sale or Disposal of Property While the Parity Bonds or any Additional Bonds arc outstanding and unpaid, thc City shall not sell, convey, mortgage, encumber, lease, or in any manner transfer title to, or dedicate to other use, or otherwise dispose of, I the System, or any significant or substantial part thereof, provided that whenever the City deems it necessary to d spuse of ~y property, machinery, fixtures, or equipment, or dedicate such property to other usc, it may do so either when it be~ made ah'angnmants to repisce the same or provide sub.totes therefor, or it is deterunned by resolution of the City Council that no such replacement or sub.tote is ancassevj (~) Insurance (1) The City shall cause to be msarcd such parts of the System as would usually be insured by corporations operating like properties, with a responsible insurance company or companies, against risks, accidents, or casuntims against which and to the, extent insurance is usually carried by corporations operating like properties, including, to the extent rcasonably[obtaarable fire and dxtcoded coverage insurance, insurance against damage by floods, end use and occupancy insurance /Pubhc liability and property damage insurance also shall be carried unless the City Attorocy gives a writ~n opinion to the eff¢~ that the City is not liable for claims which would be protected by such insurance Ali insurance premiums shall he paid as un~xpcose of operation of the System At any time whdc any contractor engaged in construction work shall be fully respouslbl~ therefor, the City shall not he required to carry insurance on the work being constructed if the contractor is required to carry appmprtate insurance AIl such pohcies shall be open to the inspection of the Bondholders and thetr reprasantatives at all reasonable times Upon the happanlng of any loss ur damage covered by msurence from one ur mom of said eauses, the City shall make due proof of loss and shall do all things necessary or desirable to cause the insuring companies to make payment in full directly to the City The proceeds of insurance covenng such property, together with any other funds necessary and available for such purpose, shall be used forthwith by the City for repairing the property damaged or replacing the propesty destroyed, provided, however, that if said insurance pmc~ds and other funds are insufficient for such purpose, then smd insurance proceeds pertaining to the System shall be deposited in a special and separate trust fund, at an official depository of the City, to be das~gunted the Insurance Account The Insurance Account shall be held until such time as other funds become available which, together with the Insurance Account, will be sufficient to make the repairs or replacements or~gmally required (2) The annual audit hermnaf~r requrred may contain a section commenting on whether or not the City has complied with the requrremcnts of this Section with respect to the maintananc~ of insurance, and shall state whether or not all insurance premiums upon the insurance policies to which reference is mede have been prod 0) Annual Budget and Rate Covenant. The City shall prepare prior to the begmnmg of each fiscal year, an annual budget, in accordance with law, reflc, ctmg an estimate of cash receipts and disbursements for the ensuing fiscal year in sufficrent deta;l to indicate the probable Gross Revenues and Pledged Revenues for such fiscal year The City shall fix, establish, maintain, and collect, such rates, charges, and fees for the use and availability of the System at all tunes as ara necessary (1) to produce Gross Revenues sufficient, together w~th any other Pledged Revenues, to pay all current operation and mumtenanco expenses of tho System, and (2) to produce an amount of Pledged Revenues dunng each fiscal year at least equal to the greater of I 25 times the average annual pnncipal and interest requirements of all then outstanding Panty Bonds and Additional Bonds or 1 25 t~mes the succeeding fiscal year's prmclpal and interest requirements of ali then outstanding Parity Bund~ and Additional Bonds (j) Records The City shall keep proper books of record and account in which full, tree, proper, and correct entries will be made of all deahags, activities, and transactions relating to the System, the Pledged Revenues, and the Funds created pursuant to this Ordinance, and all books, documents, and vouchers relating thereto shall at all reasonable times be made available fur inspection upon request of any Bondholder or citizen of the City To tho extent eanststeat with the provisions of this Ordinance, the City shall keep its books and records in a manner conforming to stendard accounting practices as usually woald be followed by private corporations owmng and operating a similar System, with approprmt~ recegnltmn being given to essential differences between municipal and corporate accounting practices (k) Audits After the close of each fiscal year while any of the Parity Bonds or any Additional Bonds are outstanding, an audit wdl be made of the books and accounts relating to the System and the Pledged Revenues by an urdopendeat certified public accountant or an independent firm of certified public accountants As soon as practicable a~er the close of each such year, and when sa~d audit has been completed and made available to the City, a copy of such antht for thc preceding year shall be mailed to the Municipal Advisory Courted of Texas, to each paying agent for any bonds payable from Pledged Revenues, and to any Bondholders who shall so request in writing The normal audit reports shall be open to the mapectmn of the Bondholders and their agents and representatives at all reasonable times (1) Governmental Agenclas It wdl comply with all of the terms and conditions of any and all franchises, permits, and anthonzatmns applicable to or necessary with respect to the System, and which have been obt~uned from any governmental agency, and the City has or will obtain and keep in full force and effect all franchises, permits, anthonzation, and other requirements applicable to or necessary w~th respect to the acquisition, construction, eqmpment, operation, and maintenance of the System (m) No Competition It will not operate, or grant any franchise or, to the extent it legally may, permit the acquisition, construction, or operatren of, any facilities which would be in competition with the System, and to the extent that it legally may, the City will prohibit any such competing famhtias (n) No Arbitrage The City covenants to and with the purchasers of the Panty Bonds and any Additional Bonds that no use will be made of the proceeds of any of such bonds at any time throughout the term of any of such bonds which, if such use hod been reasonably expected on the date of delivery of any of such bonds to and payment therefor by the purchasers, would have caused any of such bonds to be arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), or any regulations or rohngs pertaining thereto, and by this covenant tho City is obligated to comply with the requirements of the afurasaid Code and all applicable and pertinent Department of the Treasury regulations relating to arbitrage bonds The City further coveaants that the proceeds of all such bunds wdl not otherwise be used d~rectly ur mdlrectly so as to cause all or any part of such bonds to be or become arbitrage bonds within the meaning of the aforesaid Code, or any regulations pertaining thereto Section 28 AMENDMENT OF ORDINANCE (a) The holders or owners of Parity Bonds and Additional Bonds aggregating in principal amount 51% of the aggregate principal amount of then outstanding Parity Bonds and Additional Bonds shall havo thc right from time to time to approve any amendment to this Ordinance which may be deemed necessary or desirable 52 by the City, ~rovided, howaver, that nothing bemin cont.,ned shall permit or be construed to permit the amendment of ibc terms and conditions In this ordinnnce or m the Panty Bonds or Additional Bonds so as m (1) i Make uny chunge in the maturity of the outstanding Panty Bonds or Additional Bonds, (2)' Reduce the rate of interest borne by any of the outstanding Panty Bonds or Additional Bonds, (3)~ Reduce the amount of the principal payable on the outstanding Parity Bonds or Adthtiounl Bonds, (4)' Modify the terms of payment of principal of or interest on thc outstanding Panty Bonds or Adthtsenal Bonds, ~ or impose uny conditions with respeet to such payment, (5) Affect the rights of thc holders or owners of lass than all of thc Parity Bonds and Addittunal Bonds then outstundmg, (6) Change the mJmmum percentage of the pnncipal amount of Parity Bonds and Adthtional Bonds necessar,/ for consent to such amendment, (b) If at any time the City shall deslrs to mend the Ordinance under this Section, the City shall cause notice of thc proposed amendment to be published In a financial pdhhcatien of general circulation m The City of New York, New York, once during eachicalendar week for at least two successive calendar weeks Such notice shall briefly set forth the nature of the proposed amendment und shall state that a copy thereof is on file at the principal office of thc Paying Agants for mspec~on by ail boldars or owners of Purity Bonds and Additienal Bends Sanh Pdhbcatlon Is ant rextulred, h°wevar, If n°tlco tn writing m glvco to each holder or owner of Panty Bonds and Additional Bonds (c) Whenever at any time not less than thirty days, and within unc year, from thc date of the first publication of smd notice or other service of written notice thc City shall receive an instrument or instruments executed by thc holders or owners of at least 51% In aggregate principal amount of alt Panty Bonds and Additional Bonds then outstanding, which mstrumcot or lastrlmleets ~hall refer to the proposed amendment dascnbed in said notice and which specifically consent to and approve such amendment tm substantially the form of thc copy thereof on file with the Paying Agents, the City Council may pass thc amendatory *ordmunce in substantially thc same form (d) Upon the passage of any amendatoty ordinance pursuant to thc provisions of this Section, this Ordarance shall be deemed to ba amended m accordance with such amundatory ordinance, and the respective rights, duties, and obligations under this Ordinance of the City, and all the holders or owners of then outstanding Parity Bonds and Addttienal Bonds and all future Parity Bonds und Additional Bonds shall thereafter be deternuned, exercised, and enforced hereunder, subject m all respects to such amendments (c) Any consent given by the holder or owner of a Panty Bond or Additional Bond pursuant to the provisions of this Section sha~l be Irrevocable for a panod of six months from the date of thc first publication of the notice provided for in this Section, an(i shall be conclusive and binding upon all future holders or owners of thc same Parity Bond or Additional Bond dunng sucH period Such consent may be revoked at any time afier six months from the date of the first publication of such notice by ~e holder or owner who gave such consent, or by a successor In title, by filing notice thereof with the paying agents and the City, but such revocation shall not be effective If the holders or owners of 51% m a~gregate principal amount of thc then outstanding Parity Bonds and Additional Bonds as in this Section defined have, prior to the attempted revocation, consented to, and approved the amendment (f} For the purpose of this Section, the fact of the holding of Parity Bonds or Additional Bonds which arc ar bearer, coupon fontt, by any bondholder and the amount und numbers of such bearer Parity Bonds or Additional Bonds and the date of their holdintg same, may be proved by