Loading...
HomeMy WebLinkAboutMarch 25, 2003ss Agenda AGENDA CITY OF DENTON CITY COUNCIL March 25, 2003 After determining that a quorum is presem, the City Council will convene in a Special Called Meeting of the City of Demon City Council on Tuesday, March 25, 2003 at 11:00 a.m. in the City Council Chambers of City Hall, 215 E. McKinney, Demon, Texas at which the following item will be considered: Consider adoption of an ordinance authorizing the issuance, sale, and delivery of City of Demon Certificates of Obligation Bonds, Series 2003; approving and authorizing instruments and procedures relating thereto; and providing an effective date. Consider adoption of an ordinance authorizing the issuance, sale, and delivery of City of Demon General Obligation Refunding and Improvemem Bonds, Series 2003, levying the tax to pay same; approving and authorizing instruments and procedures relating thereto; and providing an effective date. CERTIFICATE I certify that the above notice of meeting was posted on the bulletin board at the City Hall of the City of Demon, Texas, on the day of ,2003 at o'clock (a.m.) (p.m.) CITY SECRETARY NOTE: THE CITY OF DENTON CITY COUNCIL CHAMBERS IS ACCESSIBLE IN ACCORDANCE 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. 03/25/03 #1 AGENDA DATE: DEPARTMENT: ACM: AGENDA INFORMATION SHEET March 25, 2003 Fiscal Operations Kathy DuBose, Fiscal and Municipal Services SUBJECT Consider adoption of an ordinance authorizing the issuance, sale and delivery of City of DeNon Certificates of Obligation Bonds, Series 2003, approving and authorizing instruments and procedures relating thereto; and providing an effective date. BACKGROUND On March 25, 2003, David Medanich of First Southwest Company and Ted Brizzolara III of McCall, Parkhurst and Horton, will deliver and open the bids regarding the City of DeMon's Certificates of Obligation Bonds, Series 2003. The process of opening the bids and tabulating them before the City Council is required by City Charter. The Bonds will provide funding of $7,315,000 (plus costs of issuance) for the following projects and improvements: 1,050,000 1,740,000 565,000 2,210,000 1,750,000 Streets and Transportation Technology Services Parks (Aquatic Cemer) Facilities (Renovations and Land Acquisitions) Solid Waste PRIOR ACTION/REVIEW (Council, Boards, Commissions) All of these projects were approved in the 2003-2007 Capital Improvemem Program. FISCAL INFORMATION The Certificates of Obligation Bonds will have an estimated average annual debt services requiremem of approximately $513,000. This amoum has been included in the budget process. Respectfully submitted: Diana G. Ortiz Director of Fiscal Operations S :\Our Document s\Ordinances\03\3 - 13 -2003 -CO-Ordinance. doc ORDINANCE NO. 2003- AN ORDINANCE AUTHORIZING THE ISSUANCE, SALE, AND DELIVERY OF CITY OF DENTON CERTIFICATES OF OBLIGATION, SERIES 2003; 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 Obligation Act of 1971, as amended and codified (the "Act") permits the City to issue and sell for cash the Certificates of Obligation hereinafter authorized; and WHEREAS, the City has duly caused notice of its intention to issue the Certificates of Obligation hereinafter authorized to be published at the times and in the manner required by the Act and no petition 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 $7,405,000, 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) acquisition of land for construction of public safety facilities, (b) acquisition of land for expansion of City warehouse facilities, (c) improvements at the City's public parks, (d) improvements to the City's solid waste disposal system and acquisition of related equipment, (e) computer and technology equipment and upgrades for the City's information technology and communication systems, (f) road and street improvements and equipment 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 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 2003", 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 denominations of $5,000 or any integral multiple of $5,000, all in the manner herein- after provided. The term "Certificates" as used in this Ordinance shall mean and include collectively the Initial Certificate and all substitute certificates exchanged therefor, as well as all other substitute certificates and 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 Initial Certificate is hereby authorized to be issued, sold, and delivered hereunder as a single fully registered Certificate, without interest coupons, dated March 15, 2003, in the denomination and aggregate principal amount of $7,405,000, numbered R-l, payable in annual installments of principal to the initial registered owner thereof, to-wit: or to the registered assignee or assignees of said Certificate or any portion or portions thereof (in each case, the "registered owner"), with the annual installments of principal of the Initial Certificate to be payable on the dates, respectively, and in the principal amounts, respectively, stated in the FORM OF INITIAL CERTIFICATE set forth in this Ordinance. (b) The Initial Certificate (i) may be assigned and transferred, (ii) may be converted and exchanged for other Certificates, (iii) shall have the characteristics, and (iv) shall be signed and sealed, and the principal of and interest on the Initial Certificate shall be payable, all as provided, and in the manner required or indicated, in the FORM OF INITIAL CERTIFICATE set forth in this Ordinance. Section 4. INTEREST. The unpaid principal balance of the Initial Certificate shall bear interest from the date of the Initial Certificate to the respective scheduled due dates of the installments of principal of the initial Certificate, and said interest shall be payable, all in the manner provided and at the rates and on the dates stated in the FORM OF INITIAL CERTIFICATE set forth in this Ordinance. Section 5. FORM OF INITIAL CERTIFICATE. The form of the Initial Certificate, including the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be endorsed on the initial Certificate, shall be substantially as follows: FORM OF INITIAL CERTIFICATE NO. R-1 $7,405,000 UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON CERTIFICATE OF OBLIGATION SERIES 2003 THE CITY OF DENTON, in Denton County, Texas (the "Issuer"), being a political subdivision of the State of Texas, hereby promises to pay to or to the registered assignee or assignees of this Certificate or any portion or portions hereof (in each case, the "registered owner") the aggregate principal amount of $7,405,000 (SEVEN MILLION FOUR HUNDRED FIVE THOUSAND DOLLARS) in annual installments of principal due and payable on February 15 in each of the years, and in the respective principal amounts, as set forth in the following schedule, and to pay interest, from the date of this Certificate hereinafter stated, on the balance of each such installment of principal, respectively, from time to time remaining unpaid, at the rates per annum as follows: PRINCIPAL INTEREST PRINCIPAL YEAR AMOUNT RATE(%) YEAR AMOUNT INTEREST RATE(%) 2004 $485,000 2014 $190,000 2005 610,000 2015 195,000 2006 635,000 2016 200,000 2007 655,000 2017 215,000 2008 670,000 2018 225,000 2009 475,000 2019 200,000 2010 495,000 2020 210,000 2011 470,000 2021 220,000 2012 385,000 2022 230,000 2013 400,000 2023 240,000 Interest shall first be due and payable on February 15, 2004, and semiannually on each February 15 and August 15 thereafter while 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 Certificate are payable in lawful money of the United States of America, without exchange or collection charges. The installments of principal and the interest on this Certificate are payable to the registered owner hereof through the services of BANK ONE, NATIONAL ASSOCIATION, AUSTIN, TEXAS, which is the "Paying Agent/Registrar" for this Certificate. Payment of all principal of and interest on this Certificate shall be made by the Paying Agent/Registrar to the registered owner hereof on each principal and/or inter- est 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 Certificate (the "Certificate Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such principal 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 Certificate that on or before each principal and/or interest payment date for this Certificate it will make available to the Paying Agent/Registrar, 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 princi- pal of and interest on this Certificate, 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, 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 mail, first class postage prepaid, to the address of each Holder of a Certificate appearing on the registration books of the Paying Agent/Registrar at the close of business on the 15th business day next preceding the date of mailing of such notice. IF THE DATE for the payment of the principal of or interest on this Certificate shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where the Paying Agent/Registrar is 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 banking 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 has been authorized in accordance with the Constitution and laws of the State of Texas in the principal amount of $7,405,000 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) acquisition of land for construction of public safety facilities, (b) acquisition of land for expansion of City warehouse facilities, (c) improvements at the City's public parks, (d) improvements to the City's solid waste disposal system and acquisition of related equipment, (e) computer and technology equipment and upgrades for the City's information technology and communication systems, (f) road and street improvements and equipment 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 said Certificates of Obligation. ON FEBRUARY 15, 2013, or on any date whatsoever thereafter, the unpaid installments of principal of this Certificate of Obligation 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 Certificate of Obligation to be prepaid or redeemed shall be selected and designated by the Issuer (provided that a portion of this Certificate of Obligation may be redeemed only in an integral multiple of $5,000), at the prepayment or redemption price of the par or principal amount thereof, plus accrued interest to the date fixed for prepayment or redemption. [THE CERTIFICATES 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 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 in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof and accrued interest to the date of redemption, on the dates, and in the principal amounts, respectively, as shown in the following schedule: February 15, __ Maturity Mandatory Principal Redemption Dates Amounts (maturity) The principal amount of the Certificates 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 Certificates out of the maturity scheduled for _, __ which, at least 45 days prior to the aforesaid appropriate redemption date (1) shall have been acquired by the Issuer at a price not exceeding the principal amount of such Certificates 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 provisions hereof and not previously credited to the mandatory sinking fund redemption. During any period in which ownership of the Certificates is determined by a book entry at a securities depository for the Certificates, if fewer than all of the Certificates of the same maturity and bearing such interest rate shall be selected in accordance with 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 notice 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 provision shall be made by the Issuer with the Paying Agent/Registrar for the payment of the required prepayment or redemption price for this Certificate or the portion hereof which is to be so prepaid or redeemed, plus accrued interest thereon to the date fixed for prepayment or redemption. If such written notice of prepayment or redemp- tion is given, and if due provision for such payment is made, all as provided above, this Certificate, or the portion thereof which is to be so prepaid or redeemed, thereby automatically shall be treated as prepaid or redeemed prior to its scheduled due date, and shall not bear interest after the date fixed for its prepayment or redemption, and shall not be regarded as being outstanding except for the right of the registered owner to receive the prepayment or redemption price plus accrued interest to the date fixed for prepayment or redemption from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar shall record in the Registration Books all such prepayments or redemptions of principal of this Certificate or any portion hereof. THIS CERTIFICATE, to the extent of the unpaid principal balance hereof, or any unpaid portion hereof in any integral multiple of $5,000, may be assigned by the initial registered owner hereof and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Certificates, upon the terms and conditions set forth in the Certificate Ordinance. Among other requirements for such transfer, this Certificate must be presented and surrendered to the Paying Agent/Registrar for cancellation, together with proper instruments of assign- ment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment by the initial registered owner of this Certificate, or any portion or portions hereof in any integral multiple of $5,000, to the assignee or assignees in whose name or names this Certificate or any such portion or portions hereof is 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 assignment of this Certificate or any such portion or portions hereof by the initial registered owner hereof. A new certificate or certificates payable to such assignee or assignees (which then will be the new registered owner or owners of such new Certificate or Certificates) or to the initial registered owner as to any portion of this Certificate which is not being assigned and transferred by the initial registered owner, shall be delivered by the Paying Agent/Registrar in conversion of and exchange for this Certificate or any portion or portions hereof, but solely in the form and manner as provided in the next paragraph hereof for the conversion and exchange of this Certificate or any portion hereof. 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 liability upon this Certificate to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. AS PROVIDED above and in the Certificate Ordinance, this Certificate, to the extent of the unpaid principal balance hereof, may be converted into and exchanged for a like aggregate principal amount of fully registered certificates, without interest coupons, payable to the assignee or assignees duly designated in writing by the initial registered owner hereof, or to the initial registered owner as to any portion of this Certificate which is not being assigned and transferred by the initial registered owner, in any denomination or denominations in any integral multiple of $5,000 (subject to the requirement here- inafter stated that each substitute certificate issued in exchange for any portion of this Certificate shall have a single stated principal maturity date), 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. If this Certificate or any portion hereof is assigned and transferred or converted each certifi- cate issued in exchange for any portion hereof shall have a single stated principal maturity date corresponding to the due date of the installment of principal of this Certificate or portion hereof for which the substitute certificate is being exchanged, and shall bear interest at the rate applicable to and borne by such installment of principal or portion thereof. No such certificate shall be payable in installments, but shall have only one stated principal maturity date. AS PROVIDED IN THE CERTIFICATE ORDINANCE, THIS CERTIFICATE IN ITS PRESENT FORM MAY BE ASSIGNED AND TRANSFERRED OR CONVERTED ONCE ONLY, and to one or more assignees, but the certificates issued and delivered in exchange for this Certificate or any portion hereof may be assigned and transferred, and converted, subsequently, as provided in the Certificate Ordinance. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging this Certificate 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. The Paying Agent/Registrar shall not be required to make any such assignment, conversion, or exchange during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date. IN THE EVENT any Paying Agent/Registrar for this Certificate is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Certificate Ordinance that it promptly will appoint a competent and legally qualified substitute 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 Certificate has been duly and validly authorized, issued, and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Certificate have been performed, existed, and been done in accordance with law; that this Certificate is a general obligation of the Issuer, issued on the full faith and credit thereof; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied against all taxable property in the Issuer, and have been pledged irrevocably for such payment, within the limit prescribed by law; and that, together with other parity obligations, this Certificate additionally is 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 (consisting of the City's combined 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 in accordance with the Certificate Ordinance, other and additional obligations, and to enter into contracts, payable from ad valorem taxes and/or revenues of the City's Utility System, on a parity with, or with respect to said revenues, superior in 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 provisions, acknowledges that the Certificate Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Certificate and the Certificate Ordinance constitute a contract between the registered owner hereof and the Issuer. 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 with the manual or facsimile signature of the City Secretary of the Issuer, has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Certificate, and has caused this Certificate to be dated March 15, 2003. ATTEST: CITY OF DENTON, TEXAS By: By: Jennifer Walters City Secretary, City of Denton, Texas Euline Brock 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 certify that this Certificate has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Certificate 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 CERTIFICATES. Registration and Transfer. (a) The Issuer shall keep or cause to be kept at the principal corporate trust office of BANK ONE, NATIONAL ASSOCIATION, AUSTIN, TEXAS (the "Paying Agent/Registrar") books or records of the registration and transfer of the Certificates (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 provided. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the registered owner of each Certificate to which payments with respect to the Certificates shall be mailed, as herein provided; but it shall be the duty of each registered owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest 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 otherwise required by law, shall not permit their inspection by any other entity. Registration of each Certificate may be transferred in the Registration Books only upon presentation and surrender of such Certificate to the Paying Agent/Registrar for transfer of registration and cancellation, together with proper written instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, (i) evidencing the assignment of the Certificate, 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 Certificate or any such portion thereof registered in the name of such assignee or assignees. Upon the assignment and transfer of any Certificate or any portion thereof, a new substitute Certificate or Certificates shall be issued in conversion and exchange therefor in the manner herein provided. The Initial Certificate, to the extent of the unpaid principal balance thereof, may be assigned and transferred by the initial registered owner thereof once only, and to one or more assignees designated in writing by the initial registered owner thereof. All Certificates issued and delivered in conversion of and exchange for the Initial Certificate shall be in any denomination or denominations of any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Certificate shall have a single stated principal maturity date), shall be in the form prescribed in the FORM OF SUBSTITUTE CERTIFICATE set forth in this Ordinance, and shall have the characteristics, and may be assigned, transferred, and converted as hereinafter provided. If the Initial Certificate or any portion thereof is assigned and transferred or converted the Initial Certificate must be surrendered to the Paying Agent/Registrar for cancellation, and each Certificate issued in exchange for any portion of the Initial Certificate shall have a single stated principal maturity date, and shall not be payable in installments; and each such Certificate shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Certificate is being exchanged; and each such Certificate shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If only a portion of the Initial Certificate is assigned and transferred, there shall be delivered to and registered in the name of the initial registered owner substitute Certificates in exchange for the unassigned balance of the Initial Certificate in the same manner as if the initial registered owner were the assignee thereof. If any Certificate or portion thereof other than the Initial Certificate is assigned and transferred or converted each Certificate issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Certificate for which it is exchanged. A form of assignment shall be printed or endorsed on each Certificate, excepting the Initial Certificate, which shall be executed by the registered owner or its duly authorized attorney or repre- sentative to evidence an assignment thereof. Upon surrender of any Certificates or any portion or por- tions thereof for transfer of registration, an authorized representative of the Paying Agent/Registrar shall make such transfer in the Registration Books, and shall deliver a new fully registered substitute Certificate or Certificates, having the characteristics herein described, payable to such assignee or assign- ees (which then will be the registered owner or owners of such new Certificate or Certificates), or to the previous registered owner in case only a portion of a Certificate is being assigned and transferred, all in conversion of and exchange for said assigned Certificate or Certificates or any portion or portions thereof, in the same form and manner, and with the same effect, as provided in Section 6(d), below, for the conversion and exchange of Certificates by any registered owner of a Certificate. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making 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 Certificate or any portion thereof during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date. (b) Ownership of Certificates. The entity in whose name any Certificate shall be registered in 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 Certificate 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 principal of, premium, if any, and interest on any such Certificate 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. (c) Payrnent 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 interest on the Certificates, and to act as its agent to convert and exchange or replace Certificates, all as provided in this 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 Certificates, and of all conversions and exchanges of Certificates, and all replacements of Certificates, as provided in this Ordinance. However, 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, 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 mail, first class postage prepaid, to the address of each Holder of a Certificate appearing on the registration books of the Paying Agent/Registrar at the close of business on the 15th business day next preceding the date of mailing of such notice. (d) Conversion and Exchange or Replacement; Authentication. Each Certificate issued and delivered pursuant to this Ordinance, to the extent of the unpaid principal balance or principal amount thereof, may, upon surrender of such Certificate at the principal corporate trust office of the Paying Agent/Registrar, together with 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 interest coupons, in the form prescribed in the FORM OF SUBSTITUTE CERTIFICATE set forth in this Ordinance, in the denomination of $5,000, or any integral multiple of $5,000 (subject to the requirement 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 principal amount equal to the unpaid principal balance or principal amount of any Certificate or Certificates so surrendered, and payable to the appropriate registered owner, assignee, or assignees, as the case may be. If the initial Certificate is assigned and transferred or converted each substitute Certificate issued in exchange for any portion of the Initial Certificate shall have a single stated principal maturity date, and shall not be payable in installments; and each such Certificate shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Certificate is being exchanged; and each such Certificate shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If any Certificate or portion thereof (other than the Initial Certificate) is assigned and transferred or converted, each Certificate issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Certificate for which it is being 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 Certificates as provided herein, and each fully registered certificate de- livered in conversion of and exchange for or replacement of any Certificate or portion thereof as permitted or required by any provision of this Ordinance shall constitute one of the Certificates for all purposes of this Ordinance, and may again be converted and exchanged or replaced, it is specifically provided that any Certificate authenticated in conversion of and exchange for or replacement of another Certificate on or prior to the first scheduled Record Date for the initial 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 Certificate was so authenticated, unless such Certificate is authenticated after any Record Date but on or before the next following interest payment date, in which case it shall bear interest from such next following interest payment date; provided, however, that if at the time of delivery of any substitute Certificate the interest on the Certificate for which it is being exchanged is due but has not been paid, then such Certificate shall bear interest from the date to which such interest has been paid in full. THE INITIAL CERTIFICATE 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 Certificate issued in conver- sion of and exchange for or replacement of any Certificate or Certificates issued under this Ordinance there shall be printed a certificate, in the form substantially as follows: "PAYING 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 in conversion of and exchange for or replacement of a certificate, certificates, or a portion of a 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, NATIONAL ASSOCIATION AUSTIN, TEXAS, Paying Agent/Registrar Dated By_ Authorized Representative" An authorized representative of the Paying Agent/Registrar 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 governing 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 Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Certificates in the manner prescribed herein, and said Certificates shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Chapter 1201, Texas Government Code, the duty of conversion and exchange or replacement of Certificates 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 Certificate shall be valid, incontestable, and enforceable in 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 Public Accounts. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, 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 privilege 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 business 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 portion thereof, (i) shall be issued in 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, (iv) shall have the characteristics, (v) shall be signed and sealed, and (vi) the principal of and interest on the Certificates shall be payable, all as provided, and in the manner required or indicated, in the FORM OF SUBSTITUTE CERTIFICATE set forth in this Ordinance. (f) Payment of Fees and Charges. The Issuer hereby covenants with the registered owners of the Certificates that it will (i) 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 Certificates, when due, and (ii) pay the fees and charges of the Paying Agent/Registrar for services with respect to the transfer of registration of Certificates, and with respect to the conversion and exchange of Certificates solely to the extent above provided in this Ordinance. l0 (g) Substitute Paying Agent/Registrar. The Issuer covenants with the registered owners of the Certificates that at all times while the Certificates are outstanding the Issuer will provide 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 Certificates 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 Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or otherwise cease to act as such, the Issuer covenants that it will promptly appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar shall promptly transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Certificates, to the new Paying Agent/Registrar designated and appointed by the Issuer. Upon any change in the Paying Agent/Registrar, the Issuer promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each registered owner of the Certificates, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position 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 Ordinance shall be delivered to each Paying Agent/Registrar. Section 7. FORM OF SUBSTITUTE CERTIFICATES. The form of all Certificates issued in conversion and exchange or replacement of any other Certificate or portion thereof, including the form of Paying Agent/Registrar's Certificate to be printed on each of such Certificates, and the Form of Assignment to be printed on each of the Certificates, shall be, respectively, substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance. NO. FORM OF SUBSTITUTE CERTIFICATE (Book-Entry Only Legend, if appropriate) UNITED STATES OF AMERICA PRINCIPAL AMOUNT STATE OF TEXAS $ COUNTY OF DENTON CITY OF DENTON CERTIFICATE OF OBLIGATION SERIES 2003 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 political subdivision of the State of Texas, hereby promises to pay to or to the registered assignee hereof (either being hereinafter called the "registered owner") the principal amount of and to pay interest thereon, calculated on the basis of a 360-day year composed of twelve 30-day months, from March 15, 2003, to the maturity date specified above, at the interest rate per annum specified above; with interest being first due and payable on February 15, 2004, 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 Date (hereinafter defined), such principal amount 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 following interest payment date, in which case such principal amount shall bear interest from such next following interest payment date. THE PRINCIPAL OF AND INTEREST ON this Certificate are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Certificate shall be paid to the registered owner hereof upon presentation and surrender of this Certificate at maturity, at the principal corporate trust office of BANK ONE, NATIONAL ASSOCIATION, AUSTIN, TEXAS, which is the "Paying Agent/Registrar" for this Certificate. The payment of interest on this Certificate 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 authorizing the issuance of the Certificates (the "Certificate Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check shall be sent by the Paying Agent/Registrar by United States mail, 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 Registration 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. The Issuer covenants with the registered owner of this Certificate that on or before each principal payment date, interest payment date, and accrued interest payment date for this Certificate it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the 12 Certificate Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Certificates, 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, 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 mail, first class postage prepaid, to the address of each Holder of a Certificate appearing on the registration books of the Paying Agent/Registrar at the close of business on the 15th business day next preceding the date of mailing of such notice. IF THE DATE for the payment of the principal of or interest on this Certificate shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where the Paying Agent/Registrar is 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 banking 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 Certificates initially dated March 15, 2003, authorized in accordance with the Constitution and laws of the State of Texas in the principal amount of $7,405,000, 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) acquisition of land for construction of public safety facilities, (b) acquisition of land for expansion of City warehouse facilities, (c) improvements at the City's public parks, (d) improvements to the City's solid waste disposal system and acquisition of related equipment, (e) computer and technology equipment and upgrades for the City's information technology and communication systems, (f) road and street improvements and equipment 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 said Certificates of Obligation. ON FEBRUARY 15, 2013, 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 Certificate may be redeemed only in an integral multiple of $5,000), at the redemption price of the par or principal amount thereof, plus accrued interest 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 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 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 in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof and accrued interest to the date of redemption, on the dates, and in the principal amounts, respectively, as shown in the following schedule: February 15, __ Maturity Mandatory Principal Redemption Dates Amounts 3_3 (maturity) The principal amount of the Certificates 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 Certificates out of the maturity scheduled for _, __ which, at least 45 days prior to the aforesaid appropriate redemption date (1) shall have been acquired by the Issuer at a price not exceeding the principal amount of such Certificates 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 provisions hereof and not previously credited to the mandatory sinking fund redemption. During any period in which ownership of the Certificates is determined by a book entry at a securities depository for the Certificates, if fewer than all of the Certificates of the same maturity and bearing such interest rate shall be selected in accordance with the arrangements between the Issuer and the securities depository.] AT LEAST 30 days prior to the date fixed for any redemption of Certificates or portions thereof prior to maturity a written notice of such redemption shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, to the registered owner of each Certificate to be redeemed at its address as it appeared on the 45th day prior to such redemption date; provided, however, that the failure to send, mail, or receive such notice, or any defect therein or in the sending or mailing thereof, shall not affect the validity or effectiveness of the proceedings for the redemption of any Certificate. By the date fixed for any such redemption due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Certificates or portions thereof which are to be so redeemed, plus accrued interest thereon to the date fixed for redemption. If such written notice of redemption is given and if due provision for such payment is made, all as provided above, the Certificates 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 from the Paying Agent/Registrar out of the funds provided for such payment. If a portion of any Certificate shall be redeemed a substitute Certificate or Certificates having the same maturity date, bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000, at the written request of the registered owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provided in the Bond Ordinance. THIS CERTIFICATE OR ANY PORTION OR PORTIONS HEREOF IN ANY INTEGRAL MULTIPLE OF $5,000 may be assigned and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Certificates, upon the terms and conditions set forth in the Certificate Ordinance. Among other requirements for such assignment and transfer, this Certificate must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Certificate or any portion or portions hereof in any integral multiple of $5,000 to the assignee or assignees in whose name or names this Certificate or any such portion or portions hereof is or are to be transferred and registered. The form of Assignment printed or endorsed on this Certificate shall be executed by the registered owner or its duly authorized attorney or representative, to evidence the assignment hereof. A new Certificate or Certificates payable to such assignee or assignees (which then will be the new registered owner or owners of such new Certificate or Certificates), or to the previous registered owner in the case of the assignment and transfer of only a portion of this Certificate, may be delivered by the Paying Agent/Registrar in conversion of and exchange for this Certificate, all in the form and manner as provided in the next paragraph hereof for the conversion and exchange of other Certificates. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer, 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 this Certificate or any portion hereof during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal 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 liability upon this Certificate to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. ALL CERTIFICATES OF THIS SERIES are issuable solely as fully registered certificates, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Certificate Ordinance, this Certificate, may, at the request of the registered owner or the assignee or assignees hereof, be converted into and exchanged for a like 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 denomination or denominations 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/Registrar'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 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 during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date. IN THE EVENT any Paying Agent/Registrar for the Certificates is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Certificate Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and will promptly cause written notice thereof to be mailed to the registered owners of the Certificates. IT IS HEREBY certified, recited, and covenanted that this Certificate has been duly and validly authorized, issued, and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Certificate have been performed, existed, and been done in accordance with law; that this Certificate is a general obligation of the Issuer, issued on the full faith and credit thereof; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied against all taxable property in the Issuer, and have been pledged irrevocably for such payment, within the limit prescribed by law; and that, together with other parity obligations, 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 (consisting of the City's combined waterworks system, sanitary sewer system, and electric light and power system), all as provided in the Certificate Ordinance. THE ISSUER has reserved the fight to issue, in accordance with law, and in accordance with the Certificate Ordinance, other and additional obligations, and to enter into contracts, payable from ad valorem taxes and/or revenues of the City's Utility System, on a parity with, or with respect to said revenues, superior in 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 provisions, acknowledges that the Certificate Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Certificate and the Certificate Ordinance constitute a contract between each registered owner hereof and the Issuer. 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 with 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 in facsimile, on this Certificate. ATTEST: CITY OF DENTON, TEXAS By: By: Jennifer Walters City Secretary, City of Denton, Texas (CITY SEAL) Euline Brock Mayor, City of Denton, Texas FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE PAYING 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 in conversion of and exchange for or replacement of a certificate, certificates, or a portion of a 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, NATIONAL ASSOCIATION AUSTIN, 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 Certificate to / / (Assignee's Social Security or Taxpayer Identification Number (print or typewrite Assignee's name and address, including zip code) and hereby irrevocably constitutes and appoints attorney to transfer the registration of this Certificate on the Paying Agent/Registrar's Registration Books with full power of substitution in the premises. Dated: Signature Guaranteed: NOTICE: Signature(s) must be guaranteed by an eligible guarantor institution participating in a securities transfer association recognized signature guarantee program. Registered Owner NOTICE: This signature must correspond with the name of the Registered Owner 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 Certificates, 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 Sinking Fund shall be kept separate and apart from all other funds and accounts of the Issuer, and shall be used only for paying the interest on and principal of the Certificates. All ad valorem taxes levied and collected for and on account of the Certificates, together with any premium and accrued interest received upon sale of the Certificates, shall be deposited, as collected, to the credit of the Interest and Sinking Fund. During each year while any of the Certificates or interest thereon are outstanding and unpaid, the governing body of the Issuer shall compute and ascertain a rate and amount of ad valorem tax which will be sufficient to raise and produce the money required to pay the interest on the Certificates as such interest becomes due, and to provide and maintain a sinking fund adequate to pay the principal of its Certificates as such principal matures or is scheduled for redemption (but never less than 2% of the original principal amount of the Certificates as a sinking fund each year). Said tax shall be based on the latest approval tax rolls of the Issuer, with full allowance being made for tax delinquencies and the cost of tax collection. Said 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 interest thereon are outstanding and unpaid; and said tax shall be assessed and collected each such year and deposited to the credit of the aforesaid Interest and Sinking Fund. Said ad valorem taxes sufficient to 17 provide for the payment of the interest on and principal of the Certificates, as such interest comes due and such principal matures or is scheduled for redemption, are hereby pledged for such payment, within the limit prescribed by law. Section 9. SURPLUS REVENUES. The Certificates additionally shall be payable from and secured by surplus revenues in accordance with Section 1502 of the Texas Government Code, as amended, to the extent hereinafter permitted, derived by the Issuer from the ownership and operation of the Issuer's Utility System (consisting of its combined waterworks system, sanitary sewer system, and electric light and power system) remaining after (a) payment of all amounts constituting operation and maintenance expenses of said Utility System, and (b) payment of all debt service, reserve, and other requirements and amounts required to be paid under all ordinances heretofore or hereafter authorizing (i) all bonds and (ii) all other obligations not on a parity with the Certificates, which are payable from and secured by any Utility System revenues, and (c) payment of all amounts payable from any Utility System revenues pursuant to contracts heretofore or hereafter entered into by the Issuer in accordance with law (the "Surplus Revenues"). If, for any reason, the Issuer fails to deposit ad valorem taxes levied pursuant to Section 8 hereof to the credit of the Interest and Sinking Fund in an amount sufficient to pay, when due, the principal of and interest on the Certificates, then Surplus Revenues, to the extent hereinafter per- mitted, shall be deposited to the credit of the Interest and Sinking Fund and used to pay such principal and/or interest. A maximum aggregate of $10,000 of Surplus Revenues may be used to pay principal and/or interest on the Certificates and any obligations on a parity therewith. The Certificates and any obligations on a parity therewith are not, and shall not be deemed to be, payable from or secured by any Surplus Revenues in excess of an aggregate of $10,000. Until and unless an aggregate of $10,000 of Surplus Revenues actually is used to pay any such principal and/or interest, additional obligations, payable from and secured by all or any remaining unused part of said aggregate of $10,000 of Surplus Revenues, may be issued by the Issuer on a parity with the Certificates and any other then outstanding parity obligations, with the Certificates and all such additional parity obligations to be payable from and secured equally and ratably by all or any remaining unused part of said aggregate. The Issuer reserves, and shall have, the right to issue bonds, and other obligations not on a parity with the Certificates, and to enter into contracts, in accordance with applicable laws, to be payable from and secured by any Utility System revenues other than the aggregate of $10,000 of Surplus Revenues as described above. The Certificates are on a parity with those issues of City of Denton Certificates of Obligation, Series 1993, Series 1993-A, Series 1994, Series 1995, Series 1996, Series 1998, Series 1999, Series 2000, Series 2001 and Series 2002 (the "Outstanding Certificates"), as permitted in the Ordinances authorizing same; and it is hereby found and determined that none of the above defined Surplus Revenues have ever been used to pay any principal and/or interest on the Outstanding Certificates. Section 10. DEFEASANCE OF CERTIFICATES. (a) Any Certificate and the interest thereon shall be deemed to be paid, retired, and no longer outstanding (a 'Defeased Certificate") within the meaning of this Ordinance, except to the extent provided in subsection (d) of this Section, when payment of the principal of such Certificate, plus interest thereon to the due date either (i) shall have been made or caused to be made in accordance with the terms thereof, or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar for such payment (1) lawful money of the United States of America sufficient to make such payment or (2) Government Obligations which mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer with the Paying Agent/Registrar for the payment of its services until all Defeased Certificates shall have become due and payable. At such time as a Certificate shall be deemed to be a Defeased Certificate hereunder, as aforesaid, such Certificate and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes herein levied and pledged as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Government Obligations. 18 (b) Any moneys so deposited with the Paying Agent/Registrar may at the written direction of the Issuer also be invested in Government Obligations, maturing in the amounts and times as hereinbefore set forth, and all income from such Government Obligations received by the Paying Agent/Registrar which is not required for the payment of the Certificates and interest thereon, with respect to which such money has been so deposited, shall be turned over to the Issuer, or deposited as directed in writing by the Issuer. (c) The term "Government Obligations" as used in this Section shall mean direct obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, which may be United States Treasury obligations such as its State and Local Government Series, which may be in book-entry form. (d) Until all Defeased Certificates shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Certificates the same as if they had not been defeased, and the Issuer shall make proper arrangements to provide and pay for such services as required by this Ordinance. Section 11. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED CERTIFICATES. (a) Replacement Certificates. In the event any outstanding Certificate is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new certificate of the same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Certificate, in replacement for such Certificate in the manner hereinafter provided. (b) Application for Replacement Certificates. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Certificates 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 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 destruction of a Certificate, the registered owner shall furnish to the Issuer and the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Certificate, as the case may be. In every case of damage or mutilation of a Certificate, the registered owner shall surrender to the Paying Agent/Registrar for cancellation the Certificate so damaged or mutilated. (c) 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 in the case of a damaged or mutilated Certificate) instead of issuing a replacement Certificate, provided security or indemnity is furnished as above provided in this Section. (d) Charge for Issuing Replacement 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 in connection therewith. Every replacement certificate issued pursuant to the provisions of this Section by virtue of the fact that any Certificate is lost, stolen, or destroyed shall constitute a contractual obligation of the Issuer whether or not the lost, stolen, or destroyed Certificate 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 Certificates duly issued under this Ordinance. (e) Authority for Issuing 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 of 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 Agent/Registrar shall authenticate and deliver such Certificates in the form and manner and with the effect, as provided in Section 6(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, CUSIP NUMBERS, 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, examination, and approval by the Attorney General of the State of Texas, and its registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Initial Certificate said Comptroller of Public 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 impressed, or placed in facsimile, on the Initial Certificate. The approving legal opinion of the Issuer's Bond Counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the initial Certificate or on any Certificates issued and delivered in conversion of and exchange or replacement of any Certificate, but neither shall have any legal effect, and shall be solely for the convenience and information of the registered owners of the Certificates. The preamble to this Ordinance is hereby adopted and made a part hereof for all purposes. If insurance is obtained on any of the Certificates, the initial Certificate and all other Certificates shall bear an appropriate legend concerning insurance as provided by the insurer. Section 13. COVENANTS REGARDING TAX-EXEMPTION OF INTEREST ON THE CERTIFICATES BONDS. (a) Covenants. The Issuer covenants to take any action necessary to assure, or refrain from any action which would adversely affect, the treatment of the Bonds as obligations described in 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 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in section 141(b)(6) of the Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the Issuer, with respect to such private business use, do not, under the terms of this Order or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Bonds, in contravention of section 141(b)(2) of the Code; (2) to take any action to assure that in the event that the "private business use" described in subsection (1) hereof exceeds 5 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of section 141 (b)(3) of the Code, to the governmental use; (3) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 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; (4) 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; 2O (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 were used, directly or indirectly, to acquire investment property (as defined in 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 -- (A) proceeds of the Bonds invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the bonds are issued, (B) amounts invested in a bona fide debt service fund, within the meaning of section 1.148-1 (b) of the Treasury Regulations, and (C) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Bonds; (7) to otherwise restrict 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) 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 (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(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) Proceeds. The Issuer understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if 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 herein are intended to assure compliance 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 with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Bonds under section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable 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. Section 14. SALE OF INITIAL CERTIFICATE. The Initial Certificate is hereby sold and shall be delivered to for cash for % of the par value thereof and accrued interest thereon to date of delivery, plus a cash premium of $ Such premium shall, upon receipt, be deposited into the Interest and Sinking Fund. It is hereby officially found, determined, and declared that the Initial Certificate has been sold at public sale 23_ to the bidder offering the lowest interest cost, after receiving sealed bids pursuant to an Official Notice of Sale and Bidding Instructions and Preliminary Official Statement dated ., 2003 prepared and distributed in connection with the sale of the Initial Certificate. Said Official Notice of Sale and Bidding Instructions, Preliminary Official Statement and the Official Statement dated ,2003, and any addenda, supplement, or amendment thereto have been and are hereby approved by the Issuer, and their use in the offer and sale of the Certificates is hereby approved. It is further officially found, determined, and declared that the statements and representations contained in said Official Notice of Sale, Preliminary Official Statement and Official Statement are true and correct in all material respects, to the best knowledge and belief of the City Council 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 investment earnings to be used for the purposes described in Section 1 of this Ordinance (the "Project") on its books and records in accordance with the requirements of the Internal Revenue Code. The Issuer recognizes that in 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 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 Internal Revenue 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 Certificates, or (2) the date the Certificates are retired. The Issuer agrees to obtain the advice of nationally-recognized bond counsel if such expenditure fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Certificates. 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 excludability for federal income tax purposes from gross income of the interest. Section 16. DISPOSITION OF PROJECT. The Issuer covenants that the property constituting the Project will not be sold or otherwise disposed in a transaction resulting in the receipt by the Issuer of cash or other compensation, unless the Issuer obtains an opinion of nationally-recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Certificates. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it 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 interest. Section 17. INTEREST EARNINGS ON CERTIFICATE PROCEEDS. Interest earnings derived from the investment of proceeds from the sale of the Initial Certificate shall be used along with other proceeds for the purposes for which the Certificates are issued; provided that after completion of such purposes, if any of such interest earnings remain on hand, such interest earnings shall be deposited in the Interest and Sinking Fund. It is further provided, however, that any interest earnings on certificate proceeds which are required to be rebated to the United States of America pursuant to Section 13 hereof in order to prevent 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 distribution of the Certificates will be made to the public, and The Deposi- tory Trust Company ("DTC"), New York, New York, initially will act as depository for the Certificates. DTC has represented that it is a limited purpose trust company incorporated under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered 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 authorized by this Ordinance shall be delivered to and registered in the name of the Purchaser. However, it is a condition of delivery and sale that the Purchaser, immediately after such delivery, shall cause the Paying Agent/Registrar, as provided for in this Ordinance, to cancel 22 said initial Certificate and deliver in exchange therefor a substitute Certificate for each maturity of such Initial Certificate, with each such substitute Certificate 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 Certificates on behalf of the Purchaser and/or the DTC Participants, as defined and described in the Official Statement referred to and approved in Section 14 hereof (the "DTC Participants"). So long as each Certificate 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 Certificates by DTC Participants in integral amounts of $5,000, with transfers of ownership being effected on the records of DTC and the DTC Participants pursuant to rules and regulations established by them, and that the substitute Certificates initially deposited with DTC shall be immobilized and not be further exchanged for substitute Certificates except as hereinafter provided. 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 liable for maintaining, supervising, or reviewing the records of DTC or the DTC Participants, or protecting any interests or rights of the beneficial owners of the Certificates. 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 Certificates, and the method of paying the fees and charges of DTC. The Issuer does not represent, nor does it in any way covenant that the initial book-entry system established with DTC will be maintained in the future. The Issuer reserves the right and option at any time in the future, in its sole discretion, to terminate the DTC (CEDE & CO.) book-entry only registration requirement described above, and to permit the Certificates to be registered in the name of any owner. If the Issuer exercises its right and option to terminate such requirement, it shall give 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 Certificate 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 delivered substitute Certificates is duly filed with the Paying Agent/Registrar with proper request for transfer and substitution, as provided for in this Ordinance, substitute Certificates will be duly delivered as provided in this Ordinance, and there will be no assurance or representation that any book- entry system will be maintained for such Certificates. Section 19. CONTINUING DISCLOSURE. (a) Annual Reports. (i) 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 2002, financial information and operating data with respect to the Issuer of the general type included in the final Official Statement authorized by Section 14 of this Ordinance, being the information described in Exhibit 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, and (2) audited, if the Issuer commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the Issuer shall provide unaudited financial statements by the required time and will 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. (ii) 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 required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. 23 (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 financial difficulties; 4. Unscheduled draws on credit enhancements reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions or events affecting the tax-exempt status of the Certificates; 7. Modifications to fights of holders of the Certificates; 8. Certificate calls; 9. Defeasances; and 10. Release, substitution, or sale of property securing repayment of the Certificates; 11. Rating changes. The Issuer shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the Issuer to provide financial information or operating data in accordance with subsection (a) of this Section by the time required by such subsection. (c) Limitations, Disclaimers, and Amendments. (i) The Issuer shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the Issuer remains an "obligated person" with respect to the Certificates within the meaning of the Rule, except that the Issuer in any event will give the notice required by Subsection (b) hereof of any Certificate 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 Certificates, and nothing in 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 provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide 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 herein. The Issuer does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Certificates at any future date. (iii) 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 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 obligations under this Section shall comprise a breach of or default under the Ordinance for purposes of any other provision of this Ordinance. Nothing in 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 provisions 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 in the identity, nature, status, or type of operations of the Issuer, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the outstanding Certificates 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 Certificates. If the Issuer so amends the provisions of this 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 narrative form, of the reason for the amendment and of the impact of any change in the type of financial information 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 the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates. (d) Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. Section 20. PROTECTION OF PLEDGE. Chapter 1208, Government Code, applies to the issuance of the Certificates and the pledge of the taxes and surplus revenues granted by the Issuer under Sections 8 and 9 of this Ordinance, and is therefore valid, effective, and perfected. If Texas law is amended at any time while the Certificates are outstanding and unpaid such that the pledge of the taxes and surplus revenues granted by the Issuer under Sections 8 and 9 of this Ordinance is to be subject to the filing requirements of Chapter 9, Texas Business & Commerce Code, then in order to preserve to the registered owners of the Certificates the perfection of the security interest in said pledge, the Issuer agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the 25 applicable provisions of Chapter 9, Texas Business & Commerce Code and enable a filing to perfect the security interest in said pledge to occur. Section 21. FURTHER PROCEDURES. The Mayor of the Issuer, the City 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 deliver 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 provisions of this Certificate Ordinance, the Certificates, the sale of the Certificates, and the Notice of Sale and Official Statement; and the Assistant City Manager/Fiscal and Municipal Services of the City shall cause the expenses of issuance of the Certificates to be paid from the proceeds of sale of the Initial Certificate or from other lawfully available funds of the Issuer. In case any officer whose signature shall appear on any Certificate shall cease to be such officer before the delivery of such Certificate, such signature shall nevertheless be valid and sufficient for all purposes the same as if such officer had remained in office until such delivery. Section 22. OPEN MEETINGS. The City Council has found and determined that the meeting at which this Ordinance is considered is open to the public and that notice thereof was given in accordance with the provisions of the Texas Open Meetings, Law, Tex. Gov't. Code, Chapter 551, as amended. Section 23. EFFECTIVE DATE. This Ordinance shall become effective immediately upon its passage and approval. 26 PASSED AND APPROVED this the 25th day of March, 2003. Euline Brock, Mayor ATTEST: Jennifer Walters, City Secretary APPROVED AS TO LEGAL FORM: HERBERT L. PROUTY, CITY ATTORNEY BY: 27 EXHIBIT A DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 19 of this Ordinance: Annual Financial Statements and Operating Data The financial information and operating data with respect to the Issuer to be provided annually in accordance with such Section are as specified (and included in the Appendix or under the tables of the Official Statement referred to) below: Tables numbered 1 through 15, inclusive, under the captions "Tax Information", "Debt Service Requirements" and "Financial Information" in the Official Statement. Appendix B in the Official Statement. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in the paragraph above. 28 03~25~03 #2 AGENDA DATE: DEPARTMENT: ACM: AGENDA INFORMATION SHEET March 25, 2003 Fiscal Operations Kathy DuBose, Fiscal and Municipal Services SUBJECT Consider adoption of an ordinance authorizing the issuance, sale, and delivery of City of DeNon General Obligation Refunding and Improvemem Bonds, Series 2003; levying the tax to pay same; approving and authorizing instruments and procedures relating thereto; and providing an effective date. BACKGROUND On March 25, 2003, David Medanich of First Southwest Company and Ted Brizzolara III of McCall, Parkhurst and Horton, will deliver and open the bids regarding the City of DeNon General Obligation Refunding and Improvemem Bonds, Series 2003. The process of opening the bids and tabulating them before the City Council is required by City Charter. These Bonds will provide $3,950,000 for the following projects and improvemems: $1,900,000 $2,050,000 Transportation (Highway 377 Alternate) Buildings (Civic Cemer and Emily Fowler) These bonds will also refund a portion of 1993 outstanding bonds totaling $4,085,000. The City will save approximately $125,000. PRIOR ACTION/REVIEW (Council, Boards, Commissions) All of these projects were approved in the Capital Improvemem Program fiscal year ending 2003-2007 and approved in the bond election on January 15, 2000. FISCAL INFORMATION The General Obligation Bonds have requiremem of approximately $315,000. process. an estimated average annual debt service This amoum has been included in the budget R~ 7itt~~ Diana G. Ortiz Director of Fiscal Operations S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc ORDINANCE NO. 2003- AN ORDINANCE AUTHORIZING THE ISSUANCE, SALE, AND DELIVERY OF CITY OF DENTON GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS, SERIES 2003, LEVYING THE TAX TO PAY SAME; APPROVING AND AUTHORIZING INSTRUMENTS AND PROCEDURES RELATING THERETO; AND PROVIDING AN EFFECTIVE DATE. THE STATE OF TEXAS : COUNTY OF DENTON : CITY OF DENTON : WHEREAS, an election was held on January 15, 2000 at which the City Council was authorized to issue certain of the bonds hereinafter authorized; an d WHEREAS, at said election the following bonds were authorized to be issued: Amount Prop. Amount Amount Being Previously Voted No. Authorized Issued Issued But Unissued 1 $17,045,000 $1,900,000 $15,145,000 $0 2 6,800,000 1,200,000 5,600,000 $0 3 10,175,000 850,000 9,325,000 $0 WHEREAS, the City of Denton, Texas, heretofore has duly issued, and there are presently outstanding, the following Series of Tax supported obligations: City of Demon General Obligation Bonds, Series 1993, dated March 1, 1993, scheduled to mature on July 1, 2004 through July 1, 2005, aggregating $300,000 (and being all of the outstanding bonds of said series scheduled to mature on and after July 1, 2004); City of Denton General Obligation Refunding Bonds, Series 1993 -A, dated June 1, 1993, scheduled to mature on February 15, 2004 through February 15, 2009, aggregating $2,550,000 (and being all of the outstanding bonds of said series scheduled to mature on and after February 15, 2004); City of Demon Certificates of Obligation, Series 1993-A, dated November 1, 1993, scheduled to mature on July 1, 2004 through July 1, 2014, aggregating $1,235,000 (and being all of the outstanding bonds of said series scheduled to matuxe on and after July 1, 2004); (collectively, the "Outstanding Obligations"), in the aggregate principal amount of $4,085,000; and WHEREAS, the City Council of the City of Denton deems it necessary and advisable to refund the Outstanding Obligations, and to authorize, issue, and deliver the bonds hereinafter described; and WHEREAS, the bonds hereinafter authorized are to be issued, sold, and delivered pursuant to Chapters 1207 and 1331, Texas Government Code, as amended, the City's Home Rule Chart er and other applicable laws; and S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc WHEREAS, it is considered to be in the best interest of the City that said interest bearing bonds be issued, 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 City of Denton, Texas (the "Issuer") are hereby authorized to be issued and delivered in the aggregate princi pal amount of $8,080,000, FOR THE PURPOSE OF THE ACQUISITION OF PROPERTY AND MAKING IMPROVEMENTS FOR PUBLIC PURPOSES IN SAID CITY, TO-WIT: STREET AND TRAFFIC CONTROL IMPROVEMENTS, LIBRARY IMPROVEMENTS AND PARK IMPROVEMENTS AND OBTAINING FUNDS REQUIRED TO REFUND $4,085,000 IN AGGREGATE PRINCIPAL AMOUNT OF TAX SUPPORTED OBLIGATIONS. Section 2. DESIGNATION OF THE BONDS. Each bond issued pursuant to this Ordinance shall be designated: "CITY OF DENTON GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BOND, SERIES 2003, and initially there shall be issued, sold, and delivered hereunder a single fully registered bond, without interest coupons, payable in installments of principal (the "initial Bond"), but the initial Bond may be assigned and transferred and/or converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, having serial maturities, and in the denomination or denominations of $5,000 or any integral multi ple of $5,000, all in the manner hereinafter provided. The term "Bonds" as used in this Ordinance shall mean and include collectively the Initial Bond and all substitute bonds exchanged therefor, as well as all other substitute bonds and replacement bonds issued 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 authorized to be issued, sold, and delivered hereunder as a single fully registered Bond, without interest coupons, dated March 15, 2003, in the denomination and aggregate principal amount of $8,080,000, numbered R-l, payable in annual installments of principal to the initial registered owner thereof, to-wit: or to the registered assignee or assignees of said Bond or any portion or portions thereof (in each case, the "registered owner"), with the annual installments of principal of the Initial Bond to be payable on the dates, respectively, and in the principal amounts, respectively, stated in the FORM OF INITIAL BOND set forth in this Ordinance. (b) The Initial Bond (i) may be prepaid or redeemed prior to the respective scheduled due dates of installments of principal thereof, (ii) may be assigned and transferred, (iii) may be converted and exchanged for other Bonds, (iv) shall have the characteristics, and (v) shall be signed and sealed, and the principal of and interest on the initial Bond shall be payable, all as provided, and in the manner required or indicated, in the FORM OF INITIAL BOND set forth in this Ordinance. Section 4. INTEREST. The unpaid principal balance of the Initial Bond shall bear interest from the date of the initial Bond to the respective scheduled due dates, or to the respective dates of prepayment or redemption, of the installments of princip al of the Initial Bond, and said interest shall be payable, all in the manner provided and at the rates and on the dates stated in the FORM OF INITIAL BOND set forth in this Ordinance. 2 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinm~ce.doc Section 5. FORM OF INITIAL BOND. The form of the Initial Bond, including the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be endorsed on the Initial Bond, shall be substantially as follows: FORM OF INITIAL BOND NO. R-1 $8,080,000 UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BOND SERIES 2003 THE CITY OF DENTON, in Denton County, Texas (the "Issuer"), being a political subdivision of the State of Texas, hereby promises to pay to or to the registered assignee or assignees of this Bond or any portion or portions hereof (in each case, the "registered owner") the aggregate principal amount of $8,080,000 (EIGHT MILLION EIGHTY THOUSAND DOLLARS) in annual installments of principal due and payable on February 15 in each of the years, and in the respective principal amounts, 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 remaining unpaid, at the rates per annum as follows: S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc PRINCIPAL INTEREST YEAR AMOUNT RATE(%) PRINCIPAL INTEREST YEAR AMOUNT RATE(%) 2004 $1,060,000 2005 1,030,000 2006 675,000 2007 625,000 2008 620,000 2009 410,000 2010 265,000 2011 275,000 2012 285,000 2013 300,000 2014 $ 315,000 2015 205,000 2016 215,000 2017 220,000 2018 235,000 2019 245,000 2020 255,000 2021 270,000 2022 280,000 2023 295,000 Interest 15 and August interest shall be shall first be due and payable on February 15, 2004, and semi annually on each February 15 thereafter while this Bond or any portion hereof is outstanding and unpaid. Said 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 United States of America, without exchange or collection charges. The install - ments of principal and the intere st on this Bond are payable to the registered owner hereof through the services of BANK ONE, NATIONAL ASSOCIATION, AUSTIN, TEXAS, which is the "Paying Agent/Registrar" for this Bond. Payment of all principal of and interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each princi 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 with the Paying Agent/Registrar for such puxpose as hereinafter provided; and such check shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such principal and/or interest payment date, to the registered owner hereof, at the address of the regis tered 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 principal and/or interest payment date for this Bond it will make avail able to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and inter est 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, 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 mail, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the 15th business day next p receding the date of mailing of such notice. IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where the Paying Agent/Registrar is 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 Satuxday, Sunday, legal holiday, or day on 4 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc which banking 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 BOND has been authorized 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, LIBRARY IMPROVEMENTS AND PARK IMPROVEMENTS AND OBTAINING FUNDS REQUIRED TO REFUND $4,085,000 IN AGGREGATE PRINCIPAL AMOUNT OF TAX SUPPORTED OBLIGATIONS. ON FEBRUARY 15, 2013, 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 prepaid or redeemed shall be se lected and designated by the Issuer (provided that a portion of this Bond may be redeemed only in an integral multiple of $5,000), at the prepayment or redemption price of the par or principal amount thereof, plus accrued interest to the date fixed for prepayment or redemption. [THE BONDS of this Series scheduled to mature on FEBRUARY 15, __ and 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 particular Bonds or portion thereof to be redeemed t o 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 principal amount thereof and accrued interest to the date of redemption, on the dates, and in the principal amounts, respectively, as shown in the following schedule: February __, __ Maturity February __, __ Maturity Mandatory