the affidavit of the person claiming to be such holder or owner, or by a certificate executed by any trusJ company, bunk, banker, or any other depository wherever situated showing that at the date therein mentioned such person hadI on deposit with such trust company, bank, banker, or other dcposnory, the Panty Bonds and Additional Bonds described 1tl such certificate Thc City may conclusively assume that such ownership continues until written notice to thc contrary is served upon the City Tbe ownership of all registered Panty Bonds and Additlenal Bunds shall be determared from thc registration books kept by thc registrar therefor Section 29 DAM. AGED, MUTILATED, LOST, STOLEN, OR DESTROYED BONDS (a) Replacement Bonds In the event any outatunthng Bond Is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, e~eanted, and delivered, a new bond of the same pnnclpel amount, maturity, and interest rate, as thc damaged, mutilated, !cst, stolen, or destroyed Bond, in replacement for such Bond in the manner heremattcr provided (b) Application for Replacement Bonds Application for replacement of damaged, mutilated, lost, stolen, or destroyed Bonds shall be made by the registered owner thereof to thc PaYing Agent/Registrar In every case of loss, their, or destruction of a Bond, thc registered owner applying for a replacement bond shall furnish to the Issuer and to the Paying AganffReglstrer such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto Also, In every case of loss theft, or dsstmctlun of a Bond, the registered owner shall furnish to the Issuer and to the Paying Agan~RegIstrnrevIdsncet~fueIrsct~sfactIun~fthe~ss,theft~rdastrnctIun~fsuchB~nd~asthe~asemaybe In every case of damage or mutilation of a Bond, the registered owner shall surrender to the Paying AganffReglstrar for cancellation tho Bond so damaged or mutilated (c) No Default Occurred Notwithstanding the foregoing provisions of this Section, In thc event any suoh Bond shall have matured, and no default has occurred which is then continuing in thc payment of the principal of, redemption premium, If any, or interest on the Bond, the Issuer may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Bond) instead of Issuing a replacement Bond, provided security or indemnity is furnished as above provided In this Section (d) Cherse for Issuing Replacement Bonds Prior to tho Issuance of any replacement bond, the Paying AgenffReg~strar shall charge the registered owner of such Bond with all legal, printing, and other expenses In connection therewith Every replacement band Issand pursuant to the prnvlsluns of this Section by virtue of the font that any Bond is lost, stolen, or destroyed shall constitute a contractual obligation of the Issuer whether or not the lost, stolen, or destroyed Bond shall be found at any time or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Bonds duly issued under this Ordinance (e) Authority for Issuing Replacement Bonds In accordance with Section 6 of Chapter 1201, Texas Government Code, this Section of this Ordinance shall constitute authority for the Issuance of any such replacement bond without necessity of further action by the governing body of the Issuer or any other body or person, and the duty of the replacement of such bonds is hereby authorized and Imposed upon the Paying Agent/Registrar, and the Paying Agent/Reglstrer shall authenticate and deliver such Bonds in the form and manner and with tho effect, es provided m Section 6(d) of this Ordinance for Bonds Issued in conversion and exchange for other Bonds Section 30 COVENANTS REGARDING TAX-EXEMPTION OF INTEREST ON THE BONDS (n) Covenants The Issuer covenants to take any action necessary to assure, or relearn from any action which would adversely affect, the treatment of the Bonds as obligations described m section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation In furtherance thereof, the Issuer covenants as follows (1) to take any action to assure that no more than 10 pement of the proceeds of tho Bonds or the projects financed therewith (less amounts deposited to a reserve fund, If any) ara used for any "private business use," as defined In section 141 (b)(6) of the Code or, if more than ! 0 percent of tho proceeds or the projects financed therewith are so used, such amounts, whether or not received by the Issuer, with respect to such private busmass usc, do not, under tho terms of this Order or any underlying arrangement, directly or mthrectly, secure or provide for the payment of more than 10 percent of the debt service on the Bonds, In contravention of seotmn 141(b)(2) of the Code, (2) to take any action to assure that In the event that thc "private business use" described In subsection (I) hereof exceeds 5 percent of the proceeds of the Bonds or tho projects financed therewith (less amounts deposited Into a reserve fund ~f any) then tho amount In excess of 5 percent is used for a "private business uso" which is "related" and not "d~sprnport~onate," within the meaning of section 141(b)(3) of the Code, to tho governmental usa, (3) to take any actmn to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of tho Bonds (less amounts deposited Into a reserve fund, if any) is directly or md~rectly used to finance loans to persons, other than state or local governmental units, in contravention of section 141(o) of the Code (4) to refrain from taking any action which would otherwise result In tho Bonds being treated as "private activity bonds" within the moaning of sectmn 141(b) of tho Code, (5) to refrain from taking any action that would result In the Bonds being "federally guaranteed" within the meaning of section 149(b) of the Code, (6) to refrain from using any portion of the proceeds of the Bonds, directly or indirectly, to acquire or to replace funds which wore used directly or indirectly, to acquire investment property (as defined in section 148(b)(2) of tho Code) which produces a materially higher y~eld over the term of the Bonds, other than Investment property acquired with -- (A) proceeds of the Bonds Invested for a reasonable temporary period of 3 years or less or In thc case of a refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for wMch the bonds arc ~ssced, 54 (B) amounts invested in a bona fide debt service fund, within the meaning of section I 148-1 (b) of tho Treasury Re~ula~ons, and (C) amounts deposited in any reasonably required reserve or replacement fund to thc extent such amounts do not exceed 10 percent of tho proceeds of thc Bonds, (7) to otherwise restrict tho use of tho proceeds of thc Bonds or amounts treated as proceeds of the Bonds, as may be necessary, so that thc Bonds do nat otherwise canlravcn© thc requirements of section 148 of the Code (relating to arbitrage) atld, to the extent applicable, section 149(d) of tho Code (rethtmg to advance refundings), end (8) to pay to thc United States of America at least once during each five-yeer period (b~ghmlng on the date of liehvery of the Bonds) an amount that is at least equal to 90 percent of tho "Excess Earnings," within the meenmg of sc~tion 148(0 of the Code and to pay to thc United States of America, not later then 60 days al~r thc Bonds have been pa~d in full, 100 percent of thc amount then rcqmred to bc prod as a result of Excess Earnings under section 148(0 of the Code (bt Rebate Fund In order to facilitate oomphance with thc above covenant (a) (8), a 'Rebate Fund'* is hereby established 5y"'~'~ue~r the solo benefit of tho United States of America, and such fund shall not be subject to tho claim of any other perso? including without limitation tho bondholders The Rchate Fund is established for the additional purpasc of coinphence With section 148 of thc Code (c) Proceeds Tho Issuer understands that tho term "proceeds*' includes "thsposmon proceeds" as defined in the Treasury Regulations and, m tho case of refunding bonds, transferral proceeds (if any) end proceeds of thc refunded bonds expended pr!or to the date of Issuance of thc Bands it is the understendarg of the Issuer that the covenents contomcd harem arc mtonded to assure compliance with the Code and any ragulalmns or mhngs promulgated by the U S Depamuant of tho Treasury pursuent thereto In tho event that regulations or relines are hereafter promulgated winch roodlfY or expand provisions of thc Code, as applicable to tho Bonds, the Issuer will not be reqmred to comply with any covenant enatmned herein to the extent that such fmlu~i to comply, in the opinion of nationally recognu:ed bond coenscl, will not adversely affect the exemption from federal incense taxation of interest on tho Bonds under sectlan 103 of thc Code In the event that regulations or rulings are hc~ai~r promulgated which impose additional requirements which are applicable to thc Bonds, thc Issuer asro.es to comply wi, th the additional requirements to the extent necessary, in thc opinion of nationally recognized bond couP. scl, to preserve mc exeinption from federal income taxation of interest on thc Bonds under section 103 of thc Code In furtherance of such ruination, tho Issuer hereby anthonzes and directs thc Mayor to execute any docements, certificetos or reports required by thc Code end to make such elections, on behalf of the Issuer, which inay be permitted by the Code as are consistent with thc purpose for tho issuance of thc Bonds (d) Alloc~tirm Of, and Limitation On, Expenditores for the Project Thc Issuer covenents to account for thc expsathtorc~ of sale proceeds and investment eaniiags to bo used for thc purposes described m Section I of this Order (the ,,Prelect,,) dn its books and records m aceordance with thc reqmrements of thc Cnde The Issuer recogmzes that murder fur thc proceeds tolbe considered used for the rclmbursemeat of costs, thc proceeds must be allocated to expenditures within 18 months of tho later 9f the date that (1) the expenthtom is made, or (2) thc Project is eninpleted, but in no event later than three years after thc date or~ which tho urlgmal expenditure is paid Thc foregoing notwithstanding, tho Issuer recognizes that In order for procceds toibe expended under tho Code, the sale proceeds or investment earnings must be expended no more than 60 days crier thc casher Of (1) tho fifth anniversary of tho delivery of the Bonds, or (2) thc date thc Bonds arc retired The Issuer agrees to obtain tho advice of natlonally-rccegulzed bond counsel if such cxpcedttore foils to comply with tho foregoing to assure that such expe~ldttoro will not adversely affect thc tax.exempt status of tho Bonds For purposes hereof, the Issuer shall not be obligated to comply with this covenant If it obtains an opinion that such finlum to comply will not adversely affect thc exciedabihty for federal income tax purposes from gross income of tho interest (;) Dlsposltiun of Project. Tho Issuer covanants that thc property constltotmg thc Project will not be sold or otherwiee disposed t~ a transaction resulting in the receipt by the Issuer of cash or other compensation, unless the Issuer obtains en opinion of nationally-recognized bond counsel that such sale or other disposition wdl not adversely affect thc tax-exempt status of thc Bonds For purposas~of the furagmag, the portion of the property coinprlsmg personal Property end disposed m the ordinary course sha~i not be treated as a trensactlon resultiag m the receipt of cash or other ceinpensatl°n For purposes hereof, thc lasucr shall not b~ obligated to comply with this covenant if it obtmas an opinion that such failure to comply will not adversely affect thc excludability for federal incoine tax purposes fi'om gross income of thc interest ~ection 31 CUSTODY, APPROVAL, AND REGISTRATION OF BONDS, BOND COUNSEL'S OPINION, CUSIP NUMBERS, PREAlVlBLE, AND INSURANCE The Mayor of the Issuer ~s hereby authorized to have control of the Initial Bond Isso~d hereunder and all necessary records and proceedings pertaining to thc Initial Bond pending its dchvery end its investtgattSn, examination, and approval by tho Attorney General of thc State of Texas, end its registration by the Comptroller of Pubhc Ac4ounts of the State of Texas Upon registration of thc lmtml Bond sind Comptroller of Pubhc Accounts (or a deputy designated In writing to act for smd Comptroller) shall manually sign the Comptroller's Registration Ccmficete on such Initial Bond, and the seal of smd Comptroller shall bo impressed, or pieced in facsimile, on such Initial Bond The approving legal opanon of the Issuer's Bond Counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the Initial Bond or on any Bonds lssend end delivered In conversion of and exchange or replacement of any Bond, but neither shall have any legal effect, end shall be solcly for thc convenience and Information of the regrstered owners of the Bonds The preamble to this Ordinance is hereby adopted end made a part hereof for all purposcs If Insurance is obtained on any of thc Bonds, the rcspect~vc Initial Bond end all other Bonds shall bear en appropriate legend concerning insurance as provided by thc insurer Section 32 SALE OF INITIAL BONDS, BOND INSURANCE Thc Initial Bonds are hereby sold end shall be dchvcred to DAIN RAUSCHER INCORPORATED, in accordance with the Bond Purchase Agreement dated the date of this meeting end presented to thc City Council of thc City at this meettug Thc Mayor of thc Issuer is authorized and directed to executc, un bchalf of thc Issucr, smd Bimd Purchase Agreement m thc form and substenee submitted at this meeting The Bonds shall be insured by (the "Insurer") and shall, to the extent not In conflict with this Ordinance, bc subject to thc msurancc commitment from the Insurer to the Issuer Section 33 OFFICIAL STATEMENT An Official Statement dated as of tho date of this meeting has been prepared m cennactlon with the sale of the Imtial Bunds end the Bonds, m thc form and substance submitted at this reacting Said Officad Statement end any supplement or addenda thereto have been and are hereby approved, and their use m the offer and sale of the Bonds is hereby approved It Is further officially found, determined, and declared that the statements and representations contamed in said Official Statement are tree and correct in all material respects, to the best knowledge and belief of the Issuer Thc dlstrthution end use of the Offimal Statement dated April _.., 2001, prior to thc date hereof la hereby ratified end approved Section 34 REFUNDING OF REFUNDED BONDS That concurrently with the delivery of the Imtlal Bonds thc Issuer shall deposit en amount from the proceeds from the sale of the Initial Bonds with The Beak of New York, as Escrow Agent, sufficient, together with other evadable amounts, to refund all of the Refunded Bonds in accordance with Chapter 1207, Texas Oovernnaent Code, as amended The Isseer hereby authorizes the execution of the Escrow Agreemimt dated as of Aplal 15, 2001 between the Escrow Agent end the Issuer The Mayor of the Issuer is suthorlzed and thrected to execute, on behalf of the Issuer, smd Escrow Agreement in the form and substance presented to this meeting It is hereby found and determined that the refunding of the Refunded Bonds Is advisable and neeassary in order to restructure the debt service requirements end procedures of the Issuer, end that the debt service requirements on the Bonds will be less then those on the Refunded Bonds, resulting in a reduction In the amount of prmclpal end interest which otherwise would be payable both on an actual and a present value basis being en actual gross debt service savings of approxunately $ , end a present value debt service savings of approximately $ Section 35 REDEMPTION OF REFUNDED BONDS There is attached hereto as Exhibit A and made a part hereof for all purposes a notice of rcdemptsun for the Refunded Bonds, wfuch Refunded Bonds are hereby called for redemption, end shall be redeemed, prior to their scheduled maturities, on the date, at the place, and at the place, set forth therein, the Issuer shall cause the appropriate notices of such redemption to be given In arcordence with the requirements of the respective proceedings anthonzlng the issuance of such Refunded Bonds, and due provision shall bo made by the Issuer in accordance with law for the payment of the redemption pace of sa~d bonds by the place of payment (paying agent) for such Refunded Bonds Section36 DTCREGISTRATION The Bonds mmally shall be lssced sud dohvered m such manner that no physlcal distnbutlon of the Bonds will be made to the public, end The Depository Trust Company ("DTC"), New York, New York, initially will act as depository for the Bonds DTC has represented that it is a limited purpose trust company Incorporated under the laws of thc State of New York a member of the Federal Reserve System, a "clearing corporation" within the moaning of the New York Uniform Commercial Code, and a "clearing agency" registered under Sectlim 17A of the federal Securities Exchange Act of 1934, as amended, end the Issuer accepts, but m no way votaries, such representations The Initial Bond authorized by this Ordmence shall be delivered m end registered in the name of the Purchaser However, it is a condtuim of delivery end sale that the Purchaser, immediately after such delivery, shall cause thc Paying Agent/Registrar as provided for m this Ordinance, to cancel sald lmtlal Bond and deliver in exchange therefor a substitute Bond for each maturity of such Initial Bond, with each such substitute Bond to be registered In the name of CEDE & CO, the nominee of DTC, and it shall be the duty of the Paying Agent/Registrar to take such action It is expected that DTC will hold the Bonds on behalf of tho Purchaser and/or the DTC Partanpants, as defined end described In the Official Statement referred to and approved In Section 33 hereof (the "DTC Participants") So long as each Bond is registered in the name of CEDE & CO, the Paying Agent/Registrar shall treat and deal with DTC in all respects the same as if it were the actual and beneficial owner thereof It is expected that DTC will mmntaln n book entry system which will Identify beneficial ownership of the Bonds by DTC Partmlpsuts In integral amounts of $5,000, with transfers of ownership being effected on the records of DTC and the DTC Participants parsuent to rules and regulations established by them, and that the substitute Bonds initially deposited with DTC shall be immobilized end not be further exchanged fur substitnte Bonds except as hereinafter provided The Isseer Is nnt responsthlc ur hable for any functrens of DTC, will not be responsible for paying any fees or charges with respect to Its services, will not be responsible or liable for maintaining, supervising, or reviewing the records of DTC or the DTC Parhclpents, or protecting any interests or rights of the beneficial owners of the Bonds It shall be the duty of the Purchaser and the DTC Participants to make all arrangements with DTC to establish this book-entry system, the beneficial ownership of the Bonds, end the method of paying the fees and charges 56 ofDTC Th~ issuer dans not rapmscnt, nor docs it ~n eny way covenant thet the mitiai book-entry syatem eetabhshed with DTC will be mam~dned m the future The Issuer reserves the right and option at any time in the thture, in its sole disc~tlon, to terminate th~ DTC (CEDE & CO ) book-entry only reglstralton reqmrcmcnt dascrthed above, and to permit the Bonds to be registered in the name of any owner If tho Issuer exemises its right and option to terminate such requtmnent, it shall give written notic ~ of such termination to the Paying Ageul/Reglstrer and to DTC, and thereafter the Paying Agent/Registrar shall, upon presun~ ~.tian and proper request, register any Bond in any name as provided for in this Ordinance Notwithstanding thc initial estsbl: shment of the foregoing book-entry system with DTC, if fur any reason any of the originally delivered substitute Bonds is dul' filed with tho Paying Agant/Regmtrer with proper request for transfer and substitution, as provided for in this Ordinance, ubshtute Bonds will be duly delivered as provided in this Ordinance, and there will be no assurance or reprasentai~c a that any book-en~y system will be maintained for such Bonds SeCtion :}7 COMPLIANCE WITH RULE I~c2-12 (a) Annual Repot'ts (l) The Issuer shall provide annually to each NRMS~R end any SID, within six months a.flor the end of each fiscal year ending in or after 1998, f'inanclal mformation~ ~and. operating data with respect to the Issuer of the general type in~hidcd in the i'mal Official Statement authorized by So,ti.on this Ordmat~ce, being the information described in Exhibit B hereto, which Exhibit is attached to and mcurporaseo in mis Ordmsuce a~ if writtan~word for word harem Any finanaial statements su to be provided shall be (1) prepared m accurdance with the accounting pnnclples described tn Exhibit B hereto, or such other accounting principles as the Issuer may be required to employ from time to Ume pursuant to state law or rogulattun, and (2) audited, if the Issuer comm~asions an audit of such statements and tho audit Is completed within the period during which they must be provided If the audit of such financial stateinents 1~ not complete within such period, then the Issuer shall provide uenudited financial statements by the required tline and wdl provide audited financial statements fur the applicable fiscal year to each NR/VlSIR and any SID, when and If the audit report on such statements become available (it) If the Issuer changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year and) prior to the ncxt date by which the Issuer otherwise would be reqaired to provide financial information and operating dqta porsuant to this Section The finanaial information and operataig data to be provided pursuant to this Sectmn may be set forth,in full in one or more doauinents or rosy be mchided by specific refctmice to any docuinant (including an official statement or other offering document, if it is available from the MSRB) that thcretofure has been provided to each NRMSIR and any SID or filed with the SEC (1~) Material F~vent Notices The Issuer shall notify any SID and either each NRMSIR or the MSRB, in a tlinely manner, of rely of the following events with respect to the Bonds, if such event is inaterlal within the meaning of the federal Principal and interest payment dchnqucnclcs, Non-payment related defaults, Unscheduled draws on debt service reserves reflecting financial difficulties, Unscheduled draws on credit cnhanceinants reflecting financial difficulties, Substitution of credit or liquidity providers, or their failure to perform, Adverse tax opimons or events affecting the tsx-cxempt status of the Bonds, Modifications to rights of holders of the Bonds, 8 Bond calls, 9 Defansances, 10 Release, substitution, or sale of property securing repayment of thc Bends, and 11 Rating changes The lssuet~ shall notify any SID and either each NRMSIR or thc MSRB, In a timely manner, of any failure by the.I.ssucr t.o provulc financial information or operating data in accordance with subsectinn (a) of this Sectmn by the tiine reqmreu oy such subsection (c) Ltmitatiuns, Disclaimers, and Amendments (i) Thc Issuer shall be obligated to obscrvc and perform the covenants/specified in this Section for so long as, but. only for so long as, thc Issuer remains an "obhgatcd person" with respect to thc Bodds within the meaning of the Rule, except that the Issuer in any cvent will give the notice required by Subsection (b) hereof of ~tny Bond calls