Principal Mandatory Principal Redemption Dates Amounts Redemption Dates Amounts (matuxity) (matuxity) 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 th e principal amount of any Bonds out of either such maturity which, at least 45 days prior to the aforesaid appropriate redemption date (1) shall have been acquired by the Issuer at a price not exceeding the principal 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 provisions hereof and not previously credited to the mandatory sinking fund redemption. During any period in which ownership of the Bonds is determined by a book entry at a secuxities depository for the Bonds, if 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 in accordance with 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 notice 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 provision shall be made by the Issuer with the Paying Agent/Registrar for the payment o f the required prepayment or redemption price for this Bond or the portion hereof which is to be so prepaid or re deemed, plus accrued interest S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc thereon to the date fixed for prepayment or redemption. If such written notice of prepayment or redemp - tion is given, and if due provision for such payment is made, all as provided above, this Bond, or the portion thereof which is to be so prepaid or redeemed, thereby auto matically shall be treated as prepaid or redeemed prior to its scheduled due date, and shall not bear interest after the date fixed for its prepayment or redemption, and shall not be regarded as being outstanding except for the right of the registered owner to receive the prepayment or redemption price plus accrued inter est to the date fixed for prepayment or redemption from the Paying Agent/Registrar out of the funds pro vided for such payment. The Paying Agent/Registrar shall record in the Registration Books all such prepayments or redemptions of principal of this Bond or any portion hereof. THIS BOND, to the extent of the unpaid or unredeemed principal balance hereof, or any unpaid and unredeemed portion hereof in any integral multiple of $5,000, may be assigned by the initial registered owner hereof and shall be transferred only in the Re gistration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance. Among other requirements for such transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar for cancellation, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment by the initial registered owner of this Bond, or any portion or portions hereof in any integral multiple of $5,000, to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be transferred and registered. Any instrument or instrument s of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Bond or any such portion or portions hereof by the initial regis tered owner hereof. A new bond or bonds payable to such assignee or assignees (which then will be the new registered owner or owners of such new Bond or Bonds) or to the initial registered owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, shall be delivered by the Paying Age nt/Registrar in conversion of and exchange for this Bond or any portion or portions hereof, but solely in the form and manner as provided in the next paragraph hereof for the conver sion and exchange of this Bond or any portion hereof. The registered owner of this Bond 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 liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. AS PROVIDED above and in the Bond Ordinance, this Bond, to the extent of the unpaid or unredeemed principal balance hereof, may be converted into and exchanged for a like aggre gate principal amount of fully registered bonds, without interest coupons, payable to the assignee or assignees duly designated in writing by the initial registered owner hereof, or to the initial registered owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, in any denomination or denominations in any integral multiple of $5,000 (subject to the requirement here inafter stated that each substitute bond issued in exchange for any portion of this Bond sha 11 have a single stated principal maturity date), upon surrender of this Bond to the Paying Agent/Registrar for cancellation, all in accordance with the form and pro cedures set forth in the Bond Ordinance. If this Bond or any portion hereof is assigned and transferred or converted each bond issued in exchange for any portion hereof shall have a single stated principal maturity date corresponding to the due date of the installment of principal of this Bond or portion hereof for which the substitute bond i s being exchanged, and shall bear interest at the rate applicable to and borne by such installment of principal 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 this Bond or portion hereof for which they are being exchanged. No such bond shall be payable in installments, but shall have only one stated principal maturity date. 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 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc transferred, and converted, subsequently, as provided in the Bond Ordinance. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging this 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. The Paying Agent/Registrar shall not be required to make any such assignment, conversion, or exchange (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or portion thereof called for prepayment or redemption prior to matuxity, 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 Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and promptly will cause written notice thereof to be mailed to the registered owner of this Bond. IT IS HEREBY certified, recited, and covenanted that this Bond has been duly and validly voted, authorized, issued, sold, and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond have been performed, existed, and been done in accordance with law; that this Bond is a general obligation of the Issuer, issued on the full faith and credit thereof; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Bond, as such interest comes due and such principal matures, have been levied and ordered to be levied against all taxable property in the Issuer, and have been pledged irrevocably for such payment, within the limit pre scribed by law. BY BECOMING the registered owner of this Bond, the regis tered owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions 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 signatuxe of the City Secretary of the Issuer, has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Bond and has caused this Bond to be dated March 15, 2003. ATTEST: CITY OF DENTON, TEXAS By: By: Jennifer Walters City Secretary, City of Denton, Texas Euline Brock 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 Initial Bond only) COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc I hereby certify that this Bond has been examined, certi fled 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 signatuxe and seal this (COMPTROLLER'S SEAL) Comptroller of Public Accounts of the State of Texas Section 6. ADDITIONAL CHARACTERISTICS OF THE BONDS. (a) Registration and Transfer. The Issuer shall keep or cause to be kept at the principal corporate trust office of BANK ONE, NATIONAL ASSOCIATION, AUSTIN, 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 pro - vided. The Paying Agent/Registrar shall obtain and record in the Regis tration Books the address of the registered owner of each Bond to which payments with respect to the Bonds shall be mailed, as herein provided; but it shall be the duty of each registered owner to notify the Paying Agent/Registrar in writing of the addxess to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. The Issuer shall have the fight 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 otherwise required by law, shall not permit their inspection by any other entity. Registration of each Bond may be transferred in the Registration Books only upon presentation and suxrender of such Bond to the Paying Agent/Registrar for transfer of registration and cancellation, together with proper written instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, (i) 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 fight 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 initial registered owner thereof once only, and to one or more assignees designated in writing by the initial registered owner thereof. All Bonds issued and de - livered in conversion of and exchange for the Initial Bond shall be in 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 maturity 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 provided. If the Initial Bond or any portion thereof is assigned and transferred or converted the Initial Bond must be surrendered to the Paying Agent/Regis trar 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 in install ments; and each such Bond shall have a principal maturity date corresponding to the due date of the installment ofpfincipal or portion thereof for which the substitute Bond is being exchanged; and each such Bond shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being ex- changed. 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 subs titute Bonds in exchange for the unassigned balance of the Initial Bond in the same manner as if the initial registered owner were the as signee thereof. If any Bond or portion thereof other than the Initial Bond is assigned and transferred or converted each S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc Bond issued in exchange therefor shall have the same princi pal 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 Initial 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 Paying Agent/Registrar shall make such transfer in the Registration Books, and shall deliver a new fully registered substitute Bond or Bonds, having the characteristics herein 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 previous registered owner in case only a portion of a Bond is being assigned and transferred, all in conversion of and exchange for said assigned Bond or Bonds or any portion or portions thereof, in the same form and manner, and with the same effect, as provided in 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/Regis - trar's standard or customary fees and charges for making such transfer and delivery 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 required to make transfers of registration of any Bond or any portion thereof (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. (b) Ownership of Bonds. The entity in whose name any Bond shall be registered in 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 notice to the contrary; and payment of, or on account of, the principal of, premium, if any, and interest on any such Bond shall be made only to such registered owner. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. (c) Payrnent of Bonds and Interest. The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Bonds, and to act as its agent to convert and exchange or replace Bonds, all as provided in this 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 provided in this Ordinance. However, 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, 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 mail, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the 15th business day next preceding the date of mailing of such notice. (d) Conversion and Exchange or Replacement; Authentication. Each Bond issued and delivered pursuant to this Ordinance, to the extent of the unpaid or unredeemed principal balance or principal amount thereof, may, upon surrender of such Bond at the principal corporate trust office of the Paying Agent/Registrar, together with a written request there for duly executed by the registered owner or the assignee or assignees thereof, or its or their duly authori zed attorneys or representatives, with guaran- tee of signatures satisfactory to the Paying Agent/Registrar, may, at the option of the regis tered owner or such assignee or assignees, as appropriate, be converted into and exchanged for fully registered bonds, without interest coupons, in the form prescribed in the FORM OF SUBSTITUTE BOND set forth in this S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinmace.doc Ordinance, in the denomination of $5,000, or any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Bond shall have a single stated maturity date), as requested in writing by such registered owner or such assignee or assignees, in an aggregate principal amount equal to the unpaid or unredeemed principal balance or principal amount of any Bond or Bonds so s uxrendered, and payable to the appropriate registered owner, assignee, or assign ees, as the case may be. If the initial 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 principal maturity date, and shall not be payable in installments; and each such Bond shall have a principal matuxity 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 bear interest at the single rate applicable to and borne by such install ment of principal or portion thereof for which it is being exchanged. If a portion of any Bond (other than the Initial Bond) shall be redeemed prior to its scheduled maturity as provided 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 principal 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 Initial Bond) is assigned and transferred or converted, each Bond issued in 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 from each other Bond. The Paying Agent/Registrar shall convert and exchange or replace Bonds as provided herein, and each fully registered bond delivered in 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 puxposes of this Ordinance, and may again be converted and exchanged or replaced. It is specifically provided 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 from the date of the Initial Bond, but each substitute Bond so authenticated after such first scheduled Record Date shall bear inter est from 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 from such ne xt 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 from the date to which such interest has been paid in full. THE INITIAL BOND issued and delivered puxsuant 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 replacement of any Bond or Bonds issued under this Ordinance there shall be printed a bond, in the form substantially as follows: 10 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc "PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE 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 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 Public Accounts of the State of Texas. BANK ONE, NATIONAL ASSOCIATION, AUSTIN, 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 out standing unless such Bond is so executed. The Paying Agent/Registrar promptly shall cancel all Bonds surren- dered for conversion and exchange or replacement. No addition al 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 conversion and exchange or replacement of any Bond or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Bonds in the manner prescribed herein, and said Bonds shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Chapter 1201, Texas Government Code, the duty of conversion 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 with the same effect as the Initial Bond which originally was issued pursuant to this Ordinance, approved by the Attorney General, and registered by the Comptroller of Public Accounts. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, 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 conver sion and exchange or replacement of Bonds or any portion thereof (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or portion thereof called for redemption prior to matuxity, within 45 days prior to its redemption date. (e) In General. All Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, (i) shall be issued in fully registered form, without interest coupons, with the principal 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 exchanged for other Bonds, (v) shall have the characteristics, (vi) shall be signed and sealed, and (vii) the principal of and interest 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 Ordinance. (f) Payrnent of Fees and Charges. The Issuer hereby covenants with the registered owners of the Bonds that it will (i) 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) 11 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc pay the fees and charges of the Paying Agent/Registrar for services with respect to the transfer of regis- tration of Bonds, and with respect to the conversion and exchange of Bonds solely to the extent above provided in this Ordinance. (g) Substitute Paying Agent/Registrar. The Issuer covenants with the registered owners of the Bonds that at all times while the Bonds are outstanding the Issuer will provide 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 fight to, and may, at its option, 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 principal or interest payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or otherwise cease to act as such, the Issuer covenants that it will promptly appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar shall promptly transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books 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 will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each registered owner of the Bonds, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position 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 Ordinance shall be delivered to each Paying Agent/Registrar. Section 7. FORM OF SUBSTITUTE BONDS. The form of all Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, including the form of Paying Agent/Registrar's Bond to be printed on each of such Bonds, and the Form of Assignment to be printed on each of the Bonds, shall be, respectively, substantially as follows, with 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 REFUNDING AND IMPROVEMENT BOND SERIES 2003 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 political subdivision of the State of Texas, hereby promises to pay to or to the registered assignee hereof (either being hereinafter called the "registered owner") the principal amount of 12 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc and to pay interest thereon, calculated on the basis of a 360 -day year composed of twelve 30-day months, from March 15, 2003, 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, 2004, and semiannually on each August 15 and February 15 thereafter, except that if the date of authenti- cation of this Bond is later than the first Record Date (hereinafter defined), such princi pal amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date (herein after defined) but on or before the next following interest payment date, in which case such principal 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 principal of this Bond shall be paid to the registered owner hereof upon presentation and suxrender of this Bond at matuxity or upon the date fixed for its redemption prior to maturity, at the principal corpor ate trust office of BANK ONE, NATIONAL ASSOCIATION, AUSTIN, TEXAS, which is the "Paying 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 author izing the issuance of the Bonds (the "Bond Ordinance") to be on deposit with the Paying Agent/Regis trar for such purpose as hereinafter provided; and such check shall be sent by the Paying Agent/Registrar by United States mail, 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 Registration Books kept by the Paying Agent/Registrar, as hereinafter described. However, the payment of such inter est 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 interest due upon the redemption of this Bond prior to matuxity as provided herein shall be paid to the registered owner at the principal corpor ate trust office of the Paying Agent/Registrar upon presentation and suxrender of this Bond for redemption and payment at the principal 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 this Bond it will make available to the Paying Agent/ Registrar, from the "Interest and Sinking Fund" created by the Bond Ordinance, the amounts required to provide for the pay - ment, in immediately available funds, of all principal of and inter est on the Bonds, 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, 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 Specia 1 Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the 15th business day next preceding the date of mailing of such notice. IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where the Paying Agent/Registrar is 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 Satuxday, Sunday, legal holiday, or day on which banking 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. 13 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc THIS BOND is one of an issue of Bonds initially dated March 15, 2003, authorized in accordance with the Constitution and laws of the State of Texas in the principal amount of $8,080,000, FOR THE PURPOSE OF THE ACQUISITION OF PROPERTY AND MAKING IMPROVEMENTS FOR PUBLIC PURPOSES IN SAID CITY, TO-WIT: STREET AND TRAFFIC CONTROL IMPROVEMENTS, LIBRARY IMPROVEMENTS AND PARK IMPROVEMENTS AND OBTAINING FUNDS REQUIRED TO REFUND $4,085,000 IN AGGREGATE PRINCIPAL AMOUNT OF TAX SUPPORTED OBLIGATIONS. ON FEBRUARY 15, 2013, 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 derived from any available and lawful source, as a whole, or in 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 in an integral multiple of $5,000), at the redemption price of the par or principal amount thereof, plus accrued interest to the date fixed for redemption. [THE BONDS of this Series scheduled to mature on FEBRUARY 15, __ and 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 particular Bonds 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 Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof and accrued interest to the date of redemption, on the dates, and in the principal amounts, respectively, as shown in the following schedule: February __, __ Maturity February .... Maturity Mandatory Principal Mandatory Principal Redemption Dates Amounts Redemption Dates Amounts (matuxity) (matuxity) 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 either such maturity which, at least 45 days prior to the aforesaid appropriate redemption date (1) shall have been acquired by the Issuer at a price not exceeding the principal 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 provisions hereof and not previously credited to the mandatory sinking fund redemption. During any period in which ownership of the Bonds is determined by a book entry at a secuxities depository for the Bonds, if fewer than all of the Bonds of the same matuxity and bearing the same interest rate are to be redeemed, the particular Bonds of such maturity and bearing such interest rate shall be selected in accordance with the arrangements between the Issuer and the securities depository.] AT LEAST 30 days prior to the date fixed for any redemption of Bonds or portions thereof prior to maturity a written notice of such redemption shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, to the registered owner of each Bo nd to be redeemed at its address as it appeared on the 45th day prior to such redemption date; provided, however, that the failure to send, mail, or receive such notice, or any defect therein or in the sending or mailing thereof, shall not affect the validity or effectiveness of the proceedings for the redemption of any Bond. By the date fixed for any 14 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc such redemption due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or portions thereof which are to be so redeemed, plus accrued interest thereon to the date fixed for redemption. If such written notice of redemption is given and if due provision for such payment is made, all as provided above, the Bonds or portions thereof which are t o 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 from the Paying Agent/Registrar out of the funds pro vided 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, in any denomination or denominations in any integral multiple of $5,000, at the written request of the registered owner, and in aggregate principal amount equal to the unre deemed portion thereof, will be issued to the registered owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provided in the Bond Ordinance. THIS BOND OR ANY PORTION OR PORTIONS HEREOF IN ANY INTEGRAL MULTIPLE OF $5,000 may be assigned and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance. Among other requirements for such assignment and transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar, together with proper instru - ments of assignment, in form and with guarantee of signatures satisfac tory to the Paying Agent/Registrar, evidencing assignment of this Bond or any portion o r portions hereof in any integral multiple of $5,000 to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be transferred and registered. The form of Assignment printed or endorsed on this Bond shall be executed by the registered owner or its duly authorized attorney or representative, to evidence the assignment hereof. A new Bond or Bonds payable to such assignee or assignees (which then will be the new registered owner or owners of such new Bond or Bonds), or to the previous registered owner in the case of the assignment and transfer of only a portion of this Bond, may be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond, all in the form and manner as pro vided in the next paragraph hereof for the conversion and exchange of other Bonds. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer, 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 this Bond or any portion hereof (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. The registered owner of this Bond 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 liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. ALL BONDS OF THIS SERIES are issuable solely as fully registered bonds, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Bond Ordinance, this 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 like aggregate principal amount of fully registered bonds, 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 denomination or denominations 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 sur render of this Bond to the Paying Agent/Registrar for cancellation, all in accordance with the form and pro ceduxes set forth in the Bond Ordinance. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging any Bond or any portion thereof, but the one 15 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc 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 conver sion and exchange. The Paying Agent/Registrar shall not be required to make any such conversion and exchange (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. IN THE EVENT any Paying Agent/Registrar for the Bonds is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that it promptly wil 1 appoint a competent and legally qualified substitute therefor, and will promptly cause written notice thereof to be mailed to the registered owners of the Bonds. IT IS HEREBY certified, recited, and covenanted that this Bond has been duly and validly voted, authorized, issued, sold, and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond have been performed, existed, and been done in accordance with law; that this Bond is a general obligation of the Issuer, issued on the full faith and credit thereof; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Bond, as such interest comes due and such principal matures, have been levied and ordered to be levied against all taxable property in the Issuer, and have been pledged irrevocably for such payment, within the limit pre scribed by law. BY BECOMING the registered owner of this Bond, the registered owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between each registered owner hereof and the Issuer. 16 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinm~ce.doc 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 signatuxe of the City Secretary of the Issuer, and has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Bond. ATTEST: CITY OF DENTON, TEXAS By: By: Jennifer Walters City Secretary, City of Denton, Texas Euline Brock Mayor, City of Denton, Texas (CITY SEAL) FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE (To be executed if this Bond is not accompanied by an executed Registration Certificate 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 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 Public Accounts of the State of Texas. BANK ONE, NATIONAL ASSOCIATION, AUSTIN, TEXAS, Paying Agent/Registrar Dated By Authorized Representative (INSERT BOND INSURANCE LEGEND, IF ANY) 17 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinm~ce.doc FORM OF ASSIGNMENT: ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered owner of this Bond, or duly authorized representative or attorney thereof, hereby assigns this Bond to / / (Assignee's Social Secuxity or Taxpayer Identification Number) (print or typewrite Assignee's name and address, including zip code) and hereby irrevocably constitutes and appoints attorney to transfer the registration of this Bond on the Paying Agent/Registrar's Registration Books with full power of substitution in the premises. Dated: Signature Guaranteed: NOTICE: Signature(s) must be guaranteed by an eligible guarantor institution participating in a securities transfer association recognized signature guarantee program. Registered Owner NOTICE: This signature must correspond with the name of the Registered Owner 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 "Intere st 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 Sinking Fund shall be kept separate and apart from all other funds and accounts of the Issuer, and shall be used only for paying the interest on and principal of the Bonds. All ad valorem taxes levied and collected for and on account of the Bonds, together with any premium and accrued interest received upon sale of the Bonds, shall be deposited, as collected, to the credit of the Interest and Sinking Fund. Duxing each year while any of the Bonds or interest thereon are outstanding and unpaid, the governing body of the Issuer shall compute and ascertain a rate and amount of ad valorem tax which will be sufficient to raise and produce the money required to pay the interest on the Bonds as such interest becomes due, and to provide and maintain a sinking fund adequate to pay the principal of its Bonds as such principal matures or is scheduled for redemption (but never less than 2% of the original principal amount of the Bonds as a sinking fund each year). Said tax shall be based on the latest approved tax rolls of the Issuer, with full allowance being made for tax delinquencies and the cost of tax collection. Said 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 Bonds or intere st thereon are outstanding and unpaid; and said tax shall be assessed and collected each such year and deposited to the credit of the aforesaid Interest and Sinking Fund. Said ad valorem taxes sufficient to provide for the payment of the interest on and principal of the Bonds, as such interest comes due and such principal matures or is scheduled for redemption, are hereby pledged for such payment, within the limit prescribed by law. Section 9. DEFEASANCE OF BONDS. (a) Any Bond and the interest thereon shall be deemed to be paid, retired, and no longer outstanding (a "Defeased Bond") within the meaning of this Ordinance, 18 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc except to the extent provided in subsection (d) of this Section 9, when payment of the principal of such Bond, plus interest thereon to the due date (whether such due date be by reason of maturity, upon redemption, or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of redemption), or (ii) sh all have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar for such payment (1) lawful money of the United States of America sufficient to make such payment or (2) Government Obligations which mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer with the Paying Agent/Registrar for the payment of its services until all Defeased Bonds shall have become due and payable. At such time as a Bond shall be deemed to be a Defeased Bond hereunder, as aforesaid, such Bond and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes herein levied and pledged as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Government Obligations. (b) Any moneys so deposited with the Paying Agent/Registrar may at the written direction of the Issuer also be invested in Government Obligations, maturing in the amounts and times as hereinbefore set forth, and all income from such Government Obligations received by the Pa ying Agent/Registrar which is not required for the payment of the Bonds and interest thereon, with respect to which such money has been so deposited, shall be turned over to the Issuer, or deposited as directed in writing by the Issuer. (c) The term "Government Obligations" as used in this Section shall mean direct obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, which may be United Sta res Treasury obligations 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 services 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 required by this Ordinance. Section 10. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED BONDS. (a) Replacement Bonds. In the event any outstanding Bond is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new bond of the same principal amount, maturity, and interest rate, as th e damaged, mutilated, lost, stolen, or destroyed Bond, in replacement for such Bond in the manner hereinafter 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 the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Bond, the registered owner applying for a replacement bond shall furnish to the Issuer and to the Paying Agent/Registrar 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 destruction of a Bond, the registered owner shall furnish to the Issuer and the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Bond, as the case may be. In every case of damage or mutilation of a Bond, the registered owner shall surrender to the Paying Agent/Registrar for cancellation the Bond so damaged or mutilated. (c) No Default Occurred. Notwithstanding the foregoing provisions of this Section, in the event of any such Bond shall have matuxed, and no default has occurred which is then con tinuing in the 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 19 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc mutilated Bond) instead of issuing a replacement Bond, provided security or indemnity is fuxnished as above provided in this Section. (d) Charge for Issuing Replacement Bonds. Prior to the issuance of any replacement bond, the Paying Agent/Registrar shall charge the registered owner of such Bond with all legal, printing, and other expenses in connection therewith. Every replacement bond issued puxsuant to the provisions of this Section by virtue of the fact 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 Chapter 1201, Texas Government Code, this Section of this Ordinance shall constitute author ity 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/Registrar shall authenticate and deliver such Bonds in the form and manner and with the effect, as provided in Section 6(d) of this Ordinance for Bonds issued in conversion and exchange for other Bonds. Section 11. COVENANTS REGARDING TAX-EXEMPTION. The Issuer covenants to refrain from taking any action which would adversely affect, or to take such action to assure, th e treatment of the Bonds as obligations described in 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: (a) to take any action to assuxe that no more than 10 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use", as defined in section 141 (b)(6) of the Code, or if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the Issuer, with respect to such private business use, do not, und er the terms of this Ordinance or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Bonds, in contravention of section 141(b)(2) of the Code; (b) to take any action to assure that in the event that the "private business use" described in 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 in excess of five percent is used for a "private business use" which is "related" and not "disproportionate", within the meaning of section 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 depos ired 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 in the Bonds being "federally guaranteed" within the meaning of section 149(b) of the Code; 2O S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc (f) to refrain from using any portion of the proceeds of the Bonds, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in 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 in 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 Treasuxy Regulations, and (3) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the stated principal amount (or, in the case of a discount, the issue price) of the proceeds of the Bonds; (g) to otherwise restrict 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 applicable, section 149(d) of the Code (relating to advance refundings); and (h) to pay to the United States of America at least once duxing 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(f) 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 "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if 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 herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasuxy puxsuant 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 with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally-recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Bonds under section 103 of the Code. In the event that regulations or rulings are hereaf - ter promulgated which impose additional requirements which are applicable to the Bonds, the Issuer agrees to comply with the additional requirements to the extent necessary and reasonably possible, in the opinion of nationally-recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Bonds under section 1 03 of the Code. In furtherance of such intention, the Issuer hereby authorizes and directs the Mayor of the Issuer to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, which may be per mitted by the Code as are consistent with the purpose for the issuance of the Bonds. The Issuer covenants to comply with the covenants in this section after defeasance of the Bonds. In order to facilitate compliance with the above covenant (h), 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 subject to the claim of any other person, including without limitation, the bondholders. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. 21 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc Section 12. ALLOCATION OF, AND LIMITATION ON, EXPENDITURES FOR THE PROJECT. The Issuer covenants to account for the expenditure of sale proceeds and investment earnings to be used for the puxposes described in Section 1 of this Ordinance (the "Project") on its books and records in accordance with the requirements of the Internal Revenue Code. The Issuer recognizes that in 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 expendituxe 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 Internal Revenue Code, the sale proceeds or investment earnings must be expended no more than 60 days after the later 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 advice of nationally -recognized bond counsel if such expendituxe fails to comply with 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 opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. Section 13. DISPOSITION OF PROJECT. The Issuer covenants that the property constituting the Project will not be sold or otherwise disposed in a transaction resulting in the receipt by the Issuer of cash or other compensation, unless the Issuer obtains an opinion of nationally-recognized bond counsel that such sale or other disposition 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 a legal opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. SectJ_on :1.4. 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 Initial Bond issued hereunder and all necessary records and proceedings pertaining to the Initial Bond pending its delivery and its investigation, examination, and approval by the Attorney General of the State of Texas, and its registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Initial Bond said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate on the Initial Bond, and the seal of said Comptroller shall be impressed, or placed in facsimile, on the Initial Bond. The approving legal opinion 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 issued and delivered in conversion of and exchange or replacement of any Bond, but neither shall have any legal effect, and shall be solely for the convenience and information of the registered owners of the Bonds. The preamble to this Ordinance is hereby adopted and made a part hereof for all purposes. If insuxance is obtained on any of the Bonds, the Initial 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 Preliminary Official Statement dated March __, 2003, prepared and distributed in connection with the sale of the Initial Bond. Said Official Notice of Sale and Bidding Instructions, Preliminary Official Statement and the Official Statement dated ., 2003, 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 contained in said Official Notice of Sale, Preliminary Official Statement and Official 22 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc Statement are true and correct in all mat erial respects, to the best knowledge and belief 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 pro ceeds for the acquisition 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 Sinking Fund. It is further provided, however, that any interest earnings on bond proceeds which are required to be rebated to the United States of America pursuant to Section 11 hereof in order to prevent the Bonds from being arbitrage bonds shall be s o 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 in 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, initially will act as depository for the Bonds. DTC has represented that it is a limited purpose trust company incorporated under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered under Section 17A of the federal Securities Exchange Act of 1934, as amended, and the Issuer accepts, but in no way verifie s, such representations. The initial Bond authorized by this Ordinance shall be delivered to and registered in the name of the Purchaser. However, it is a condition of delivery and sale that the Purchaser, immediate ly after such delivery, shall cause the Paying Agent/Registrar, as provided for in this Ordinance, to cancel said Initial Bond and deliver in exchange therefor a substitute Bond for each matuxity 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 the Puxchas er and/or The DTC Participants, as defined and described in the Official Statement referred to and approved in Section 15 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 maintain a book entry system which will identify beneficial ownership of the Bonds by DTC Participants in integral amounts of $5,000, with transfers of owner ship being effected on the records of DTC and the DTC Participants 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 provided. 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 liable for maintaining, supervising, or reviewing the records of DTC or the DTC Partici- pants, or protecting any interests or fights 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, and the method of paying the fees and charges of DTC. The Issuer does not represent, nor does it in any way covenant that the initial book-entry system established with DTC will be maintained in the futuxe. The Issuer reserves the fight and option at any time in the futuxe, in its sole discretion, to terminate the DTC (CEDE & CO.) book-entry only registration requirement described above, and to permit the Bonds to be registered in the name of any owner. If the Issuer exercises its right and option to terminate such requirement, it shall give 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 provided for in this Ordinance. Notwithstanding the initial establishment of the forego ing book-entry system with DTC, if for any reason any of the originally delivered substitute Bonds is duly filed with the Paying Agent/Registrar with proper request for transfer and substitution, as provided for in this Ordinance, substitute Bonds will be duly delivered as provided in this Ordinance, and there will be no assurance or representation that any book-entry system will be maintained for such Bonds. 23 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc Section 18. REFUNDING OF OUTSTANDING BONDS. That concurrently with the delivery of the initial Bond the Issuer shall deposit an amount from the proceeds from the sale of the Initial Bond, with The Bank of New York, as Escrow Agent, sufficient, together with other available amounts, t o refund all of the Outstanding Bonds in accordance with Chapter 1207, Texas Government Code, as amended. The Issuer hereby authorizes the execution of the Escrow Agreement dated as of March 15, 2003 between the Escrow Agent and the Issuer. The Mayor of the Issuer is authorized and directed to execute, on behalf of the Issuer, said Escrow Agreement in the form and substance presented to this meeting, it is hereby found and determined that the refunding of the Outstanding Bonds is advisable and necessary in order to restructure the debt service requirements and procedures of the Issuer, and that the debt service requirements on the Bonds will be less than those on the Outstanding Bonds, resulting in a reduction in the amount of principal and interest which otherwise would be payable both on an actual and a present value basis. Section 19. REDEMPTION OF OUTSTANDING BONDS. There is attached hereto as Exhibit A and made a part hereof for all purposes a list and description of certain City of Denton General Obligation Bonds and City of Denton Certificates of Obligation, and notice provisions relating thereto, which bonds are hereby called for redemption, and shall be redeemed, prior to their scheduled maturi ties, on the date, at the place, and at the price, set forth therein; the Issuer shall cause the appropriate notices of such redemption to be given in accordance with the requirements of the respective proceedings authorizing the issuance of such bonds; and due provision shall be made by the Issuer in ac cordance with law for the payment of the redemption price of said bonds by the place of payment (paying agent) for such bonds. Section 20. REASONS FOR REFUNDING. The City Council of the Issuer deems it advisable to refund the Outstanding Bonds in order to achieve debt service savings on its outstanding tax debt; with a gross debt service savings of approximately $ and a present value savings of $ Section 21. CONTINUING DISCLOSURE. (a) Annual Reports. (i) 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 2001, financial information and operating data with respect to the Issuer of the general type included in the final Official Statement authorized by Section 15 of this Ordinance, being the information described in Exhibit B 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) prep ared in accordance with the accounting principles described in Exhibit B hereto, or such other accounting principles as the Issuer may be required to employ from time to time pursuant to state law or regulation, and (2) audited, if the Issuer commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the Issuer shall provide unaudited financial statements by the required time and will 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. (ii) 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 required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) th at theretofore has been provided to each NRMSIR and any SID or filed with the SEC. 24 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc (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 Bo nds, 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 financial difficulties; 4. Unscheduled draws on credit enhancements reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions or events affecting the tax-exempt status of the Bonds; 7. Modifications to fights of holders of the Bonds; 8. Bond calls; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the Bonds; and 11. Rating changes. The Issuer shall notify any SID and either each NRMSIR or the MSRB, in a ti mely manner, of any failure by the Issuer to provide financial information or operating data in accordance with subsection (a) of this Section by the time required by such subsection. (c) Limitations, Disclaimers, and Amendments. (i) The Issuer shall be obligated to observe and perform the covenants specified in 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 in this Section, express or implied, shall give any benefit or any legal or equitable fight, remedy, or claim hereunder to any other person. The Issuer undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide 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 herein. The Issuer does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. (iii) 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 25 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc 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 obligations under this Section shall comprise a breach of or default under the Ordinance for purposes of any other provision of this Ordinance. Nothing in 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 provisions 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 in the identity, nature, status, or type of operations of the Issuer, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to puxchase or sell Bonds in the primary offering of the Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance 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 provided in accordance with subsection (a) of this Section an explanation, in narrative form, of the reason for the amendment and of the impact of any change in the type of financial information 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 the applicable provision of the Rule or a court of final juxisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully puxchasing or selling Bonds in the primary offering of the Bonds. (d) Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal secuxities 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 United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. Section 22. PROTECTION OF PLEDGE. Chapter 1208, Government Code, applies to the issuance of the Bonds and the pledge of the taxes granted by the Issuer under Section 8 of this Ordinance, and is therefore valid, effective, and perfected. If Texas law is amended at any time while the Bonds are outstanding and unpaid such that the pledge of the taxes granted by the Issuer under Section 8 of this Ordinance is to be subject to the filing requirements of Chapter 9, Texas Business & Commerce Code, then in order to preserve to the registered owners of the Bonds the perfection of the secuxity interest in said pledge, the Issuer agrees to take such measures as it determines are reasonable and necessary under 26 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinm~ce.doc Texas law to comply with the applicable provisions of Chapter 9, Texas Business & Commerce Code and enable a filing to perfect the secuxity interest in said pledge to occur. Section 23. FURTHER PROCEDURES. The Mayor of the Issuer, the City Secretary of the Issuer, and all other officers, employees, and agents of the Issuer, and ea ch 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, acknowl edge, and deliver 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 provisions of this Ordinance, the Bonds, the sale of the Bonds, and the Notice of Sale and Official Statement; and the Assistant City Manager/Fiscal and Municipal Services of 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 any other lawfully available funds of the Issuer. In case any officer whose signatuxe shall appear on any Bond shall cease to be such officer before the delivery of such Bond, such signatuxe shall nevertheless be valid and sufficient for all purpos es the same as if such officer had remained in office until such delivery. Section 24. OPEN MEETINGS. The City Council has found and determined that the meeting at which this Ordinance is considered is open to the public and that notice thereof was given in accordance with the provisions of the Texas Open Meetings, Law, Tex. Gov't. Code, Chapter 551, as amended. Section 25. EFFECTIVE DATE. This Ordinance shall become effective immediately upon its passage and approval. 