end dcfcasanc~ that cause thc Issuer to no longer bc such an "obligated person" 57 (u) Thc provisions of thrs Seetlon arc for the sole benefit of thc reg~stercd owners and beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any bancfit or any Icgal or cqmtable right, remedy, or clmm hereunder to any other pcrson Thc Issuer undertskcs to provide only thc financial information, operating data, financial statements, and notices which it has expressly agrccd to provide pursuant to this Section and docs not hereby undertake to provide any other information that may be relevant or material to a completc presentation of tho Isanegs financial results, condmon, or prospects or hereby undertekc to update any mformat~on provided In accordance with this Section or otherwise, except as cxpreasly provided harem Thc Issuer does not make any representation or warranty concerning such mformatmn or its usefulness to a decision to invent in or sell Bonds at any futorc date (ill) UNDER NO CIRCUMSTANCES SHALL THE ISSUER, ITS OFFICERS OR EMPLOYEES BE LIABLE TO THE REGISTERED OWNER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE ISSUER. WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, 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 (iv) No default by the Issuer In observing or performing its obhgabons under th~s Section shall comprise a breach of or dcfanlt under the Ordmancc for purposas of any other provision of this Ordinance Nothing m this Section Is mtendcd or shall act to disclaim, waivc, or otherwrsc limit the duties of thc Issuer under federal and state securities laws (v) Thc provisions of this Section may bc amcodcd by thc Issucr from time to tlrsc to adapt to changcd clreum~ancas 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 Issuer, but only If (1) thc provrslons of this Section, as so emended, would have permitted an underwriter to purchase or sell Bonds la the pnmmy offering of the Bonds m compliance with thc Rulc, taking into account any amendments or Interpretations of the Rule since such offering as well as such changed circumstance8 and (2) either (a) thc registered owners of a majority In aggregate principal amount (or any greater amount required by any other provision of this Ordinance that anthorlzes such an amendment) of the outstanding Bonds consant to such amendment or (b) a person that Is uanffihatcd with tho Issuer (such as nationally recognized bond counsel) determined that such amcndmant will not materially impmr the interest of thc registered owners and beneficial owners of thc Bonds If thc Issuer so emends the provisions of thrs Section, it shall Include with any amended financial information or operating data next provided in accordance with subsection (a) of this Section an explanation, in narrattvc form, of thc reason for thc amendment and of the impact of any change in the type of financial information or opcranng data so provided The Isseer may also emand or repeal thc provisions of this continuing dlsclosurc agreement if the SEC amends or repeals the spphcable provrslon of thc Rule or a court of final Jurisdiction caters Judgment that such provisions of thc Rulc are invalid, but only ~f and to the extant that thc provisions of this santeece would not prevent an undcrwrlter from lawfully purchasing or sclhng Bonds In thc primary offering of thc Bonds (d) Definitions As used in this Section, the following terms have the meanings aserzbcd to such terms below "MSRB" means the Municipal Sccuritics Ralemakmg 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 "Rule" means SEC Rule 15c2-12, as amended from time to time "SEC" means the Umted States Sacurmes and Exchange Commission "SID" means any person designated by the State of Texas or an anthor~zed 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 Section 38 FUR fliER PROCEDURES The Mayor of the Issuer, the City Secretary of tho Issuer, and all other officers, employees, and agents of the Issuer, and each of them, shall be and they are hereby expressly authorized, empowered, and directed from time to t~me and at any ttme to do and perform all such acts and thmgs and to execute, acknowledge, and dehver in the name and under the corporate seal and on behalf of the Issuer all such instruments, whether or not herein mentioned, as may be necessary or desirable in order to carry out the terms and prowslons of this Bond Ordinance, the Bonds, the sale of the Bonds, the Escrow Agreement and the Official Statement, and the City shall cause the expenses of issuance of the Bonds to be paid from the proceeds of sale of the Initial Bond or from other lawfully available funds of the Issuer In case any officer whose signature shall appear on any Bond shall cease to be such officer before the delivery of such Bond, such signature shall nevertheless be valid and sufficient for all purposes the same as if such officer had remained m office until such delivery 58 PROVISIONS OF,TIlE AMENDATORY ORDINANCE ~ ' ---[ ...... eNDS Pro-os~d Amendments to thc Ordinance," on the date of the sale of the Bonds, tho City l~ecSl~r~lle~t~°o;', ant~rd~nanco iai, ~bject to receipt of certain consents, will modtfi/ Sections 27(8) and 27(I) of the Ordinance slid will ,delete Section 27(m) from the Ordinance (see "SELECTED PROVISIONS OF THE BOND ORDINANCe"), as well as tho comparable provisions in the ordinances pursuant to which the City has issued tho outstanding Parity Bonds~ Upon the effi .tire date of the amandman~ Sact~un 27(g) of the Ordinance will read as follows (g) Sale~ Li I or Disposal of Property No part of the Syst~a shall be sold, leased, mortgaged, demolished, r~noved or otherwise dis ~nsed of, except ns follows (1) To the extant pm'miRed by law, the City may sail, lease, mortgage, demolish, remove or otherwise dispose of at any time and 9m time to tmle any propetty or facilities constituting part of tho System only if (A) It shall dntermlne such property or fi~cilitiex sro not useful in the operatton of the System, or (B) the proceeds of such sale are $250,000 or less, or it shall have r~ceived a celifficato executed by tho City Manager, the Assistant City Manager - Finance or other City financial official wlthtaln~l~ ilor duties and responsiblhtias (a "Dexignated Financial Officer") stating, In his or her opinion, that the fair market vatu~ of the property or facthtlas oxohanglgl is $250,000 or less, or (C) if such proceeds or fair market value exceeds $250,000 It $hall have received a certificate exesutod by a Designated Financial Officer atatmg, In Ins or her opinion, that thc sale or exch~llge of stlch propelly or facilities will not impair the ability of the City to comply during tho current or any future fiscal year with tho anvenant of the City set forth in Section 27(0 of this Ordmauce The proceeds o f any s .uc.h.s. al~,or o..xch .an.,gn not used to ~c?ulro other property necessary or desirable for the sale or efficient operation of the System snsl. 1 ronnwl.m,~at ..me option of th0 City, (i) be used to redeem or purchase Parity Bonds or Additional Bonds, (il) otherwise ee usen to provlae ror me payment of parity Bonds or Additional Bonds or (iii) bn used for any other law~l purpose (2{ To the extent ponmtted by law, the City may lease or make contracts or grant licenses for the operation of, or make arrengcmanl i for tho use of, or grant casements or other rights with respect to, any pall of the System, provided that any such lease, centre .'t, license, arrangement, easement or right (A) does not impede the operation of the System by the City and (B) does not In any n auner Impair or adversely affect the rights or security of the owners of the Panty Bonds or Additional Bonds under this Ordma~ ce, and provided, further, that if the depreciated cost of the property to be covered by any such lease, contract, license, arra Igement, essemant or other right is in excess of $500,000, the City shall have received a cemficate executed by a Derlgnst~d ~lnanclal Officer that tho action of the City with respect thereto does not result In a breach of thc conditions under this clause Any payments received by tho City under or in connection with any such lease, contract, license, arrangement, easement or right In respect of the System or any part thereof shall constitute Gross Revenues Upon the c~ ~otive date of the emandmauts, Section 27(1) of the Ordinance will read as follows 0) Records The City shall keep proper books of record and account In which full, true, proper, and correct entries will be made of all dsall~gs, activities, and transactions relating to the System, the Pledged Revenues, and the Funds created p~suant to this Ordinance, Ired all books, danumants, and vunchem relating thereto shall at all reasonable times be made available rot mspautren upon request of any Bundhald~r, provided, that all books, documents, and vouchers relating to the City's electric system shall be made available for inspection only to the extcot required by law, maludlog, without hmitotion, the provisions of Section 552 131 of the Texa~ (~ovnmmant Code To the extent consistent with the provlsluns of this Ordinance, the CIU shall keeP Its books and records m ~ manner conforming to standard accounting practices as usually would be followed by private corporations owning and operottog a similar System, with appropriate rocognlUon being given to essential differences between municipal and corporate igcounting practices ~9 TAX MATTERS OPINION OR the date of initial delivery of thc Bonds, McCall, Parkhurst & Herren L L P, Dallas, Texas, Bond Counsel, will render its opmton that, in accordan~ with statutes, mgnlatlons, published rulings and cour~ decanons existing on the date thereof ("Ex~starg Law"), (1) interest on the Bonds for federal income tax purposes will be excludable from the "gross income" of tho holders thereof and (2) the Bonds will not be treated as "specified pnvata actlvtty bonds" the interest on which would be included as an alternative minimum tax preference item under sec~on 57(a)(5) of the Internal Rovanan Code of 1986 (the "Code") Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership er dlsposmon of the Bands Sen Appenthx C -- Farm of Bund Counsel's Opunun In rendering its opinion, Bond Counsel wdl rely upon (a) certain arfermal~on and representations of the City, including information and representat,ons contained in the City's federal tax certificate, (b) covenants of the City contmnad In the Bond documents relating to certain mattars, Including arbitrage and the use of the proceeds of the Bonds and the property financed or refinanced therewith and (c) thc verfficatlon repor~ prepared by Grant Thornton LLP Farlure of the City tu comply wRh these representations or covenants could cause the interest on the Bonds to become includable In gross income retroacUvely to the date of Issuance of thc Bonds The Existing Law is subject to change by the Congress and to subsequant juthcial and admarlstrat~vn mtarpretatlon by the courts and thc Departmunt of the Trensery Thare can be no sssuranca that such Existing Law or thc interpretation thereof wdl not be changed In a manner which would adversely affect the tax treatment of the purchase, ownership or thsposmon of the Bonds Bond Counsel's opm~an ~s not a gnarante,~ of a result, but represents Its legal Judgment based upon Its review of Existing Law and the reprcsantatlons and covanants of the City deserthed above No rnhng has berm anught from the Intarnal Rnvanue Servmc (the "Service") with respect ~ the matters addressed In the opinion of Bund Counsel, and no assurance can be given that thc Service would agree with the op~mun of Bond Counsel, if the tax-exempt status of the mtarest on the Bonds were the subject of an audit If an audit is commenced, under cuncnt procedures the Service Is likely to treat the City as the "taxpayer," and the owners of the Bonds would have no right to part~¢,pate ar the andit process In responding to or defendarg an andlt of the tax- axempt status of thc interest on the Bonds, the C~ty may have thffcrent or confbctmg mterests from the owners of the Bonds FEDERAL INCOME TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT The Underwntar(s) have rcpmsantad that the mmal pubhc offering price to be pa~d for thc Bonds, as stated on the cover of the Official Statement, (the "Original Issue Discount Bonds") is less than thc pnnc~pal amount thereof The difference be~vean 0) the amount payable at the maturity of each Orlgmal Issue D~scount Bond, and (n) the m~tad offering price to the public of such Original Issue Discount Bond const~tutas or~gmal ~ssuc thscoant w~th respect to such Origmal Issue D~scount Bond m thc hands of any owner who has purchased such Original lssuc D~ssount Bund m thc mmal pubhe offering of the Bunds Undar existing law, anch mmal owner ~s enUtled to excluda from gross Income (as defined m Sectmn 61 of the Code) an amount of mcoare w~th respect to such Or~gmal Issue D~scount Bond equal to that portion of thc amount of suab or~garal issue discount allocable to the period that such Ongmal Issue D~scount Bond continues to be owned by such owner For a thseuseren of certain collateral federal tax consequonens see d~scossian set forth below In thn event of the redcmptmn, sale or other taxable dlspos~tren of such Original Issue Discount Bond prior to stated maturity, however, the amount reahzed by such owner m excess of the basis of such Original Issue D~scount Bond In thn hands of such owner (adJusted upward by thc portion of the original ~ssu¢ d~scount allocable to thc pnrlod for which such Ongaral Issue D~scount Bond was held by such m~t~al owner) ~s includable in gross menme Under ex,sting law, the or~garal Issue d~seoutu on each Ongmal Issue Discount Bond ~s accrued daily to the stated matonty thereof (m amounts calculated ss dcscrthed below for each s~x-munth parred endmg on the date b~ore the seunennual anmversary dates of the date of thc Bonds and ratably w~thm each such s~x-aronth parred) and thc accrued amount Is added to an untad owner's bas~s for such Original Issue D~scoant Bond for purposes of determining thc amount of cmn or loss recogmzcd by such owner upon the redempUon, sale or other dlspos~tmn thereof The amount to be added to bss~s for each accrual period Is equal to (a) the sum of the ~ssue price and the amount of rmgmal ~ssue d~scount accrued m prmr periods malt~phed by the yield to stated maturity (dctcrmmed on the basis of compoundmg at the close of each accrual period and properly adjusted for the length of thc accrual period) less (b) the amounts payable as current interest during such accrual period on such Bond The federal raceme tax consequences of the purehssc ownership, redemptmn, sale or other thsposmun of Original Issue D~scount Bonds which are not purchased m tho mthal offering at the lmtad offering price may be d~tarmmed eccordmg to rules which differ from those described above All owners of Original Issue D~scount Bonds shunld consult their own tax adv,surs with respect to thc detcrmmatmn for federnl, state and local raceme tax purposes of interest accrued upon redemption, sale or other disposttmn of such Original Issue D,scount Bonds and w~th respect to the federal, state, local and foreign tax consequencas of the purchase, ownership, redemption, sale or other d~sposltlon of such Original Issue Discount Bonds 60 ~ g TAX CONS~Q~gNC~ Tho following discussion is a summao, of caren collateral federal mceme tax flora tha purohaso, ownership or disposition of tha Bonds This discussion is based on exls~ng regulations, published rulings and court decisions, ali of which arc subJeCt to changu or modification, disenssion la spplicshla to lnvastors, other than thosa who arc subJeCt to sp~lal pwvmiona oftha Coda, such as financial and casunity Insurance companies, hfa Insurance compcelas, mthvidual remptents of Social Sacurity or !t Ret~ant benefits, individuals allowed earnad tacoma credit, owners of an interest m a FASIT, certain S corporations Subohapter C earnings and profits and taxpayers who may ha dcemad to hava motored or continued to purainmo tax-exampt obligations INVESTORS, I~CLUD1NG THOSE V~-[O ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT ~*X~IR OWN TAX ADVISORS AS TO TI~ TAX TREATb~N'T ~k~HICH MAY BE ANTICIPATED TO RESULT FROM TH~ PURCHASE, OV~q~RSHIP AND DISPOSITION OF TAX*EXEMPT OBLIGATIONS BEFORE DETERMINING ~THER TO PURCHASE THE BONDS Interest on da Bonds will be includabla as an udjustmant for "edjusted current earmn~s" to calculate tho altemativa minimum tax imposed on ~o.sporalrena by as~on 55 of the Coda, Section 55 oftha Coda unpnses a tax equal to 20 percent fo_r,~en,,,~oratiuns, or 26 perc~t fur non, anrporata taxpayers (28 peraent for taxabla excess exceeding $175,000), of tha taxpayers attenmUvc mimmura m~abin inaoraa,~ if the amount of such alternaflva minimum tax is ~raater than tha texpayer's regular recoma tax for the texnbla ~ust Interest on tho Bonds may be subject to tho 'broach profits tax" imposed by so.un 884 of tho Coda on tho effect~valy-conneeted aarnaigs an~ profits of a furelgu corporation doing,business in tho United States Under seet~;n 6012 of the Code, holders of rex-exempt obligations, such as the Bonds, may be required to disclose interest received or ~0rand during aach taxable year on thalr returas of federal income taxaUon Section 1276 of the Coda provides for otdmery incorae tax treatment of gmn recognized upon the disposition of n tex-exempt obligation, ~uch es tho Bonds, If such obligation was acquired at o "market discount" and if the fixed maturity of ceoh obhgat~on is equal to ~t exceeds, one yent from the ds~ of isaua Such ~raatmant aPPhes t° ''market discount b°nds' t° the extent such gain does not ex~aed the sourced market discount of such bonds, although for this purpose, a da mmlmls amount of market discount is ignored IA "nmrket~thscount bond" is one which Is acquired by tho holder at a. pusuhese price w~ch m less than tho stated redemptionlpnce or, in the case ufa bond issued ut an original issan discount, the revved lssua poco (l o, the lssua poco pros accrued original issue discount) The "accrued market discount" ts tho amount which bears the same rat~o to the market discount ss the num~ar of days dunng which tho holder holds the obligation bears to the number of days batwcen the acqmsmun date ced tho final mt :unty date STAT~, LO ~AL ANIa I~OILKIGN TAX~S Investors should consult their own tax advisors concerning tho tax m~phantions of the purchase, o ~aerchip or thspomtion of tho Bonds andar nppheabla state or local laws Foreigu mvastors shunld alsu consult their own tax ad, 'isots regarding tho tax consequences unique to investors who are not United States persons CONTINUING DISCLOSURE OF INFORMATION In the Oral;anco, tho City has made the following agreement for the benefit of the holders and benofimal owners of the Bonds Tho City ts] required to obs.'va the agrcemant for so long as it remains obligated to advance funds to pay the Bonds Un. der th, e agreement, the City will bo obligated to provide certmn updated finceelal information ~d. oparat, m,g. data anrmally,, an~ tlmeiy~ notice nf slSooffiad material events, to certain information vendors This nformation wut oo avaiianie to securities armcers others who* subsunbo to receive the information from the vendors .A..NNUAL II.~PORTS ,The City will provide cm'taln updated financial information and operetmg data to oertmn information vendors annually The reformation to ba updated includes all quantitative financial informat~un and operating dam with respect to the City of tho general type maluded in this Official Statement under Tables numbered 1 through I 1_ and in Appanthx B City will ~pdate and provide this reformation within six months after the end of each fiscal year ending in or after 2001 tna City will]provide the updated infurmattou to each nationally r~cogntzed municipal secormes mformat~un repository ~'~IRMSIR') mid to any state information dcpositoly ("SID') that is designated by the Stat~ of Texas and approved by the State f Texes ant] approved ~y the staff of the United States Sanuntles and Exchange Commission (the "SEC") The City imay provide updated information in full text or may incorporate by reference cortmn other publicly available document% as panntited by SEC Rule 1~¢2-12 The updeted reformation wdl include andited financial statements, If the City commissions an audit and it is completed by the required time If audited finanalal statements are not available by the required time, tha~tiy will provide uusuditad fmsuclal statements by the required tuna and audited financial statamaets when and if 61 audited such financial statements become available Any such financial statements will be prepared m accordance with thc accounting principles dcseribed in Appendix B or such other aecountmg principles as tho City may be reqmred to employ from time to time pursuant to state law or regulation ThcClty'scurruntfiscalyanrcodlsSaptembcr30 Aecordmgly, ltmuatpmvldeupdatedmformatlonbyMarch31 meachyear, unless the City chunges its fiseal yuar If thc City chungce its fiseal year, it wdl notify eanh NRMSIR and the SID of tho change Tho Mmanlpal Advisory Council of Texas has been daslgnated by tho State of Texas and approved by the SEC staff as a qualified Sit) The address of the Municipal Advisor/Council is 600 West 8th Street, P O Box 2177, Austin, Texas 78768- 2177, and its telephone number IS 512/476-6947 I~IATERIAL EVENT NOTICES The City will also provide timely notices of certmn events to ce~unn information vendors The City will provide notice of any of the following events with respect to the Bonds, if such event is material to a decanon to purchase or sell Bonds (1) principal and interest payment dchnquanclas, (2) non-paymcot related defaults, (3) unscheduled draws on debt service rcservas reflecting financial difficulties, (4) unscheduled draws on credit enhancements reflecting financial thfficultias, (5) substitution of credit or liquidity providers, or their failure to perform, (6) adverse tax opimons or events affecting thc tax-exempt status of the Bonds, (?) modifications to rights of holdere of the Bonds, (8) Bond e~alls, (9) defuasanecs, (10) release, substitution, or sule of property securmg rapayment of the Bonds, and (11 ) rating changes (Nelfuer the Bonds nor the Ordinance make any provision for hqulthty cnhuncement) In eddltlan, the City will provide timely notmc of any failure by the City to provide information, data, or financial statements in accordance with its agreemant described above under "Annual Reports" The City wlll provide each notice described In this paragraph to thc SID and to either each NRMSIR or thc Municipal Securtucs Rainmaking Board ("MSRB") AVAIlaBILITY OF INFORMATION EROM NRMSIRs AND SiD Tho City has agreed to provide the foregoing informataon only to NRMSIRs and the SID The Infurmation will bo available tu holders of Bonds only if thc holders comply with the procedures and pay thc charges established by such Information vendors or obtain the reformation through securities brokers who do so LIMITATIONS AND AMENDM"RNTS The City has agreed to update information and to provide notices of material events only as described above Thc City has not agreed to provide other information that may be relevant or material to a complate 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 revest in or sell Bonds at any future date Thc City disolmms uny contractual or tort habthty for damages resulting in whole or in part from any breach