27 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc PASSED AND APPROVED this the 25th day of March, 2003. Euline Brock, Mayor ATTEST: Jennifer Walters, City Secretary By: APPROVED AS TO LEGAL FORM: HERBERT L. PROUTY, CITY ATTORNEY BY: 28 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc EXHIBIT A NOTICE OF PRIOR REDEMPTION THE CITY OF DENTON, TEXAS NOTICE iS HEREBY GIVEN that the City of Denton, Texas has called for redemption the outstanding Certificates or Bonds of the City described as follows: City of Denton General Obligation Bonds, Series 1993, dated March 1, 1993, scheduled to mature on July 1, 2004 through July 1, 2005, aggregating $300,000 (and being all of the outstanding bonds of said series scheduled to mature on and after July 1, 2004); Call date: June 1, 2003; redeemable at a redemption price of par plus accrued interest at the principal corporate offices of The Bank of New York, Jacksonville, Florida, only upon presentation by the owner thereof. City of Demon General Obligation Refunding Bonds, Series 1993-A, dated June 1, 1993, scheduled to mature on February 15, 2004 through February 15, 2009, aggregating $2,550,000 (and being all of the outstanding bonds of said series scheduled to mature on and after February 15, 2004); Call date: June 1, 2003; redeemable at a redemption price of par plus accrued interest at the principal corporate offices of The Bank of New York, Jacksonville, Florida, only upon presentation by the owner thereof. City of Demon Certificates of Obligation, Series 1993-A, dated November 1, 1993, scheduled to mature on July 1, 2004 through July 1, 2014, aggregating $1,235,000 (and being all of the outstanding bonds of said series scheduled to mature on and after July 1, 2004); Call date: June 1, 2003; redeemable at a redemption price of par plus accrued interest at the principal corporate offices of The Bank of New York, Jacksonville, Florida, only upon presentation by the owner thereof. If moneys sufficient for the payment of such redemption price are held by or on behalf of the paying agent, the described Bonds shall become due and payable on the redemption date specified, and the interest thereon shall cease to accrue from and after the redemption date. In compliance with section 3406 of the Internal Revenue Code of 1986, payors making certain payments due on debt securities may be obligated to deduct and withhold 31 percent of such payment from the remittance to any payee who has failed to provide such payor with a valid taxpayer identification number. To avoid the imposition of the withholding of tax, such payees should submit a taxpayer identification number when surrendering the bonds for redemption. NOTICE IS FURTHER GIVEN that all Bonds should be submitted to the following address: The Bank of New York Trust Co. of Florida 10161 Centurion Parkway Jacksonville, Florida 32256 THE BANK OF NEW YORK TRUST CO. OF FLORIDA 29 S :\Our Document s\Ordinances\03\3-13-2003-GO-Ordinance.doc EXHIBIT B DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 23 of this Ordinance: Annual Financial Statements and Operating Data The financial information and operating data with respect to the issuer to be provided annually in accordance with such Section are as specified (and included in the Appendix or under the tables of the Official Statement referred to) below: Tables numbered 1 through 15, inclusive, under the captions "Tax information", "Debt Service Requirements" and "Financial information" in the Official Statement. Appendix B in the Official Statement. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in the paragraph above. 3O I I I I I I I I I ! ! I I I I I I HANDOUT TO COUNCIL $8,080,000 GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS, SERIES 2003 $7,405,000 CERTIFICATES OF OBLIGATION, SERIES 2003 Bids Due Tuesday, March 25, 2003, at 10:30 AM, CST The following ratings have been assigned: Moody's Investors Service, Inc. Underlying Credit Rating "Aa3" Standard & Poor's Rating Group A Division of McGraw-Hill,Inc. PREPARED BY: FIRST SOUTHWEST COMPANY I I ! ! I I I ! I I I I I I ! I I I I I Global Credit Research New Issue 24 MAR 2003 New Issue: Denton (City of) TX MOODY'S ASSIGNS Aa3 TO CITY OF DENTON'S GENERAL OBLIGATION DEBT ISSUES Affects Approximately $103.9 Million of Debt Municipality TX Moody's Rating ISSUE RATING General Obligation Refunding and Improvement Bonds, Series 2003 Aa3 Sale Amount $8,080,000 Expected Sale Date 03~25/03 Rating Description General Obligation, Limited Tax Certificates of Obligation, Sedes 2003 Sale Amount $7,405,000 Expected Sale Date 03/25/03 Rating Description General Obligation Limited Tax Aa3 Opinion NEWYORK, Mar 24, 2003 - Moody's Investors Service has assigned a Aa3 rating to the City of Denton's Sedes 2003 $8,080,000 General Obligation Refunding and Improvement Bonds and Series 2003 $7,405,000 Certificates of Obligation (CO's). The bonds carry a limited ad valorem pledge. In conjunction with this rating assignment Moody's has affirmed the Aa3 rating on the city's $103.9 million in general obligation debt that is outstanding. Proceeds from the bond issue will be used for refunding existing debt at a net present value savings as well as street, park, and library improvements. The CO's are secured also by property taxes and a de minimis pledge (not to exceed $10,000) of net utility system revenues. Concurrently, Moody's has affirmed the Aa3 rating and stable outlook for the City's outstanding $103.9 million in general obligation debt. The rating reflects a growing taxbase presently driven by rapid housing growth, a manageable debt position, and a financial position that has narrowed recently and is under pressure from reduced sales tax receipts. Historically Iow mortgage rates and moderately pdced housing continues to drive residential construction in Denton. During FY 2002, the City added over $190 million in new value to the tax role with residential housing comprising 86% of that increase. The housing growth contributed substantially to the 8% increase in assessed values, which is at $3.7 billion per the most recent results from the appraisal district. Last years growth rate was lower than the average annual growth experienced dudng the past five years. Taxbase increases may moderate over the near term; however, city officals have indicated that there should be some significant expansion in the city's healthcare providers. Resident wealth levels, as measured by per capita income, approximate the state's, while median family income measures are above the state at 112%. This dichotomy is a result of the sizeable student population that resides in the city's universities (approximately 40,000). The December 2002 unemployment rate of 6.0% was slightly above state and national averages of 5.7%. Although property tax receipts remain strong, weak consumer spending has stunted the flow of sales tax revenues during the current fiscal year. While the original FY 2003 budget assumed a 3.9% increase in sales tax revenues, intedm results indicate that these revenues will be 5.5% below budget. However, city officials indicate that the planned decline in general fund balance will be consistent with the budget drawdown approximating $500,000. To address the near term financial challenges city staff has proposed over $600,000 in expenditure cuts, including salary savings, airport expenses, a~ong with reductions in library and travel reductions. Management has also identified over $350,000 in additional revenues from auction proceeds and a public works fee. Management intends to keep undesignated general fund reserves at the established policy of 13% of total budget expenditures. City leadership is moving swiftly to address the sales tax shortage. Staff keeps policymakers well-informed about financial conditions, with interim financial reports. I I I I I I I I I I I I I I I i I I Moody's believes the City will continue to monitor revenue trends closely and adjust spending as necessary, maintaining a level of financial flexibility consistent with this rating level. Moody's notes that, in addition to the near term stress on the city's financial reserves which the city is addressing, over the past few years the liquidity of the city's general fund reserve has lessened. Indicative of this trend is the year-end cash surplus (cash and investments less current liabilities) which has declined from $5.4 million at FYE 1999 to a negative $715,000 for FYE 2002. Moody's believes that the city will address its liquidity position in the near term; should it not do so, there would be significant downward pressure on the city's rating. After the current issue, Denton will have $4.5 million of remaining authorization, mostly from a 1996 and 1986 bond package. In Feburary 2004, the City plans to return to voters for approximately $30 million in authorization and will continue the historical practice of issuing non-voted certificates of obligation for operational capital needs. Debt burden as a percentage of total assessed value remains consistent with this rafing level at 2.3% direct and approximately 10% overall. The overall burden is affected significantly by the issueance undertaken by Denton lSD. Principal payout for the city is above average, with 61.6% retired in ten years. The City's current debt burden is manageable, and Moo.dy's believes the structure and timing of future borrowing will be developed prudently. Outlook The outlook for the City of Denton's Aa3 rating is stable. Moody's believes that city officials will continue to apply prudent financial planning and implementation to preserve the existing financial position, and we anticipate the city will meet its future capital needs with conservative debt management practices. The stable outlook also reflects Moody's belief that the city will improve its liquidity position in the near term; should it fail to do so, there would be significant downward pressure on the city's rating. KEY STATISTICS: 2003 Estimated Population: 90,168 Unemployment (12~2002): 6.0% 2003 Full Valuation: $3.7 billion 2003 Full Value Per Capita: $38,510 Direct Debt Burden: 2.3% Overall Debt Burden: 10.0% Principal Payout -10 years: 61.6% FY 2003, General Fund Balance: $8.5 million (17.1 ~ of General Fund revenues) FY 2002, Undesignated General Fund Balance: $8.03 million (16.2% of General Fund revenues) Analysts Douglas Benton Analyst Public Finance Group Moody's Investors Service Jody Savant Backup Analyst Public Finance Group Moody's Investors Service I I IST~NDARD &PO01~S RATINBSDI~ECT I i I I Research: Denton, Texas; Tax Secured, General Obligation Publication date: 19-Mar-2003 Credit Analyst: Theodore Chapman, Dallas (1) 214-871-1401; Peter V Murphy, New York (1) 212-438-2065 Credit Profile $8.08 mil GO rfdg and imp bnds ser 2003 dtd 03/15/2003 due 02/15/2023 AA- Sale date: 25-MAR-2003 $7.405 mil certs of oblig ser 2003 dtd 03/15/2003 due 02/15/2023 AA- Sale date: 25-MAR-2003 I I ! I I I i I I AFFIRMED $6.225 mil. Denton $6.175 mil. Denton GO bnds & cert of oblig ser 2000 dtd 05/01/2000 due 02/15/2001~2018 2020 $6.970 mil. Denton GO bnds ser 1999 dtd 03/15/1999 due 02/15/2000-2019 $12.075 mil. Denton GO bnds ser 2002 dtd 04/01/2002 due 02/15/2003-2018 2020 2022 $6.530 mil. Denton GO rfdg bnds ser 1999 dtd 04/01/1999 due 02/15/2000-2016 $2.885 mil. Denton certs of oblig ser 1998 dtd 04/01/1998 due 02/15/1999-2018 $5.435 mil. Denton certs of oblig ser 1999 dtd 03/15/1999 due 02/15/2000-2019 AAA/AA-(SPUR) $10.895 mil. Denton certs of oblig ser 2001 dtd 05/01/2001 due 02/15/2002-2021 AAA/AA-(SPUR) $12.590 mil. Denton certs of oblig ser 2002 dtd 04/01/2002 due 02/15/2003-2022 AAA/AA-(SPUR) $7.720 mil. Denton go bnds ser 1998 dtd 04/01/1998 due 02/15/1999-2018 AAA/AA-(SPUR) $13.535 mil. Denton go bnds ser 2001 dtd 05/01/2001 due 02/15/2002-2021 AAA/AA-(SPUR) AANAA-(SPUR) AAA/AA-(SPUR) AAA/AA-(SPUR) AAA/AA-(SPUR) AAA/AA-(SPUR) OUTLOOK: STABLE [] Rationale The 'AA-' rating on Denton, Texas' GO refunding and improvement bonds and certificates of obligation reflects the city's: i I I i · Participation in the deep and diverse Dallas-Fort Worth MSA; · Solid financial position with strong reserves; and · Stable economic base, which features higher education and public sector employment opportunities. Factors that moderate these strengths include the city's: · High debt burden; and · Below-average wealth levels, which are attributed, in part, to a large student population. I i ! I I I I I I I I I I I I I I I An unlimited ad valorem property tax secures the bonds. A limited ad valorem property tax pledge and a limited pledge of excess net revenues of the city's combined utility system secure the certificates. The certificates and bonds will be used to fund various general government capital improvement projects, and a portion of the bonds will also be used to current refund some of the city's GO bonds outstanding. Denton, with a population of about 90,000, is roughly 35 miles north of, and equidistant to, Dallas, Texas and Fort Worth, Texas; Denton has easy access to both cities along Interstate 35. While job opportunities exist in manufacturing and some industry-along with the rapidly growing retail, service, and health care sectors-seven of the 10 leading employers come from the public sector or higher education entities. Anchored by the University of North Texas, with an estimated enrollment of 28,000; the city and county; local schools; and Texas Women's University, per capita income levels are skewed to just below average at 94% of state and national levels. Assessed valuation (AV) has grown as recent boom years in the Dallas-Fort Worth MSA pushed growth northward. The 2003 AV of $3.6 billion accounts for a 48% increase over the past five years, although market value is moderate at about $38,000 per capita. The 10 leading taxpayers account for a diverse 9% of AV. Denton's financial position remains strong. In 2002, the 16% unreserved general fund balance exceeded the policy of a 13% minimum. General fund revenue sources are diverse, and no one source exceeds 30% of total revenues in the 2003 budget. Sales taxes, the largest share of revenues other than property taxes, have slumped in recent years and finished 2002 at about 10% below the 2001 level; to date, sales taxes are also slightly below the 2003 budget. The tax rate of 55 cents per $100 of AV, which is in-line with neighboring cities, accounts for a decrease of 20 cents from 1994 due primarily to the tax base's growth and diversification. Following Sept. 11, the city implemented a number of cost- containment strategies that have left the operating budget virtually intact despite the sales tax revenue downturn. Overall net debt is high at more than 9% of market value due primarily to Denton Independent School District's recent undertaking of very large capital efforts. Debt service has changed little over time and is a manageable 14% of total expenditures in 2003. Street and park improvements are the primary focus of the city's five-year capital improvement plan (CIP). Future debt is expected to fund the majority of the estimated $42 million CIP through 2007. Outlook The stable outlook reflects the expectation that the city will maintain a good financial position with continued momentum from a growing and diversitying economic and employment base. In addition, the stable outlook reflects the expectation that continued healthy levels of future valuation growth would help the city offset the debt required to finance any necessary capital requirements to support its growth. If Denton's continued effort to work with the University of North Texas to promote economic development and higher paying jobs proves successful, it would provide consideration for future rating changes. [] Economy Denton is roughly 35 miles from both Dallas and Fort Worth, providing residents with good access to employment in the Metroplex. The local economic base is anchored by three universities and various local government entities (schools, city, and county), each of which provide a stable source of employment while experiencing little fluctuation during business cycles. In addition, the city serves as a medical and retail center for the northern reaches of the Dallas-Forth Worth Metropiex. Denton fully supports the University of North Texas' efforts to gain tier one university status from the state, which would greatly improve state support and help the city in its continuing economic development. The city aggressively markets downtown redevelopment and the pursuit of high-paying jobs, especially those with some university connection and the partnership with the city to develop an R&D park. The city continues to grow its commercial base, targeting moderate-priced large retailers, restaurants, and manufacturers. In addition, Denton Municipal Airport is only one of two superrelievers for Dallas- Fort Worth International Airport; Denton Municipal Airport is expected to capture a larger share of general aviation traffic with the recent and ongoing improvements to its facilities. In addition, residential growth is ongoing in the city and its extraterritorial jurisdiction, with several large master-planned community developments-including upscale homes, an active retirement community, and a large mixed-use development. i I I I i I I I ! I I ! I I I I I I I [] Finances/ClP While diverse, Denton's general fund revenue stream includes transfers from the city's combined electric, water, and sewer utility in the form of franchise taxes and payments-in-lieu-of-taxes. In the 2003 budget, transfers from all the city's enterprise funds account for $12.6 million, or about 20% of general fund revenues. Since 1997, the revenue stream's overall diversity, stability in sales tax revenues, and tax base growth have allowed the city's tax rate to remain stable at, or near, 55 cents. The bulk of Denton's five-year CIP will continue to address growth with a focus also on quality-of-life issues and general government improvements. Overall, the city's good financial policies and identification of long-term capital requirements have allowed it to stay ahead of growth pressures and continue to meet debt service without unreasonable budgetary pressures. Copyright © 1994-2003 Standard & Pools a division of The McGraw-Hill Companies. All Rights Reserved, Privacy Policy I I I I I I I I I I I I I I I I I I I Prepared by: ~FIRST SOUTHWFST COMPANY TABULATION OF BIDS RECEIVED AT SALE OF BIDS DUE TUESDAY, MARCH 25, 2003, AT 10:30 AM, CST $8,080,000 CITY OF DENTON, TEXAS GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS, SERIES 2003 $7,405,000 CITY OF DENTON, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2003 TRUE INTEREST ACCOUNT MANAGER COST TRUE INTEREST ACCOUNT MANAGER COST m m m I I i I I I I I I I I I I I m m I I I I I ! I I ! I I ! ,! I i I I I NOTICE OF SALE AND BIDDING INSTRUCTIONS ON S8,080,000 CITY OF DENTON, TEXAS (Denton County) GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS, SERIES 2003 Sealed Bids Due Tuesday, March 25, 2003, st 10:30 AM, CST THE BONDS WILL NOT BI] DESIGNATED AS "OUAL[FIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS. THE SALE BONUS Opl,'l~:~u VOR SAL~ AT COMPgTSTSVE BmDINC... The City of Denton, Texas (the "City") is offering for sale its $8,080,000 General Obligation Refunding and Improvement Bonds, Sedes 2003 (the "Bonds"). Bidders may submit bids for the Bonds by any of the following methods: (1) Deliver bids to the City as described below in "Bids Dciivevj to City"; (2) Submit bids electronically as described below in "Electronic Bidding Proeedums"; or (3) Submit bids by telephone or facsimile as described below in "Bids by Telephone or Facsimile". Bins DEtaVZRgO ~o CITY... Sealed bids, plainly marked "Bid for Bonds", should be addressed to "Mayor and City Council, City of Denton, Texas", and should he delivered to Kathy DuBoas, City of Denton, 215 E. McKinney Street, Denton, Texas 76201, on the dots of the bid opening. AIl bids must be submitted in accordance with one of the procedures identified below. ELECTRONIC BIDDING PROCEDURE... Any prospective bidder that intends to submit an electronic bid must submit its electronic bid through the facilities of PARITY. Bidders must submit, prior to March 25, 2003, SIGNED Official Bid Forms to David Medenich, First Southwest Company, 777 Main Street, Suite 1200, Fort Worth, Texas 76102. Subscription to i-Deal's BIDCOMP/PARITY Competitive Bidding System is required in order to submit an electronic bid. The City will neither confirm any subscription nor be responsible for the failure of any prospective bidder to subscribe. An electronic bid made through the fanilities of PARITY shall be deemed an irrevocable offer to purchase the Bonds on the terms provided in the Notice of Sale, and shall be binding upon the bidder as if made by a signed, sealed bid delivered to the City. The City shall not be resPonsible for any malfunction or mistake made by, or as a result of the use of the facilitias of, PARITY, the use of such facilities being the sole risk of the prospective bidder. If any provisions of the Notice of Sale shall conflict with iRformation provided by PARITY as the approved provider of electronic bidding services, this Notice of Sale shall coutral. Further information about PARITY, including any fee charged, may be obtained from Dalsump/Parity, 395 Hudson Street, New York, New York 10014, attention: Anthony Leyden (212) 806-8304. For purposes of both the written sealed bid process and the electronic bidding proeass, the time as malutalned by PARITY shall constitute the official time. For information pmposas only, bidders are requested to state in their electronic bids the true interest cost to the City, as described under "Basis of Awned" below. All electronic bids shall be deemed to incoxporate the provisions of thls Notice of Sale and the Official Bid Form. BIBS BY TELEPHONE OR FACSIMILE... Bidders must submit, prior to March 25. 2003. SIGNED Official Bid Forms to David Medanich, First Southwest Company, 777 Main Street, Suite 1200, Fort Worth, Texas 76102-3123, and submit their bid by telephone or facsimile (fax) on the date of the sale. Telephone bids will be accepted at (940) 349-8531, between 9:30 AM, CST and 10:30 AM, CST on the date oftbe sale. Fax bids will be received between 9:30 AM, CST and 10:30 AM, CST, on the date of the sale at (940) 349-7206, attention: Kathy DuBose. First Southwest Company will not be responsible for submitting any bids received after the above deadlines. The City and First Southwest Company are not responsible if such telephone or facsimile numbers are busy which prevents a bid or bids from being submitted on a timely basis. First Southwest Company will not be respous~fa for submitting any bids received a~er the above deadlines. First Southwest Company assumes no reepons~ility or liability with respect to any irregularities associated with the submission of bids if any options are exereiasd. PL~cg ~a~n T[MZ oP Bm OP~mC... The bids for the Bonds will be publicly opened and read in the office of the Assistant City Manager of Fiscal and Municipal Services, at City Hall, at 10:30 AM, CST, Tuesday, March 25, 2003. AwxRE og TID~ BONUS... The City Council will take action to award the Bonds (or reject all bids) at a meeting sebeduled to convene at 11:00 AM, CST, on the date of the bid opening, and adopt an ordinance authorizing the Bonds and approving the Official Statement (the "Bond Ordinance"). i THE BONDS BF. SCRIPTION... The Bonds will be dated March 15, 2003 (the "Dated Date"). Interest will accrue from the Dated Date and will be due on February 15, 2004, and each August 15 and February 15 thereafter until the earlier of maturity or prior redemption. The Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity. The Bonds will mature on February 15 in eeeh year aa follows: MATURITY SCHEDULE Principal Principal Principal Year Amount Year Amount Year Amount 2004 $1,060,000 2011 $275,000 2017 $220,000 2005 1,030,000 2012 285,000 2018 235,000 2006 675,000 2013 300,000 2019 245,000 2007 625,000 2014 315,000 2020 255,000 2008 620,000 2015 205,000 2021 270,000 2009 410,000 2016 215,000 2022 280,000 2010 265,000 2023 295,000 OPTIONAL REDEMPTION ,.. The City reserves the right, at its option, to redeem Bonds having stated maturities on and afier February 15, 2014, in whole or in part in principal amounts of $5,000 or any integral reultiple thereof, on February 15, 2013, or any date thereafter, at the par value theranfpins seemed interest to the date fixed for redemption. SERIAL BONDS AND/OR TERM BONOS... Bidders reay provide that all of the Bonds be issued as setial Bonds or may provide that any two or more conseeutlvc aanual principal amounts be combined into one or more term Bonds. I~L~NDATORY SINKJNG ~q'UNO... If the successful bidder elects to alter the Maturity Schedule reflected above and convert principal amounts of thc Serial Bonds into "Term Bonds", such *'Term Bonds" shall be subject to mandatupg redemption on the first February 15 next following the last maturity for Serial Bonds, and annually thcreafier on each February 15 until the stated maturity for the Term Bonds at thc redemption prices of par plus seemed interest to the date of redemptinn. Thc principal amounts of the Term Bonds to be redeemed on each mandatory redemption date shall be the pfin¢ipal amounts that would have been duc and payable in the Maturity Schedule shown above had no conversion to Term Bonds occurred. At least thirty (30) days prior to each reandatery redemption date, thc Paying Agent/Registrar shall select by lot the Term Bonds to be redeemed and cause a notice of redemption to be given in thc manner provided in the Preliminary Official Statement. Thc principal amount of thc Term Bonds required to be redeemed pursuant, to the operation of such mandatory redemption provisions may be reduced, at the option of thc City, by thc principal amount of the Term Bonds of the same maturity which (i) shall have been acquired by thc City at a price not exceeding the principal amount of such Term Bonds plus aeereed interest to thc date or purchase thereof, and delivered to thc Paying Agent/Registrar for cancellation or (ii) shall have been redeemed pursuant to the optional redemption provisions and not theretafore credited against a mandatory redemption requirement. A final official statement will incorporate the mandatory redemption provisions for the Bonds in the event the successful bidder elects to convert serial maturities into one or more Term Bonds, BOOK-ENTRY-ONLY SYSTEM ... Thc City intends to utilize the Book-Entry-Only System of Thc Depusitep/ Tsust Company CDTC"). See "The Bonds - Book-Ent~-Only System" in the Preliminary Offieial Statement. PAYING AGENT/REGISTRAR... The initial Paying Agent/Registrar shall be Bank One, National Association (sec "The Bonds - Paying Agunt/Registrar" in the Preliminary Official Statement). SOURCE OF PAYMENT... The Bonds are direct and voted general obligations of the City of Denton, Texas, payable out of the receipts from an ad valorem tax levied, within the limits prescribed by law, on all taxable property located within the City, as provided in tho Bond Ordinance. Further details regarding thc Bonds are set forth in the Preliminary Official Statement. I I I I ! I I ! I I I 1 I I I I 1 I i I I I I I I I ! I I I I ! I I CONDITIONS OF'rm~ SALE TYPE OF Bras AND INTEREST RATES, . . The Bonds will be sold in one block on an "All or None" basis, and at a price of not less than their par value and nat more than 100.5% of par plus accrued interest from the date of the Bonds to the date of delivery of the Bonds. Biddera are invited to name the rote(s) of interest to be berne by the Bonds, provlded diet each rote bid must be in a multiple of 1/8 of 1% or 1/100 of 1% and die net effective interest rote must not exceed 15%. The highest rote bid may not exceed die lowest rote bid by mom dian 2% in rate. interest rotes shall be s~uctured in ascending order such that for each succeeding maturity, rotes shall be equal to or greater dian the interest rate for die maturity of the preceding year. No limitation is imposed upon bidders as to the number of rates or changes which may be used. All Bonds of one matmity must bear one and the same rate. No bids involving supplemental interest rates will be conaldsred. BASIS FOR AWAre)... The sale of the Bonds will be awarded to the bidder making a bid diet conforms to the specifications herein and which produces the lowest Tree Interest Cost rate to the City. The Tree Interest Cost rate is diat rote which, whoa used to compute the total present value as of the Dated Date of all debt service payments on the Bonds on die basis of semi-annual compounding, produces an amount equal to the sum of the par value of the Bonds plus any premium bid (but not interest accrued from die Dated Date to die date of their delivery). In the event of a bidder's error in interest cost rate calculations, die interest rates, and premium, if any, set forth in the Official Bid Form will be considered as the official bid. GOOD F~a~t DEPOSIT... A Good Faidi Deposit, payable to die "City of Dentun, Texas", in the amount of $161,600.00, is required. Such Good Faith Deposit shall be a bank cashiers check or certified check, which is to be retained uncashed by die City pending die Initial Purehasc?s compliance widi die tetras of die bid and die Notice of Sale and Bidding lnsttucfions. The Good Faidi Deposit may accompany the Official Bid Form or it may be submitted separately. If submitted separately, it shall be mede available to the City prior to the opening of die bids, and shall be accompanied by instsucfiona from the bank on which drawn which andiorizc its use as a Oood Faith Deposit by die Initial Purchaser who shall be named in such instructions. The Good Faith Deposit of the Initial Purchaser will be returned to the Initial Purchaser upon payment for the Bonds. No interest will be allowed on the Good Faith Deposit. In die event the Initial Purchaser should fail or refuse to take up and pay for the Bonds in accordance with the bid, then said check shall be cashed and accepted by the City as full and complete liquidated damages. The checks accompanying bids other than the winning bid will be returned immediately attcr the bids arc opened, and an award of die Bonds has been made. DELIVERY OF 'I'H~ BONDS AND ACCOMPANYING DOCUMENTS CUSIP NUMBgRS... It is anticipated diet CUSIP identification numbers will eppcar on the Bonds, but neidier die failure to print or type such number on any Bond nor any error widi respect dieretu shall constitute cause for a failure or refusal by die Initial Purchaser to accept delivery of and pay for the Bonds in accordance with the terms of this Notice of Sale and Bidding Instructions and thc terms of the Official Bid Form. All expenses in relation to the prinling or typing of CUSIP numbers on die Bonds shall be paid by die City; provided, however, diet the CUSIP Service Bureau charge for die assignment of the numbers shall be die responsibility of and shall be paid for by die Initial Purchaser. DELIVERY OF BONDS ... Initial Delivery will be accomplished by the issuance of one Initial Bond (also called the "Bond" or "Bonds"), eidier in typed or printed form, in thc aggregnte principal amount of $8,080,000, payable in stuted installments to the Initial Purchaser or its designee, signed by dic Mayor and City Secretu~, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts. Upon delivery of the Initial Bond, it shall be immed'rsteiy cancelled and one definitive Bond fur each maturity will be registered and delivered only to Cede & Co., and deposited with DTC in canneetion widi DTC's Book-Entry-Only System. Delivery will be at die crapomte trust office of the Paying Agent/Registrar in Dallas, Texas. Payment for thc Bonds must be made in immediately available funds for unconditional credit to dic City, or as otherwise directed by the City. The Initial Purchaser will be given six business days' notice of the time fixed fur delivery of die Bonds. It is anticipated diat delivery of die Bonds can be made on or about April 29, 2003, and it is understood and agreed that die Initial Purchaser will accept delivery and make payment for the Bonds by 10:00 AM, CDT, on April 29, 2003, or thereafter on die date die Bond is tendered for dalivery, up tu andinchiding May 13, 2003. If fur any reasun the Cityis enable tu make dslivcry on or before May 13, 2003, die City shall immediately contact the Initial Purchaser and offer to allow the Initial Purchaser to extend its offer for an additional thirty days. If die initial Purchaser docs not elect to extend its offer within six days diereaf~er, then its Good Faidi Deposit will be returned, and bodi die City and tho Initial Purchaser shall be relieved of any further obligation. In no event shall die City be liable for any damages by reason of its failure to deiiwr the Bonds, provided such failure is due to c~rcumstanees beyond the City's reasonable con,roi. CONDITIONS TO DELIVERY... The obligation of the Initial Purchaser to take up and pay for the Bonds is subject to die Initial Purchaser's receipt of (a) the legal opinion of McCall, Purkhurst & Horton, L.L.P., Dallas, Texas, Bond Counsel for die City ("Bond Counsel"), (b) the no-litigntion certificate, and (c) the certification as to the Preliminary Official Statcmoot, all as further described in the Preliminary Official Statement. In order to provide thc City with information required to enable it to comply with ce~tuin conditions of thc Internal Revenue Code of 1986 relating to die exemption of interest on the Bonds from the gross income of their owners, the Initial Purchaser will be required to complete, execute, and deliver to the City (on or before die 6th business day pr~or to the delivery of die Bonds) a certification as to dieir "issue price" substantially in die form and to the effect attached hereto or accompanying this Notice of Sale and Bidding Instructions. In the event the successful bidder will not reoffer die Bonds for sale, such certificate may be iii modified in a manner appmved by the City. In no event will the City fail to deliver the Bonds as a result of the Initial Purchaser's inability to sell a substantial amount of the Bonds at a particular price prior to delivery. Each bidder, by submitting its bid, agrees to complete, execute, and deliver such a certificate by thc date of delivery of the Bonds, if its bid is accepted by the City. It will be the responsibility of the Initial Purchaser to institute such syndicate reporting requirements to make such investigation, or otherwise to ascertain the facts nccessary to enable it to make such certification with reasonable certainty. Any questions concerning such certification should be directed to Bond Counsel. LEGAL OPINIONS... The Bonds are offered when, as and if issued, subject to the approval of the Attorney General of the State of Texas. Delivery of and payment for the Bonds is subject to the receipt by thc Initial Purchaser of opinions of Bond Counsel, to thc effect that the Bonds are valid and binding obligations of the City and that the interest an the Bonds will be excludable from gross income for federal income tax purposes under existing law, subject to the ma~ters described under "Tax Matters" in the Preliminary Official Statement, including alternative minimum tax consequences for corporations. CERTIFICATION OF pRELIMINARY OFFICIAL STATEMENT... At the time of payment for and Initial Delivery of the Bonds, the City will execute and deliver to the Initial Purchaser a certificate in the form set forth in the Preliminary Official Statement. CHANGE IN TAX EXEMPT STATUS....At ally time befum the Bonds are tendered for dalivevy, thc Initial Purchaser may withdraw its bid if the interest received by private holders on obligations of the same type and character shall be declared to be includable in gross income under present federal income tax laws, either by mling of the Internal Revenue Scndce or by a decision of any Federal court, or shall be declared taxable or be required to be taken into account in computing any federal income taxes, by the terms of any federal income tax law enacted subsequent to the date of this Notic~ of Sain and Bidding Inst~uctiuns. GENERAL FINANCIAL ADVISOR... First Southwest Company is employed as Pinanalal Advisor to the City in connection with the issuance of the Bonds. The Financial Advisur's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bands. First Southwest Company may submit a bid for the Bonds, either independently or as a member of a syndicate organized to submit a bid for the Bonds. First Southwest Coerpany, in its cupaalty as Financial Advisor, has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibillty for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. In the normal course of business, the Financial Advisor may from time to time sell invesmmnt securities to the City for the investment of bond proceeds or other funds of the City upon the request of the City. BLUE SKY LAWS... By submission of its bid, the Initial Purchaser represents that the sale of the Bonds in states other than Texas will he made only pursuant to exemptions fiom registration or, where necessary, the Initial Purchaser will register the Bonds in accordance with the securities law of the states in which the Bonds are offered or sold. The City agrees to cooperate with the Initial Purchaser, at the Initial Purchaser's written reClUeSt and expense, in registering the Bund~ or obtaining an exemption from registration in any state where such action is necessary, provided, however, that the City shall not be obligated to execute a general or special consent to sendce of prccess in any such jurisdintinn. NOT AN OFFER TO SELL... This Notice of Sale and Bidding Insauctinns does not alone constitute an offer to sell the Bonds, but is merely notice of the sale of the Bonds. The offer to sell the Bonds is being made by means of the Notice of Sate and Bidding Instructions, the Official Bid Form and the preliminary Official Statement. Prospective purchasers are urged to carefully examine the Preliminary Official Statement to determine the investment quality of the Bonds. ISSUANCE OF AI)rnTIONAL DEET . . . Except for the $7,405,000 Certificates of Obligation, Series 2003 being offarcd simultaneously with the issuance of the Bonds, the City does not anticipate the issuance of additional general obligation debt within the next 12 months. RATINGS ... The presently outstanding tax supported debt of the City is rated "Aa3" by Moody's Investors Service, Inc. ("Moody's") and "AA-" by Standard & Poor's Ratings Services, A Division of McC~aw-Hiil Companies, Inc. CS&P"). The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on this issue have been made to Moody's and S&P. The results of their determinations will be provided as soon as possible. MUNICIPAL BOND INSURANCE ... In the event the Bonds are qualified for municipal bond insurance, and the Initial Purchaser desires to purchase such insurance, the cost therefore will be paid by the Initial Purchaser. Any fees to be paid to the rating agencies as a result of said insurance wig be paid by the City. It will be the respans~ility of the Initial Purchaser to disclose the existence of insurance, its terms and the effect thereof with respect to the reoffering of the Bonds. I ! I I I I I I I I I I ! i I I I I I I i I I I ! ! ! I ! 'i I I ! ! THE PRELIMINARY OFFICIAL STATEMENT AND COMPLIANCE WITH SEC RULE 15C2-12...The City has prepared the accompanying Preliminary Official Statement and, for the limited punpose of complying with SEC Rule 15c2-12, deems such Preliminary Official Statement to be final as of its date within the meaning of such Rule for the purpose of review prior to bidding. To the best knowledge and belief of the City, the Preliminary Official Statement contains information, including financial information or operating data, concerning every entity, entespries, fund, account, or person that is material to an evaluation oftbe offering of thc Bonds. Representations made and to be made by the City concerning thc absence of material misstatements and omissions in thc Preliminary Official Statement arc addressed elsewhere in this Notice of Sale and Bidding Instructions and in the prellrnlnsry Official Statement, The City will furnish to the Initial Purchaser, acting through a designated senior representative, in accordance with insirucfions received from the Initial Purchaser, within seven (7) business days from the sale date an aggregate of 250 copies of the Official Statement reflecting intarest rotes and other terms relating to the initial rcoffcimg of the Bonds. The cost of any Official Statement in excess of the number specified shall be prepared and distributed at the cost of the Initial Purchaser. Thc Initial Purchaser shall be responsible for providing in writing the initial ranffering prices and other terms, if any, to the Financial Advisor by the close of thc next business day after the award. Except as noted above, the City assumes no responsibility or obligation for the dis~'ibution or delivery of any copies of the Official Statement in connection with the offering or reoffedng of the subject securities. CONTINUING DISCLOSURE AGREEMENT... The City will agree in thc Bond Ordinance to provide ce~ain periodic information and notices of material events in accordance with Securities and Exchange Commission Rule 15c2-12, as described in the Preliminary Official Statement under "Continuing Disclosure of Information". The Initial Purchasers obligation to accept and pay for the Bonds is conditioned upon delivery to the Initial Purchaser or agent of a certified copy of the Bond Ordinance containing the agreement described under such heading. 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. ADDITIONAL COPIES OF NOTICF~ BID FORM AND STATEMENT... A limited number of additional copies of this Notice of Sale and Bidding Instructions, the Official Bid Form and the Praliminmy Official Statement, as available over and above the normal mailing, may be obtained at the offices of First Southwest Company, Investment Bankers, 325 North St. Paul, Suite 800, Dallas, Texas 75201, Financial Advisor te the City. On the date of the sale, the City will, in the Bond Ordinance authorizing the issuance of the Bonds, confum its approval of the form and content of the Preliminsry Official Statement, and any addenda, supplement or amendment thereto, and authofiz~ its use in the reoffcring of the Bonds by the Initial Purchaser. ATTEST: EULINE BROCK Mayor City of Denton, Texas JENNIFER WALTERS City Secretary March 13, 2003 I BOND YEARS Bonds Accumulated Bonds Maturing Amount Bond Years Bond Years Matu~no 2004 $ 1,060,000 971.667 971.667 2004 2005 1,030,000 1,974.167 2,945.833 2005 2006 675,000 1,968.750 4,914.583 2006 2007 625,000 2,447.917 7,362.500 2007 2008 620,000 3,048.333 10~10.833 2008 2009 410,000 2~25.833 12,836.667 2009 2010 265,000 1,832.917 14,669.583 2010 2011 275,000 2,177.083 16,846.667 2011 2012 285,000 2,541.250 I9,387.917 2012 2013 300,000 2,975.000 22,362.917 2013 2014 315,000 3,438.750 25,801.667 2014 2015 205,000 2,442.917 28,244.583 2015 2016 215,000 2,777.083 31,021.667 2016 2017 220,000 3,061.667 34,083.333 2017 2018 235,000 3,505.417 37,588.750 2018 2019 245,000 3,899.583 41,488.333 2019 2020 255,000 4,313.750 45,802.083 2020 2021 270,000 4,837.500 50,639.583 2021 2022 280,000 5,296.667 55,936.250 2022 2023 295,000 5,875.417 61,811.667 2023 Average Maturity ............................. 7.650 Years ! i I I i I I I ! ! I I i I I ! I I I I I I i I I I I I I I I I I ! I OFFICIAL BID FORM Honorable Mayor and City Council City of Denton, Texas March 25, 2003 Honorable Mayor and Members of the City Council: Reference is made to your Preliminavy Official Statement and Notice of Sale and Bidding Instructions, dated March 13, 2003 of $8,080,000 CITY OF DENTON, TEXAg GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS, SERIES 2003, both of which conslitote a part hereof. For your legally issued Bonds, as described in said Notice of Sale and Bidding Instructions and Preliminary Official Statement, we will pay you par and aeemed interest from date of issue to date of delivery to us, plus a cash premium of $.__ (not to exceed 0.5% of the total par amount of the Bonds) for Bonds maturing and bearing interest as follows: Principal Interest Principal Interest Principal lnter~st Maturity Amount Rate Maturity Amount Rate Maturity Amount Rate 2/15/2004 $1,060,000 % 2/15/2011 $275,000 % 2/15/2017 $ 220,000 2/15/2005 1,030,000 % 2/15/2012 285,000 % 2/15/2018 235,000 2/15/2006 675,000 % 2/15/2013 300,000 % 2/15/2019 245,000 2/15/2007 625,000 % 2/15/2014 315,000 % 2/15/2020 255,000 2/15/2008 620,000 % 2/15/2015 205,000 % 2/15/2021 270,000 2/15/2009 410,000 % 2/I5/2016 215,000 % 2/15/2022 280,000 2/15/2010 265,000 % 2/15/2023 295,000 Oftbe principal maturities set forth in the ',able above, term bonds have becn created as indicated in thc following table (which may ineinda multiple term bonds, one term bend or no term bond if none is indicated). For those years which have been combined into a term bond, the prinalpal amount shown in the teble above shall be the mandatory sinking fund redemption mounts in such years except that the amount shown in the year of the term bond maturity date shall mature in such year. The term bonds created are as follows: Year of Maturity Date First Mandatory Principal Interest February 15 Redemmion Amount Rate % % % % % % Our calculation (which is not a part of this bid) of the true interest cost from the above is: TRUE INTEREST COST .% We are having the Bonds of the following maturities insured by at a premium of $ , said premium to be paid by the Initial Purchaser. Any fees to be paid to the rating agencies as a result of said insurance will be paid by the CRv. The Initial Bonds shall be registered in the name of ~ which will, upon payment for the Bonds, be canceled by the Paying AgenffRegistrar. The Bonds will then be registered in the name of Cede & Co. (DTC's parmership nominee), under the Book-Enh2t-Only System. A bank eashinfs check or certified check of the. Bank, _, in the amount of $161,600.00. which represents our Good Faith Deposit (is attached hereto) or (has been made available to you prior to the opening of this bid), and is submitted in accordance with the terms as set fo~h in the Preliminary Official Statement and Notice of Sale and Bidding Inslructions. We agree to accept delivery of the Bonds utilizing the Book-Ent~-Only System tlu'angh DTC and make payment for the Initial Bond in immediately available fimds in the Co~porate Trust Division, Bank One, National Association, not later than 10:00 AM, CDT, on April 29, 2003, or thereafter on the date the Bonds are tendered for delivery, pursuant to the terms set fo~h in the Notice of Sale and Bidding Instructions. It will be the obligation of the purchaser of the Bonds to complete the DTC Eligibility Questionnaire. The undersigned agrees to complete, execute, and deliver to the City, at least six business days prior to delivery of the Bonds, a certificate relating to the "issue price" of the Bonds in the form and to the effect accompanying the Notce of Sale and Bidding Instmctlons, with such changes thereto as may be acceptable to the City. We agree to provide in writing the initial reoffering price~ and other terms, if any, to the Financial Advisor by the close of the next business day after the award. Respectfully submitted, Syndicate Members: Name of Undarwhter or Manager Authorized Representative Phone Number Signature _ACCEPTAN _CE CLAUSE The above and foregoing bid is hereby in all things accepted by the City of Denton, Texas, subject to and in accordance with the Notice of Sale and Bidding Instructions, this the 25th day of Mamh, 2003. ATTEST: Mayor City of Denton, Texas City Secretary ! i I I i I I I I ! I I I I I I I ! I I I ! I I I I I I ! I I I I I I CERTIFICATE OF UNDERNN'TJTER The undersigned hereby certifies as follows with respect to the sale of $8,080,000 CITY OF DENTON, TEXAS GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS, SERIES 2003 (the "Bonds"). 1. The undersigned is the underwriter or the manager of the underwriters and selling group (the "Purchaser") which has purchased the Bonds from thc Ciiy of Denton, Texas (thc "City"). 2. The undersigned has made a bona fide offering of the Bonds to the public. 3. The first price during the initial offering (expressed as a "yield") of each maturity of the Bonds at which a substantial amount hereof (at least 10 percent of the principal amount of each maturity of the Bonds) has been sold to the public is set forth below: Principal Offering Principal Amount Year of Price Amount Year of Maturing Maturity (°/dYield) Matering Maturity $1,060,000 2004 $ 315,000 2014 1,030,000 2005 205,000 2015 675,000 2006 215,000 2016 625,000 2007 220,000 2017 620,000 2008 235,000 2018 410,000 2009 245,000 2019 265,000 2010 255,000 2020 275,000 2011 270,000 2021 285,000 2012 280,000 2022 300,000 2013 295,000 2023 Offering Price (%/Yield) 4. For purposes of this certificate, thc term "public" does not include (a) the undersigned, Co) membms of the syndicate, if any, managed by the undersigned, or (e) any bondhouses, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers that are related to, or controlled by, or are acting on behalf of or as agents for the undersigned or members of any syndicate in which the undersigned is participating in the sale of the Bonds. 5. The offering price described above reflects current market prices at the time of such sales. 