of its continumg disclosure agreement or from any statement made pursuant to Its agreement, although holders of Bonds may seek a writ of mandamus to compel tho C"lty to comply with Its agreement The City may amend its continuing disclosure agreement from time to time to adapt to changed ctrcumstunces that arise from a change in legal reqmremcnts, a change in law, or a change in thc identity, nature, status, or type of operations of the City, if (I) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering dcseribcd herein in compliance with the Rule, taking into account any amendments or interpretatiuns oft. he Rule to tho date of such amandmant, as well as such changed circumstances, and (ii) either (a) the holders of ama. lority In aggregate principal amount of the outstanding Bonds consent to thc amendment or (b) any person unaffiliated with thc City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the lmerests of the holders and beneficial owners of the Bonds The City may also amend or repeal the provisions of this continuing disclosure agreement if thc SEC emends or rapcals tho applicable provisions of the SEC Rule 15c2-12 or a court of final Jurisdiction enters .ludgment that such provisions of thc SEC Rule 15c2-12 are invalid, but only if and to thc extent that the provisions of this sentence would not prevent ua underwriter from lawfully purchasing or sellmg Bonds m thc primary offarmg of the Beads If the City so emands the ngroemunt, it has agreed tu include with the next financial information and operating data provided in accordance with its agreement described above under *'Aunual Reports" an explanation, in narrative form, of thc reasons for tho 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 62 OTHER INFORMATION I~ATINGS The presently outstanding revenue debt of the City Is rated "Al" by Moody's end "A+" by S&P Moody's end S&P have assigned tbel ~ municipal ratings of "Aaa" end '*AAA", raspectivaly, to the Bonds with the understanding that, upon delivery of such Bonds, ~. municipal bond insurance policy insuring timely payment of the Bonds will be issued by Ambec Assurance See *'Bond lnsurl nos" herein The City also has issues outstanding which are rated "Aaa" by Moody*s and *'AAA** by S&P through insurance by vanuns commercial rasurence companies An explanation of the significance of such ratings may be obtained from thc compan) furnishmlg the rating The ratings reflect only the respective views of such orgenlzattuns end the City makes no representatic i es to the ilppropriateness of the ratings There ts un assurance that such ratmgs will cuntmen fur any given period of time or ti mt they wdl not be revised downward or withdrawn entirely by either or both of such rctmg companies, if in the judgment of ~ither or both companies, c~rcumstences so warrant Any such downward revision or withdsawal of such retmgs, or either of thai l, may have an adverse effect on the market pace of the Bonds LITIGATION It is the opinion of the City Attorney end City Staff that there is no pending litigation against the City that would have a material adverse fina~oial impact upon tho City or its operations REGISTRATION AND QUALIiqCATION O1~ BONDS I~OR SALE The sale of]the Bonds has not been reglatercd ullder tho Federal Securthas Act of 1933, as amended, in reliance upon thc exemption provided thereunder by Section 3(aX2), end thc Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained thereto, nor have thc Bonds been qualified under the securities acts of say .lurlsdiction* The City assumes no raspoaalhihty for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred This thaclaimer of reapunslbtilty for qualification for sale or other dispaamon of the Bonds shall not be construed as aa interpretation of any Pond with regard to thc availability Of any exemption Prom securities roglstretion provisions LEGAL IP~grMENTS ~ ELIGIBILITY TO SECURI~ ]PUBIAC FUNDS IN TEXAS Section 1201 041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provldas that the Bonds arc negotiable i~stnunents gnverned by Chapter 8, Texas Business and Commerce Code, sad are legal sad authorized investments for msurence companies, fiduciaries, end trustees, and for the ainkmg funds of municipalities or other political subthvlaluns or pubhc agen ~ies of the State of Texas With respect to mvastment m thc Bunds by mumcipalitms ur other pohtical subdlvisiuns or pubhc a~ inclen of the State of Texas, the Public Funds Investment Act, Chapter 22:~6, Texas Oovernment Code, requires that the Bonds l*e assigned ~t rating of '*A# or its equivalent as to mves~nent quality by a national rating aseflcy Sec '*OTHER INFORMA ~ON - Ratings'* harem in eddttiun, various provisions of the Texas Finance Code prnvide that, subject to a prndent investor ste tdsrd, the Bonds are legal investments for state banks, savings banks, trust companies with at capital of uno mllhon dollars or n ore, end saVings end loon esSOCletiuns, The Bonds arc ehglble to secure deposits of any public funds of the State, its agencies, m d its polihcal subdivisions, end are I~gal security fur those deposits to the extent of thair market value No review by thc City hR been made of the laws in other states to determine whether thc Bonds arc legal investments for various institutions in those st~ ss LEGAL apl qlONS The City w II furnish a complcto transcript of procesdinss had incident to the authorization sad issuance of the Bonds, including the unquali ~led approving legal opimon of the Attorney Oenaral of Texas approving the Initial Bond and to the effect that thc Bonds am valid and legally bmthng special obligations of thc City, and based upon examination of such transcript of proceeding ~, the approving legal opinion of Bond Counsel, to like effect and to the effect that the interest on the Bonds will be excludable ~rom gross income for federal monroe tax purposes under Section 103(a) of the Code, subject to the matters desetubed under "Tm Matters'* heroin, including the altamntlve mmenum tsx on corporations Bond Counsel was not requested to participate, and did not take pm% in the preparation of the Official Statement, and such firm hss not assumed any responsibility with respel I thereto or undertaken independently to verify any of the information contained thereto, except that, in its capacity as Bond Cou tsel, such ftrm has reviewed the information under captions "Plan of Financing", "Thc Bonds" (exclusive of subcaptiun "Book*Entry*Only System"), '*Tax Matters'* and #Continuing Disclosure of Information" and the subcaptmns "Legal Oplmuns'* md '*Legal Investments and Eligibility to Secure Public Funds in Texas*' in the Official Statement end such firm is of the opmlol~ that thc information relating to the Bonds end the legal issues contained under such captions and subcaptions is sa accurate a~d fair description of the laws and legal issues addressed therein and, with respect to the Bonds, such information conforms t~ the Ordinance The legal fee to be paid to Bond Counsel for services rendered in connection with the issuance of the Bunds ~s centmgent un the sale and dallvery of the Bonds Thc legal opinion will accompany the Bonds deposited with DTC or wdl be ~rinted on the Bunds m the event of the discontinuance of the Book*Entry*only Syatem Cartain legal matters will be passed upqn for the Underwriters by Kelly, Hart & Hallman, a PC, Fort Worth, Texas, Counsel to the Underwriters 63 The various legal opinions to be delivered concurrently with tho dehvory of the Bonds express the profassmual,ludgment of the attorneys rendering the opinions as to the legal ISSUES exph¢ltly addressed therein In rendering a legal opmlon, the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transantion opined upon, or of the futore performance of the pa{ties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of ibc transaction AU?HENTICITY air IelNANCIAL DATA AND OTHER INIrORMATION The financial data and other information contained hereto have been obtslned from City records, andlted finlmnlal statements and other sources which are believed to be reliable There is no guarantee that any of the assumptions or estimates eontumed harem will bo realized All of ibc summaries of the statutes, documents and resolutlanS eontemed In this Official Statement are made subject to all of the provanons of such statutes, documents and resolutions These summaries do not purport to be complete statements of such provisions and reference ~s made to such documents for further reformation Reference is made to original documents in all respects [~INANCIAL Al}VISOR First Southwest Company is employed as Financial Advisor to the City in connection with the Issuance of the Bonds The Fmanelal Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the Issuance and delivery of the Bonds First Southwest Company, in its capacity as Financial Advisor, has relied on the opinion of Bond Counsel and has not verified and does not assume any rasponsthdlty for the reformation, covenants and representations contained In any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact o'f any presant~ pending or future actions taken by any legislative or judicial bodies The Financial Advisor has agreed to sell to the City the Federal SecurtuesfurdopositmtotheEcerowFundinconncctionwlththerefanding In the normal course of bnsluaSS, the Financed Advisor may also from time to tane sell investment securities to the City for the mvastmant of bond proceeds or other funds of the City upon the request of the City The Financial Advisor to the City has provided the following sentence for inclusion in this Official Statement The Financial Advisor has reviewed the reformation tn this Official Statement m accordance with, and as part of, ItS rosponsthllmes to the City and, as applicable, to investors under the federal sacunl}es laws as applied to the facts and circumstances of this transaction, but the Fmanclal Advisor does not guarantee the accuracy or completeness of such information VERIP1CATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included m the schedules provided by First Southwest Company on behalf of the City relating to (a) computation of forecasted receipts of pnn¢lpal and interest on the Federal Sacurtues and the forecasted payments of principal and interest to redeem the Refunded Bonds and (b) computattan of the yields of the Refunding Bonds and the restricted Federal Sacurmes were verified by (?rant Thornton LLP, certified public accountants Such computations were: based solely on assumptions and mformetion supplied by First Southwest Company on behalf of the City Csrant Thornton LLP has restricted procedures to verifying the arithnaetical accuracy of certem computet~cos and has not made any study or evaluation of the assumptions and mformanon on which the computations are based and, accurdmgly, has not expressed an opanon on the data used, the reasonableness of the assompUons, or the achlovabthty of the forecasted outcome UNDERWRITING The Underwriters have agreed, sub`loot to ecgimn conditions, to perohase the Bonds fi~m tho City, at an underwriting dlscoant of $ The Undsrwnters wdl be obhgtaed to purchase all of the Bonds if any Bonds ara purchased The Bonds to be offered to tho pubhc may be offered and sold to certain dealers (lnaludmg the Underwriters and other dealers depexitmg Bonds into investment trusts) at prices lower than the pubhc offering prices of such Bonds, and such pubh¢ offermg paces may be changed, from time to tane, by the Underwriters 64 The statements contained in this O~clal ~ ~d m ~y other mfo~tmn p~wd~ by ~ C~, ~ ~ not purely h~stor~, ~ fo~-l~ng ~ mclu~ng s~m~ ~g~mg ~ C~'s exp~ons, hop~ m~n~ons, or ~g~mg ~0 ~ Re~ should not pl~o undue ~ll~ce on fox.d-looking s~cm~U All fo~ looking ~cnts ~ncluded in ~s O~cl~ S~mt ~ b~od on ~o~on av~lable to ~c C~ on ~e ~tc he.f, ~d ~c C~ ~ no obhg~lon m upd~ ~y such fo~-loo~ng ~on~ It is lmpo~t m note ~at ~ CiU's ~ ~sul~ ~uld d~ff~ mat~ly ~m ~o~ ~ ~ch fo~-look~g ~e fom~;lookt~ ~mm~ h~m ~ n~ssmly b~ on v~ous ~s~ptmns ~d esUmates ~d ~ ~enfly subj~ to v~lous rls~l ~d ~es, including ri&s ~d un~nt*es ~laung m ~ possible mv~ldi~ of ~e ~d~lymg ~pUons ~d ~at~ ~d possible ~g~ or d~clopm~ m ~ct~, ~onomtc, busm~ md~, m~k~ Icg~ ~d ~gula~ cl~ ~d ~ndlaons ~d ~ons ~on or omlaM ~ be ~ by ~rd p~ ~ncludlng cu~om~ supph~ b~m~s p~crs ~dl ~mp~m~ ~d lcgml~tv~ judl~i~ ~d o~er gov~cnt~ ~on~es ~d offict~s ~s~paons ~latcd to thc forgoing ~volvo jud~ wi~ ~s~ to, ~ong o~er &ings, ~ cconomtc, ~mp~ttve, ~d m~ot ~ndmom ~d fu~ b~m~ dec,stuns, ~1 ofwh~ ~ d~ffi~K or ~mposslblo ~ p~d~ ~r~ely ~d m~y of whl~ ~ b~oM ~e con~l of tho CIW ~y of such ~pUons ~uld bo in~ ~d, &egforo, ~eg ~ be no ~ce &at ~o fo~-loo~g s~gmen~ mclud~ m ~is Offici~ S~t would prove to ~ ~cumte ~SCgL~gOU8 subJ~t ~ ~1 of ~o ~l~ons of ~ smm~, do~m~ ~d r~luaons ~ s~as do not p~ofl ~ ~ ~mplc~ ~en~ of ~ch pmv~ons ~d ~ ~ rome m ~ doc~ for ~ ~o~aRon Ref~n~ Is ~o ~ ongm~ ~o ~ln~ ~o~mg ~c Issu~ of ~o Bonds will ~so ~vo ~ fo~ ~d ~n~t of &~s Officl~ S~en~ ~d ~y add~dg ~ppl~mt or ~mdm~t ~, ~d ~on~ ~ ~ uso m &e ~ff~g of ~e Bonds ~ ~e Unde~nt~s) /s/ EULINE BROCK Mayor City of Denton, Texas ATTEST /s/ ~ENNIFER WALTERS C~ty Socr~nary City of Denton, Texas 65 Schedule I $CHEDL1LE OF REFUNDED Utility ~ptem ~enue ~nd8, ~erIH 199~ ~nc~pal Ong~al ~gm~ Inte~st ~ount Dat~ D~ M~ ~ Ou~d~ng 3/1/93 1~1/04 ~ 10% $ 330,000 1~1/0~ ~ 2~ 330,000 1~1/~ ~ 30% 330,000 1~1/07 ~ 3~% 330,000 1~1/08 ~ 40% 330,000 1~I/09 ~ ~0% 330,000 l~l/I 1 ~ ~0% 330,000 2004 - 2011 maturities will be ~de~m~ prior to on~ mat~ on D~ccmb~ l, 2002 at p~ Utill~ S~m Rewna~ ~ad~ Ser~ 1996 Prmc~p~ On,mai On~n~ Int~cst ~ount Da~ Date Ma~ ~ Outs~dm~ ~/1/96 1~1/07 ~ 40% $ 13~,000 1~1/08 ~ ~0% 140,000 1~1/09 ~ 60% 1 ~0,000 12/1/10 ~ 70% 160,000 1~1/11 ~ 7~% 170,000 1~1/12 ~ 7~% 180,000 1~1/13 f 7~% 190,000 1~1/14 5 7~% 200,000 12/1/1~ ~ 7~% 210,000 1~1/16 ~ 7~% 22~,000 ~ 2007 - 2016 ma~tlcs will be ~dc~cd pflor ~ onsln~ ma~ on Dec.her l, 2006 at p~ Uffi~ S~s~m ~veaue ~fuadml ~nds, ~rles 1996-A ~nclp~ OnsIn~ Ongm~ ~tcrcst ~ount Da~ Date Ma~rl~ ~ Ou~dmg ~/1/96 1~1/07 ~ 40% $ 910,000 1~1/08 f ~0% 960,000 12/1/09 ~ 60% 1,01 ~,000 l~l/10 f 70% 1,07~,000 12/I/11 ~ 80% 1,140,000 ~ 2007 - 2011 ma~nacs will b~ r~m~ pnor to original mamr~ on December 1, 2006 ~ p~ APPENDIX A GENERAL INFORMATION REGARDING THE CITY LOCATION The City of Denton Is situated in the northern pogaon of the Dallas/Fort Worth Consolidated Stat~stical Area (CMSA) The CIty Is officailly a part of the Dallas/Fort Worth mettoplox, end is situated at tho apex of a trlengle based by Dallas (38 mdes to thc southeast) and Fort Worth (36 miles to the southwest) The City has excellent aacess to and from all parts of the area. ECONOMY Denton Is in the midst of a rich agricultural and livestock a~a, The hub city of Texas' new "Land of Lakes" region, which provide~ Denton and neighboring clues with abundant water for municipal, mdustrad and recreal~unal purposes, One cf the three major university centers m Texas, The home of diversified industrial interests, The site of the Nation's first underground Control Center of the Office of Emergency Planning and Office of Civil and Defense MobthzaUon, One of the key cities In the economically significant Dallas Consolidated Metropolitan Are~ 1NI~USTRIAL FtrrURl~ Fiscal Year 1999 - 2000 brought a variety of new and expanding businesses to Denton with a total new value of $49,304,972 The following are some of the outstanding industrial projects that contributed to Dentun's economic growth In 2000 · Denton s regional shopping mall, (}olden Triangle Mall, completed a major remodeling project with a permit value of $3,000,000 · A local auto dealership, James Wood AutoPark, invested in its Denton facility with a $3,200,000 expansion · A longtlme Denton company, Trinity Industries, retooled its plant to move from production of rail cars to bridge girders This project allowed the enmpany to retain 80 jobs In Denton and added $1,500,000 to tho local tax base · Comfort Suites Motel built a 38,330 square foot braiding with a permit value of $1,957,129 · The Radisson Hotel remodeled and expended its Denton hotel The project had a permit value of $1,600,000 · Northstar Bank, Denton's only locally owned bank, is constructing a new 25,048 square foot bank building The project bas a permit value of $1,810,920 · In addition to several professional office building projects, there were three office park projects developed in 2000 The Dove Creek Office Park, the Southrldge Office Park, and the Tunber Podge Office Park added 26,853 square feet of office space and had a combined permit value of $I,282,396 · Tetra Pek, an international aanptai packaging company for food products, added a 26,000 square foot research center with a value of $1,231 360 · TRCA, a local communications refurbishing company, built a 36,465 square foot building with a permit value of $1,131,795 · The Federal Emergency Management Agency announced the consolidation of its Denton call center operations Into a 82,000 square foot facility with an expected value of $14,000,000 · The renovation of the Radio Center Building, located In the historic downtown area, added addmunal office space and apartments The renovation had a permit value of $1,000,000 · Heavy track parts distributor Inland Truck Parts built a 20,520 square foot facdlty with a permit value of $667,424 · The Duncan Street Business Park expanded its park with 30,000 square feet of new buildings with a permit value of $635,475 · Sirius Enterprise a manufacturer of component parts for the electronic/telecommunications industry, built a 10,000 square foot building with a permit value of $500,000 · Skylab, a local metalwork company, built a 34,800 square foot expansion with a permit value of $550,000 · National retailer Dollar General built two new stores ~n Denton with a total permit value of $632,066 · Another business park expansion was constmctad In the RonJon Business Park with an additional 9,855 square feet and a permit value of $450,688 · Local business Achievers Gymnastics budt a new 19,624 square foot thclltty with a permit value of $842,262 · A growing restaurant chain, Taco Cabana, located a new facility In Denton and developed a 3,061 square foot restaurant with a value $176,228 A-1 Major Employers Appmx~e Numb~ of Employer Desenpt~on Employees Umwm~ ofNo~ Tex~ Educa~on~ F~fl~ 5,900 Danmn Independent S~ool D~smct School System 2,000 Boeing Comply M~h~ ~d Co~erclfl Ele~mcs 1,700 Danmn Sm~ School ~ FncthW 1,350 P~bllt Moto~ 0) D~esal Tm~ Assembly 1,200 ~anwn CounW Gove~ant Co~ Government 1,227 CiW of DenOn C~ Govemmant 1,200 ~ Wom~'s Univem~W ~u~t~onal F~d~W 1,13 I D~n ~gionfl M~lcfl Center Hospl~l 865 FE~ F~I Oov~meot C~I Cen~ 750 Vzctor Equtpmant Comply Woldmg ~mpmeot 500 Denton Co~umF Hospi~ Ho~ 500 ~e~ Tol~ke~ng Inc C~I Ceoter 390 ~ I~m~ P~ers (~} Jet Intono~ 365 S~ly BeanF Supply (a} Boan~ Supply DIs~thutor 361 ~os~n's CI~s ~ng M~mmr 350 Fl~ Stato B~(a) B~k 350 ~d~son Mor~thsers Dl~butlo~hou~ 310 ~&ew Co~o~on ~ M~uf~m~r 310 CBS Mech~tc~ (~) Con~ctmn Se~lces 275 T~ P~ A~eptzc Pankagmg 250 Ven~n Tel~hone Comply 230 Momson Milling (a) Four/Ormn Mdl 2~ Acme Brick Brick M~uf~ 160 ~e Assoc~os C~I Center 160 SCI Encloses Pl~c Moldmg 150 Denton Oood S~t~ Village R~t~ent Center 140 S~a~ ~ean Fuel Recychng 140 ,Um~d Co.er ~dus~os (z} Copper W~re 126 ,Rus~ll Newm~ ~uf~mg(a) Lmgene 120 ~ls~n Hotel & E~le Point Golf Cou~ Hotel 120 Mayday M~uf~rmg(~} Aerospace Manhmad P~ 100 (1) Peterbilt Regmnal Headquarters (2) Headquarters Source Cl~ of Denton and Denton Chamber of Commerce Economic Development Offices Denton is proud to boast over 30 ¢ompames and mstltutrons who employ 100 or more people, eight of them represent corporate or reglonall headquarters Well over 100 companies that produce, manufacture, and d~smbote goods all over the world call Denton home More than 3,000 businesses employing I to 5,900 people choose to do business in Denton With small, medium, and large businesses operating m a variety of industries, diversity is a strength m Denton Statistics mthcate a masonry of these workers are skilled and receive their training m Denton A-2 ECONOMIC AND POPULATION GAINS Denton has noted a consistent population increase end a steady economic growth m the last four decades Historical population totals f~om U S Census records ~o 1940 Census- 11,192 1950 Census - 21,345 1960 Ceusus - 26,844 1970 Census- 39,874 1980 Census - 49,079 1990 Census ~ 66,270 The City's ascension toward a top rang on Texas' economic laddcr is ato'thutcd pardy to tho steady influences of govcmmentld activity which includes the year-by-year cxpension of the two State-supported umversiUes, and partly because of such environmental factors at its location m a rich agricultural rcg~on, some oil end gas production in the northwest section of Denton County, its inclusion in the Dallas/For~ Woah Melxoplex, its proximity to threc of Texas' largest reservoirs (Lake Texoma is only 40 miles from Denton), its cxcallent highway end transportatton facilities, its mild chmatc, end the less tangible but influential aspects of social, cultural and education advantages that have pmmptad professional workers to choasc Denton es a place of residenen ]~CONOMIC RANKING The following data wes taken from Sales and Marketing Management 1999 Survey of Buying Power, dated August 2000 % of Population Whose Ago is 18-24 25 40% 25-34 15 70% 35-49 19 00% 50 and Over 19 80% Households 32,900 Median Household Effective Buying Inanme $ 29,183 Total Effective Buying lncome $1,235,080,000 % of Households by EBI Group $20,000 - $34,999 19 80% $35,000 - $49,999 15 90% $50 000 end Over 27 20% Retail Sales $1,309,768,000 Food 86,461,000 Eating and Dnnkmg 161,474,000 General Merchandise 217,685,000 Furniture-Home Fumishmgs-Apphences 88,876,000 Automotive 368,836,000 EI~H'LOYMENT/LABOR FORCE Dcnton's largest private employer, Peterbilt Motors, reduced ~ts labor force this year Tho layoffs were due to a reduction in new truck sales caused by high fuel prices The company expects It will take approximately 18 months to regain its production capacity and increase employment at the Denton facility A-3 UNI~LOYM~T RAT~S As of December of 2000, the avmlahle workforce hvmg m Denton is 57,200 Denton is fortunate to draw worl~e~s from the Dallas and Felt WortlVArhngton MSA's (representing 2 9 million people) Many businesses employ workers wboloommuto from southern Oklahoma as well Due to a favorable economy and skilled labor force, Denton reemms slightly below the stat~ and natmnal averages for unemployment Average Average Average Average Average Annual Annual Annual Annual Annual City of~enton 2000 1999 1998 1997 1996 Civl[mn Labor Force 56,335 54,694 53,201 50,418 47,940 Tota~ Employed 54,626 53,136 51,654 48,747 46,003 Tota~ Unemployed 1,709 1,558 1,547 1,671 1,937 Percent of Unemployed 3 03% 2 85% 2 91% 3 31% 4 04% Denton County Civilian Labor Force 250,868 243,708 237,006 224,317 212,788 Total Employed 245,638 238,938 232,270 219,198 206,860 Total Unemployed 5,230 4,770 4,736 5,119 5,928 Perelmt of Unemployed 2 08% 1 96% 2 00% 2 28% 2 79% State of Texas Civilian Labor Force 10,454,895 0) 10,206,043 10,081,605 9,838,951 9,674,460 Total Employed 10,042,140 9,734,413 9,596,501 9,309,966 9,129,997 Total Unemployed 412,755 471,630 485,104 528,985 544,463 Pareent of Unemployed 3 95% 4 62% 4 81% 5 38% 5 63% (1) Ave?g~ annual unavallahle, as ofNovemb~r 2000 Source TeXas Employmeot Counmsslon EDUCATIonl D~nton is home to the University of North Texas, founded in 1890, Texas Woman's Umversity, founded m 1901, and an ~xtellslun campus rote for North Ceotrel Texas College, established m 1924 The two unlversmes and community college have a combined em'ollmeot of more than 36,000 students und approximately 7,029 faculty members With an anrollmunt of over 26,000 stodants, the Umverslty of North Texas leads thc combined enrollment °f Southern Methodist University at Dallas, Texas Chri~an University m Fort Worth and Ric~ University m Houston Texas Woman's University has an apprexunate enrollment of 6,800 in Denton with an additional 1,800 students attending in Dallas and Houato~ The Umw~s~Py of North Texas (UNT) campus comprises a land area of more tlum 425 acras valued in excess of $167 million The Umverelt~ encompasses nme colleges and schools of stody and offers Bachelor's degrees in 93 fields, Mastar's dagr~s in 124 areas ~nd Doctoral pmgrsms in 47 disciphnec UNT mmntmus a low 16 I atudant-feculty ratio mo_m, p.~va, le. nt private ra~er than pubh¢ mst~tottons UNT is hs~d in both America's 100 Best College Buys and America s lt~u Moat Coll~l~es Texas Woman's University (TWU), a major st~t~-supported t~ecinng and research institution, is the nation's largest pubhc unlverstty at~anded pnmerlly by woman, who comprise 90% of attending studeots Almost 90% of TWU's 444 faculty members hold a Dec, omi dagrec or oth~r appropriate terminal dagre~ in their field Through its seven schools and colleges, TWU offers 106 programs lasdmg to a Bechelor's degree, 106 Master's dagree fields, and Doc~ral degrees in 23 speclahzat~on areas North Cen~al T~as Collage (NCTC), established in 1924, opaned a Technical Voeanunal Center m Denton offenng Associate Degrees m/Occupational Therapy Assls~nc~, Criminal ,l'usUc~, Mld-Manasemant Training and Micro Compute' Apphcat]ons NCTC sp~lahzas in tmmtng geared d~reedY to busm~as and industry needs Construction has begun on the first stage of the collage's~wcempusslt¢loConnth, located 15 mflessoutheastofltscurrent Dentoneampus Upon complctrenlnDecember 1999, the $7 5 million doll~' buildm$ will combine praseot!y l~scd Denton and Lewisvflle campus sites into one collage-owned facility, fe~;urlng st~t~.of-th~-ar~ lntom~t wired classrooms and on-hne class off~mgs Subsequent site plans are und~way Apprommn~ly 13,227 stodants enrolled in the Deoton lndapeodeot School District (DISD) for the 1999-2000 school year Stod~nts a~end 17 schools, ineindmg 10 elementary schools (grades K-5), three middle schools (6-8), two high schools (9-12), one early ~hlldhood canter and one alternative sahool DISD offers classes at each school and at the instructional center for smdants Who ~xpmeoc~ learning disabilities or handicaps Counselors, speech and language specialists, psychologists, and reading a~d diagnostic consultants are avaflahin for all grade levels In 1999, DISD graduated ~69 students with over 81% A-4 contmumg their education at two and fou~yeer colleges and universities DISD continued to experience a very low drop out rate 4% The district is one of only 82 school districts to have em*fled acereditation by both the Texas Education Agency and the Southern Association of Colleges and Schools for primary and secondary schools DISD students consistently exceed both state and national average test scores Continued emphasis on basic skills has positioned students to anhleve anedemlc, fine ar~s, vocational and athletic honors at district, state, and national competitions Billy Ryan High School was chosen in January 1999 by USA Today as one of thc top 96 High Schools in the United States Denton State School It is one of thc countp/'s most modem and progressive educational Institutions This state supported educational institution for mentally handicapped Texas residents is located on a 200-acre site prod for by Denton citizens Present facihttas mcfude resideaees which accommodate 677 students, more than 20 buddings for physically handicapped individuals with a capacity of 600, and a 32 bcd acute hospital with supporting fandtues such as X-ray, laboratory, dental, and pharmacantical Additional braidings include a modern administration building, an academic braiding, laundry facthty, maintenance shop and a warehouse Thc school has a staff of 1,354 with an annual payroll m exeess of $28,705,000 I)ENTON UNIVERSITIES EXPAND Texas Woman s University- In 2001 TWU celebrated its 100th birthday TWU celebrated its rich end long history of nationally recognized progrems m occapational therapy, physical therapy and dance The undergraduate progrem ra nutrtuon m the collage of Health Sciences is ranked 23rd in the rmtionl The over 100 majors offered to students includes the only maste?s program in woman's studies in Texas In April 2000, Dr Ann Stuart was inaugurated as ~k'U*s new president and chancellor University of North Texas - 13CNT's new 100,000 square foot, $17 5 million Gatawey Vantors Center construction is well underway When completed it will include classrooms, administrative offices, and a comprehensive campus mformatmn canter forvantors InOctobcr, Dr Norval Pohl came to UNT from the Unlversity ofNeveda Las Vegas and was appomtod presldent of UNT Under Dr Pohl's direction, the umvcrsity will establish a new doctoral program m applied gnrontoloBy Thc University is working with Industry to plan for a highly anticipated college of engineering Regional mdustzy demand for engineers is expected to accelerate this goal Acc~aimedf~rac~ustica~excal~ance~~NT~sMurchisonPerf~rmmgArtsBur~dmg~panedmFebruery 1999 The state-of-the-art faclhty Includes a 1,200-seat performance hall and a 400=seat lyric opera house showcasing UNT's 1,400 music majors and international visiting urtlsts UNT Is one of the country's largest and mast rccogulzed music sohools, and is home to the multiple Grammy wmrnng "One o'Clock Lab Band" AGRICULTURE Northwestern Denton County is one of the more diversified agricultural arees in Texas With soil types rangmg f~om rich black to deep sandy loam, and good, soft artesian water, it is ideal for diversified farming and hvestock Prlanipal crops are corn, wheat, oats, hay grain sorghums and peanuts Beef cattle, sheep, chickens and turkeys contribute a substantial and steady income every year to the farmers and ranchers of the County A very significant concent~flun of valuable world champion horses and horse ranches, located immediately to the north and cast of thc City's corporate boundaries, provide a prosperous economic resource for the City and area Products significant to the economy are horses, beef, eggs ,wheat, grain sorghum% hay, and nursery crops TRANSPORTATION Denton is located only 20 miles northeast of the Dallas-Fort Worth International Airport which began operations rn January 1974 In addition Dallas' Love Field Airport and Fort Worth's Meacham International Airport are within close proxunlty to Denton Alliance Airport, located about 20 miles southwest of Denton, is the only purely industrial airport in the world Accompanying the Alliance's Airport are five business parks Together, Alhanca's access to highway, rail and air transportation offers an excellent oppovtumty for future commercial and industrial §rowth The Denton Municipal Airport uses a full instrument landing system and is in opcratiun 24 hours a day The rnnwey is 6,000 feet by 150 feet with plans to extend it an additional I,:500 f¢c~t A new terminal apron was completed In 2000 Other plans include air traffic control services and a new terminal buddmg The City airport received $1,500,000 grant for airport improvements that will fuod the reconstractlon of taxlways, improvements to tho runways and toxlway signagu, general pavemant maintenance and constra~lon of a hehpnd The mrport also received a $150,000 grant to fund a master plan update The Kansas City Southern Railroad and the Union Pacific Railroad provide dally service to Denton Full switching Is available, providing direct access to ail major markets across the natian Greyhoand~rallweys serves Denton through Dallas and Oklphoma City Motor freight m Denton is included in thc D/FW commercial tredc zone and Is served by major freight cacners BANKING There ese eight banks m Danton Bank of America, N A, Bank One, N A, First State Bank of Texas, Farmers and Merchants State Bank Northwest Bank Texas, N A, Point Bank, N A, Provident Bank and Texas Bank Denton was chosen as the headquarter s~tc for Northstar Bank, the only locally-owned bank in Denton Construction is scheduled for completion in the Fall, 2001 ~n~998~ca~ybasedP~mtBankren~vstedavacantbuddmgt~creatuthairthirdbranchinDent~n Alan m 1998 Gueranty Federal Bank built a new facility on University Drive A-5 C~t~ Stat~ Fiscal Budding Penmts(~) Water S~ Ele~c Uncmploym~t Un~ployment Yc~ Co~ ~i~n~ To~ ~stom~ Castome~ ~s~m~ R~s $5~ :$35,586,747 $94,~16,287 16,850 16,887 31,605 404% 5 63% 1996 1997 41,085,727 50,384,468 91,470,19~ 17,288 17,272 32,586 331% 538% 1998 60,407,564 85,752,929 146,160,493 17,921 17,799 33,540 2 91% 4 1999 27,1~2,960 161,~1,588 188,774,$18 18,825 18~59 ~5,549 2 85% 4 62% 2000 17,646,~3 166,783,910 184,430,553 21,146 19,325 33,833 3 03% 395% (1) ~stmction Only M,~DICAL Denton Regional Medical Center is a 186 bcd cominunlty hospital that serves thc growing population of Denton, Wise, Cooke and Montague Counties Offering tho full-spectrum of healthcare including advanced open-henri surgery and ncurosargcry programs, Denton Regiooal's more than 1,000 employees and 250 physicians arc constantly shaving to offer thc highest quality service to the north-Texas area, Denton Community Hospital is a II0 bed (all private room) acute care facility with 10 well-bnby cribs and thren intermediate care units The physical plent consists of n three story structure with apprexunntely 128,000 squnre feet. The hospital has approxlnmtqly 500 einployens and more than 200 physimens on staff Patient care ts available to neonates, pediatric, adult, and gcnalnc patients based on than' needs, diagnosis, acuity of illness, and specialized treatments R~CREATION LIIke Ray Roberts, located approximately 8 indes northeast of the City's corporate boundary on the Elm Fork of the Trinity River, Is a major water conservation and flood control facility of inore than 799,600 acre-feat of storage which provides an abondence of parks and other water and outdoor related recreational faedmas Major park facilities on Lake Ray Roberts were coinpleted m the fall of 1996 Nearby Lake Lewmvllle, one of North Texas' largest lakes, is one of Texas' most popular recreation a~. Lake Lewisvdin has a shore line of 183 miles located entirely m Denton County Lake Lewisvlile attracts over 3,000,000 visitors to itS shores annually The upper reaches of tho Lake arc only about 3 miles east of tho Denton City Limits, while tho dam is 15 unles from downtown Denton (h*apevme Lake, another large body of water created by the U S Army Corps of Engineers, ~s located in Denton and Tarrent Counties The dam IS 23 miles froin Denton Parks end recreational areas abound on the shores of Lake Ray Roberts, Lake Lewisvllle end Grapevine Lakes Boating, fishing, hunting, swlmmm$ and all water sports are the favonte recreational pastimes at tho lakes, which, because of this area's favorable climate, arc in usc the year round A 6 APPENDIX B EXCERPTS FROM THE CITY OF DENTON, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2000 Tho mfonn~on contained In this Appendix consists of excerp~ from the City of Denton, Tex~s Annual Financial Report for the Year Ended September 30, 2000, and is not intended to be a complete statement of ~he City's financial condmon Reference is made to the complete Report for further infonnatton APPENDIX C FORM OF BOND COUNSEL'S OPINIONS APPENDIX D SPECIMEN MUNICIPAL BOND INSURANCE POLICY