6. Ifauy or all of the obligations constituting the Bonds are to be guaranteed then the premium paid for such guarantee in un amount equal to $ is a reasonable amount payable solely for the transfer of credit risk for the payment of debt servicc on the Bonds and docs not include any amount payable for a cost other than such guarantee, c.g., a credit rating fee. The Undenvfitur has represented that the present value of the premium paid for the guarantee for each obligation constituting the Bonds to which such premium is properly allocated and which are insured thereby is less than the present value of the interest reasonably expected to be saved as a result of the insurance on each obligation constituting the Bonds. The premium has been paid to a person which is not exempt fi.om federal income taxation and which is not a user or related to the user of any proceeds of the Bonds. In determining present value for this purpose, the yield of the Bonds (determined with regard to the payment of the guarantee fee) has been used as the discount rate. 7. The undersigned understands that the statements made herein will be relied upon by the City in its effort to comply with the anndltions imposed by the Internal Revenue Code of 1986 and by Bond Counsel in rendering their opinion that the interest on the Bonds is excludable fi.om the gross income of the owners thereof. EXECUTED and DELIVERED this __ day of ,2003. (Name of Underwriter or Manager) By (Title) THIS PAGE LEFT BLANK INTENTIONALLY ! I I I I I i I I I I I I I I I I I I ! I I ! I I i I I I I ! i i I I I I NOTICE OF SALE AND BIDDING INSTRUCTIONS ON $7,405,000 CITY OF DENTON, TEXAS (Denton County) CERTIFICATES OF OBLIGATION, SERI~S 2003 Sealed Bids Due Tuesday, March 25, 2003, at 10:30 AM, CST THE CERTIFICATES WILL NOT BE DESIGNATED AS "OUALIF1ED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS. THE SALE CERTIFICATES OFFERED FOR SALE AT COMPETITIVE BmmNG ... The City of Denton, Texas (the "City") is offering for sale its $7,405,000 Certificates of Obligation, Series 2003 (the "Certificates"). Bidders may submit bids for the Certificates by any of the following methods: (1) Deliver bids to the City as described below in "Bids Delive~ to City"; (2) Submit bids electronically as described below in "Electronic Bidding Proceda~s"; or (3) Submit bids by telephone or facsimile as described below in "Bids by Telephone or Facsimile". BIos DELIVERED TO CITY.., Sealed bids, plainly marked "Bid for Certificates", should be addressed to "Mayor and City Council, City of Denton, Texas", and should be delivered to Kathy DuBose, City of Denton, 215 E. McKinney Sirccf, Denton, Texas 76201, on tho date of the bid opening. All bids must be submitted in accordance with one of the procedures identified below. ELECTRONIC BIDDING PROCEDURE... Ally prospective bidder that intends to submit an electronic bid must submit its elecironic bid through the facilities of PARITY. Bidders mttst submit, prior to March 25, 2003, SIGNED Official Bid Forms to David Medanich, First Southwest Company, 777 Main Street, Suite 1200, Fort Wosth, Texas 76102. Subscription to i-Deal's BIDCOMPfPARITY Competitive Bidding System is required in order to submit an electronic bid. The City will neither confirm any subscription nor be responsible for the failure of any prospective bidder to subsctibe. An electronic bid made through the facilities of PARITY shall be deemed an irrevocable offer to purchase the Certificates on the terms provided in the Notice of Sale, and shall be binding upon the bidder as if made by a signed, sealed bid delivered to the City. The City shall not be responsible for any malfunction or mistake made by, or as a result of the use of the facilities of, PARITY, the use of such facilities being the sole risk of the prospective bidder. If any provisions of the Notice of Sale shall conflict with information provided by PARITY as the approved provider of electronic bidding services, this Notice of Sale shah control. Further information about PARITY, including any fee charged, may be obtained from DalcompfParity, 395 Hudson Street, New York, New York 10014, attention: Anthony Leyden (212) 806-8304. For purposes of both the written sealed bid process and the electronic bidding process, the time as maintained by PARITY shah constitute the official time. For information parposcs only, biddare arc requested to state in their electronic bids the hue interest cost to the City, as described under "Basis of Award" below. All elcchunic bids shall be deemed to incorporate the provisions of this Notice of Sale and the Official Bid Form. BIDS BY TELEPHONE OR FACSIMILE... Bidders must submit, p_n.'or tO March 25. 2003, SIGNED Official Bid Forms to David Mcdanieh, First Southwest Company, 777 Main Street, Suite 1200, Fort Worth, Texas 76102, and submit their bid by telephone or facsimile (fax) on the date of the sale. Telephone bids will be accepted at (940) 349-8531, between 9:30 AM, CST and 10:30 AM, CST on the date of thc sale. Fax bids will be received between 9:30 AM, CST and 10:30 AM, CST, on the date of the sale at (940) 349-7206, attention: Kathy DuBosc. First Southwest Company will not be responsible for submitting any bids received after the above deadH nas. The City and First Southwest Company are not responsible if such telephone or facsimile numbers are busy which prevents a bid or bids from being submitted on a timely basis. First Southwest Company will not be responsible for submitting any bids received after the above deadlines. First Southwest Company assumes no responsibility or liability with respect to any irregalarities associated with the submission of bids if any options are exercised. PLACE AND TIME OF BID OPENING... The bids for the Certlticatcs will be publicly opened and read in the office of the Assistant City Manager of Fiscal and Municipal Services, at City Hall, at 10:30 AM, CST, Tuesday, March 25, 2003. AWARD OF THE CERTIFICATES ... The City Council will take action to award the Certificates (or reject all bids) at a meeting scheduled to convene at 11:00 AM, CST, on the date of thc bid opening, and adopt an ordinance authorizing the Certificates and approving the Official Statement (the "Certificate Ordinance"). I THE CERTIFICATES DESCRiPTiON... The Certificates will be dated March 15, 2003 (the "Dated Date"). Interest will accrue from the Dated Date and will be due on February 15, 2004, and each August 15 and February 15 thereafter until the earlier of matarity. The Certificates will be issued only in fully mgistsred form in any integral multiple of $5,000 for any one maturity. Thc Certificates will mature on February 15 in each year as follows: MATURITY SCHEDULE Principal Principal Principal Year Amount Year Amount Year Amount 2004 $485,000 2011 $470,000 2017 $215,000 2005 610,000 2012 385,000 2018 225,000 2006 635,000 2013 400,000 2019 200,000 2007 655,000 2014 190,000 2020 210,000 2008 670,000 2015 195,000 2021 220,000 2009 475,000 2016 200,000 2022 230,000 2010 495,000 2023 240,000 OPTIONAL REI)EMPTION... The City reaervea the right, at its option, to redeem Certificates having stated matudtiea on and after February 15, 2014, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2013, or any date thereafter, at the par value theranfplus accrued interest to the date fixed for redemption. SERIAL CERTIFICATES AND/OR TERM CERTIFICATES , . . Bidders may provide that all of the Certificates be issued as serial Certificates or may provide that any two or more consecutive annual principal amounts be combined into one or more term Certificates. 1VIANDATORY SINKING FUND... If the successful bidder elects to alter the Maturity Schedule reflected above and convert principal amounts of the Serial Certificates into "Term Certificates", such "Term Certificates" shall be subject to mandatory redemption on the f'wst February 15 next following thc last maturity for Serial Certificates, and annually thereafter on each February 15 until the stated maturity for the Term Certificates at the redemption prices of par plus accrued interest to the date of redemption. The principal amounts of the Term Certificates to be redeemed on each mandatory redemption date shall be thc principal mounts that would have been duc and payable in the Maturity Schednla shown above had no conversion to Term Certificates occurred. At least thirty (30) days prior to each mandatory redemption date, the Paying Agent/Registrar shall select by lot the Term Certificates to be redeemed and cause a notice of redemption to be given in the manner provided in the Preliminary Official Statement. Tha principal amount of the Term Certificates required to be redeemed pursuant to the operation of such mandatory redemption provisions may be reduced, at the option of the City, by the principal amount of the Term Certificates offue same maturity which (i) shall have been acquired by the City at a price not exceeding the principal amount of such Term Certificate plus accrued intereat to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation or (ii) shall have bean redeemed pursuant to the optional redemption provisions and not theretofure credited against a mandatory redemption requirement. A final official statement will incorporate the mandatory redemption provisions for thc Certificates in the event the successful bidder elects to convert serial maturities into one or more Term Certificates. BOOK-ENTRY-ONLY SYSTEM ... The City intends to utilize the Book-Entry-Only System of The Depository Trust Company ("DTC"). See "The Bonds and Ceffificates - Book-Enh3r-Only System" in the PreliminsI3t Official Statement. PAYING AGENTfREGISTRAR... The initial Paying Agenl/Regis~ar shall be Bank One, National Association (see "The Bonds and Certificates - Paying Agent/Registrar" in tho Preliminary Official Statement). SOURCE OF PAYMENT... The Cc~ficates constitute direct obligations of the City, payable fi.om a combination of(i) the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a limited pledge (not to exceed $10,000) of smplus net revenues of the City's Utility System, as provided in the Ordinance. Further details regarding the Certificates arc set forth in the preliminary Official Statement. I I I I I I I I I I I I i I I I I I I i I I I I ! I I I I I, I I I I I I CONDITIONS OF 'l'~ SALE exceed 15%. Thc highest rate bid may not exceed the lowest rate bid by more than 2% in rate. Interest rates for successive maturities shall be structured in ascending order such that for each succeeding maturity, rates shall be equal to or greater than thc may be used. All Certficates of one maturity must bear one and thc same rate. No bids involving supplementa[ interest rates will be considered. BASIS FOR AWAI~O... The sale of the Certificates will be awarded to the bidder making a bid that conforms to the specifications herein and which produces the lowest True Intcrast Cost rate to the City. The True Interest Cost rate is that rate which, when used to compute the tetel present value as of the Dated Date of all debt service payments on thc Certificates on the basis of semi-annual compounding, produces an amount equal to the sum of the par value of the Certificates plus any premium bid (but not interest accrued from the Dated Date to the date of their ddiivevd). In the event of a biddar's error in interest cost rate calculations, the interest rates, and premium, if any, set forth in the Official Bid Form will be coanidered as thc official bid. GOOD FAITH DEPOSIT... A Good Faith Deposit, payable to thc "City of Denton, Texas", in the amount of $148,100.00, is required. Such Good Faith Deposit shall be a bank cashier's check or certified check, which is to be retained uncashed by the City pending the Initial Purchaser's compliance with the terms of the bid and the Notice of Sale and Bidding Instructians. The Good Faith Deposit may accompany the Official Bid Form or it may be submitted separately. If submitted separately, it shall be made available to the City prior to the opening of the bids, and shall be accompanied by instxuctions from the bank on which drawn which authorize its use as a Good Faith Deposit by the Initial Purchaser who shall be named in such instructions. The Good Faith Deposit of the Initial Purchaser will be returned tn the Initial Purchaser upon payment for the Certificates. No interest will be allowed on the Good Faith Deposit. In the event thc Initial Purchaser should fail or refuse to take up and pay for the Certificates in accordance with the bid, then said check shall be cashed and accepted by the City as full and complete liquidated damages. The checks accompanying bids other than the winning bid will be returned immediately after the bids are opened, and an award of the Certficates has been mede. DELIVERY OF THE CERTIFICATES A~D ACCOMPANYING DOCIJMENTS CUSIP NUMDEUS... It is anticipated that CUSIP identification numbers will appear on the Certificates, but neither the failure to print or type such number on any Certificate nor any error with respect thereto shall constitute cause for a failure or refusal by the Initial Purchaser to accept ddiivery of and pay for the Certificates in accordance with the tetras of this Notice of Sale and Bidding Instructions and the terms of the Official Bid Form. All expenses in relation to the printing or typing of CUSIP numbers on the Certificates shall be paid by the City; provided, however, that the CUSIP Service Bureau charge for the assignment of the numbers shall be the responsibility of and shall be paid for by the Initial Purchaser. DELIVERY OF Cr. RTIFICAT~S... Initial Ddiivery will be accomplished by the issuance of one Initial Ceffificate (also called the "Certificate" or "Certificates"), either in typed or printed form, in the aggregate principal amount of $7,405,000, payable in statad installments to the Initial Purchaser or its designee, signed by the Mayor and City Secretary. approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts. Upon dalivepy of the Initial Certificate, it shall be immediately cancelled and one definitive Certficate for each maturity will be registered and delivered only to Cede & Co., and deposited with DTC in connection with DTC's Book-Entry-Only System. Delivery will be at the co,orate trust office of the Paying Agent/Registrar in Dallas, Texas. Payment for the Certificates must be made in immediately available funds for unconditional credit to the City, or as othenvise directed by the City. The Initial Purchaser will ha given six business days' notice of the time fixed for delivery of the Certificates. It is anticipated that delivery of the Certficates can be mada on or about April 29. 2003, and it is understood and agreed that the Initial Purchaser will accept delivery and make payment for the Certificates by 10:00 AM, CDT, on April 29, 2003, or thereafter on the date the Certificate is tendered for delivery, up to and including May 13, 2003. If for any mason the City is unable to make dalivevj on or before May 13, 2003, the City shall immediately contact the Initial Purchaser and offer to allow the Initial Pumhaser to extend its offer for an additional thirty days. If the Initial Purchaser does not elect to extend its offer within six days thereafter, then its Good Faith Deposit will be returned, and both the City and the Initial Pumhaser shall be relieved of any further obligation. In no event shall the City be liable for any damages by reason of its failure to deliver the Certificates, provided such failure is due to cimumstencea beyond the City's reasonable control. CONDITIONa TO DELIVERY .,. The obligation of the Initial Purchaser to take up and pay for the Certificates is subject to the Initial Purchaser's receipt of (a) the legal opinion of McCall, Pathhurst & Hor~on, L.L.P., Dallas, Texas, Bond Counsel for the City ("Bond Counsel"), (b) the no-litigation certificate, and (c) the certification as to the Preliminary Official Statement, all as further described in the Preliminary Official Statement. In order to provide the City with information required to enable it to comply with certain conditions of thc Internal Revenue Code of 1986 relating to the exemption of interest on the Certificates from the gross income of their owners, the Initial Purchaser will be required to complete, execute, and deliver to the City (on or before the 6th business day prior to the delivery of the iii Certificates) a certification as to their "issue price" substantially in the form and to the effect attached hereto or accompanying this Notice of Sale and Bidding Instructions. In the event the successful bidder will not reoffer the Certificates for sale, such certificate may he modified in a manner approved by the City. In no event will the City fail to detiver the CerBfieatus as a result of the Inirial Purchaser~s inability to sell a substantial amount of the Certificates at a particular price prior to delivery. Each bidder, by submitting its bid, agrees to complete, execute, and deliver such a certificate by the date of delivery of the Certificates, if its bid is accepted by the City. It will be the responsibility of the Initial purchaser to institute such syndicate reporting requirements to make such investigation, or otherwise to ascertain the facts necessary to enable it to make such certification with reasonable certainty. Any questions concerning such certification shouldbe directed to Bond Counsel. LEGAL OPINIONS ., . ~le CeY~ficstes are offered when, as and if issued, subject to the approval of the Attorney General of the State of Texas. Delivery of and payment for the Certificates is subject to the receipt by the Initial Purchaser of opinions of Bond Counsel, to the effect that the Certificates are valid and binding obligations of the City and that the interest on the Certificates will be excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "Tax Matters" in the Preliminary Official Statement, including alternative minimum tax consequences for corporations. CERTIFICATION OF pRELIMINARY OFFICIAL STATEMENT.., At the time of payment for and Initial Delivery of the Certificates, the City will execute and deliver to the Initial Purchaser a certificate in the form set forth in the Preliminary Official Statement. CHANGE IN TAX EXEMPT STATUS .., .At flay t~le before the Certificates ara tendered for delivery, the Initial Purchaser may withdraw its bid if the interest received by private holders on obligations of the same type and character shall be declared to be includable in gross income under present federal income tax laws, either by rating of the Internal Revenue Service or by a decision of any Federal court, or shall be declared taxable or be required to be taken into account in computing any federal income taxes, by the terms of any federal income tax law enacted subsequent to the date of this Notice of Sale and Bidding Insffucfions. GENERAL FINANCIAL ADVlSOR... First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Certificates. The Financial Advisor's fee for services rendered with respect to the sale of the Ce~ificates is contingent upon the issuance and delivery of the Certificates. First Southwest Company may submit a bid for the Certificates, either independently or as a member of a syndicate organized to submit a bid for the Certificates. First Southwest Company, in its capacity as Financial Advisor, has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Certificates, or the possible impact of any present, pending or future actions taken by any legislative or judinial bodies. In the normal course of business, tho Financial Advisor may from time to time sell investment securities to the City for the investment of bond proceeds or other funds of the City upon the request of the City. BLUE SKY LAWS... By submission of its bid, the Initial Purchaser represents that the sale of the Certificates in states other than Texas will be made only pursuant to exemptions from registration or, where necessary, the Initial Purchaser will register the: Certificates in accordance with the securities law of the states in which the Certificates are offered or sold. The City agrees to cooperate with the Initial Purchaser, at the Initial Purchaser's written request and expense, in registering the Certificates or obtaining an exemption from registration in any state where such action is necessary, provided, however, that the City shall not be obligated to execute a general or special consent to service of process in any such jtttisdiefion. NOT AN OFFER TO SELL... This Notice of Sale and Bidding Instructions does not alone constitute an offer to sell the Certificates, but is merely notice of the sale of the Certificates. The offer to sell the Certificates is being made by means of the Notice of Sale and Bidding Instructions, the Official Bid Form and the Preliminary Official Statement. Prospective purchasers are urged to carefal[y examine the Preliminary Official Statement to determine the investment quality of the Certificates. ISSUANCE OF AOmTIONAL DEBT... Except for the $8,080,000 General Obligation Refunding and Improvement Bonds, Series 2003 being offered simultaneously with the issuance of the Certificates, the City does not anticipate the issuance of additional general obligation debt within the next 12 months. RATINGS ... The presently outstanding tax supported debt of the City is rated "Aa?," by Moody's Investors Service, Inc. ("Moody's") and "AA-" by Standard & Poor's Ratings Services, A Division of McGraw-Hill Companies, Inc. ("S&P"). The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on this issue have been made to Moody's and S&P. The results of their determinations will he provided as soon as possible. MU~lCIF~ BONn I~su~a~ncE... In the event the Certificates are qualified for municipal bond insurance, and the Initial Purchaser desires to purchase such insurance, the cost therefore will be nald by the Initial Purchaser. Any fees to be paid to the rating agencies as a result of said insurance will be paid bv the City. It will be the responsibility of the Initial Purchaser to disclose the existence of insurance, its terms and the effect thereof with respect to the reoffering of the Certificates. I I ! I I I I I I I I I I I I I ! I I I i I I I I I I I i I I I i I i I accompanying Pmlimina~ Official Statement and, for the limitad pu,-pose of complying with SEC Rule 15c2-12, deems such Preliminary Official Statement to be final as of its data within the meaning of such Rule for thc purpose of review prior to bidding. To the best knowledge and belief of the City, the Prelimina~ Official Statement contains information, including financial information or operating data, concerning every entity, enterprise, fund, account, or pemon that is matedal to an evaluation of the offering of the Ce~ificatas. Representations made and to be made by the City eoncerding the absence of material misstatements and omissions in the Prelimlna~ Official Statement a~e addressed elsewhere in this Notice of gale and Bidding Instructions and in the Prallminary Official Statement. The City will furnish to thc Initial Pumhascr, acting through a designated senior representative, in accordance with instxuctions received from the Initial Purchaser, within seven (7) business days from the sale date an aggregate of 250 copies of the Official Statement reflecting interest rates and other terms ~eiating to the initial reoffering of the Certificates. The cost of any Official Statement in exce~s of the number specified shall be prepared and distributed at the cost of the Initial Parehaser. The Initial Purchaser shall be respunsible for providing in writing the initial reoffering prices and other terms, if any, to the Financial Advisor by the close of the next business day nfier the award. Except as noted above, the City assumes no responsibility or obligation for the distribution or del/very of any copies of the Official Statement in connection with the offering or reoffering of thc subject securities. CONTINUING DISCLOSURE AGREEMENT ... The City will agree in the Certificate Ordinance to pmvida certain periodic information and notices of material events in accordance with Securities and Exchange Commission Rule 15c2-12, as described in the Preliminary Official Statement under "Continuing Disclosure of Information". The Initial Paschaser's obligation to accept and pay for the Certificates is conditioned upon delivery to the Initial Purchaser or agent of a ce~ified copy of the Certificate Ordinance containing the agreement described under such heading. COMPLIANCE WITH PRIOR UNDERTAKINGS ... The City has complied in all material respccta with all continuing disclosme agreements made by it in accordance with SEC Rule 15c2-12. ADDITIONAL COllIES OF NOTICe, Bm FORM .~O STATEMENT... ,~. limited number of additional copies of this Notice of Sale and Bidding Inslructions, the Official Bid Form and the Prelimina~ Official Statement, as available over and above the normal mailing, may be obtained at the offices of First Southwest Company, Inveslmcnt Bankers, 325 North St. Paul, Suite 800, Dallas, Texas 75201, Financial Advisor to the City. On the date of thc sale, the City will, in the Certificate Ordinance authorizing the issuance of'he Certificates, confirm ils approval of thc form and content of thc Preliminary Official Statement, and any addenda, supplement or amendment thereto, and authorize its usc in the i'eoffeting of thc Certificates by the Initial Purchaser. ATTEST: EULINE BROCK Mayor City of Denton, Texas JENNIFER WALTERS City Seere~uy March 14, 2003 Certificates Maturing Amount Accumulated Bond Years Bond Years Certificates Maturin~ 2004 $ 485,000 444.583 444.583 2004 2005 610,000 1,169.167 1,613.750 2005 2006 635,000 1,852.083 3,465.833 2006 2007 655,000 2,565.417 6,031.250 2007 2008 670,000 3,294.167 9,325.417 2008 2009 475,000 2,810.417 12,135.833 2009 2010 495,000 3,423.750 15,559.583 2010 2011 470,000 3,720.833 19,280.417 2011 2012 385,000 3~32.917 22,713.333 2012 2013 400,000 3,966.667 26,680.000 2013 2014 190,000 2,074.167 28,754.167 2014 2015 195,000 2,323.750 31,077.917 2015 2016 200,000 2,583.333 33,661.250 2016 2017 215,000 2,992.083 36,653.333 2017 2018 225,000 3,356.250 40,009.583 2018 2019 200,000 3,183.333 43,192.917 2019 2020 210,000 3,552.500 46,745.417 2020 2021 220,000 3,941.667 50,687.083 2021 2022 230,000 4,350.833 55,037.917 2022 2023 240,000 ~780.000 59,817.917 2023 Average Maturity ............................. 8.078 Years I I I I I I I I I ! I I I I I I i I I I I I ! I I I I i I I I I I I I I OFFICIAL BID FOR~ Honorable Mayor and City Council City of Dentun, Texas March 25, 2003 Honorable Mayor and Members oftbe City Council: Reference is made to your Preliminary Official Statement and Notice of Sale and Bidding InsWactions, dated March 14, 2003 of $7,405,000 CITY OF DENTON, TEXAS CERTiFICATES OF OBLIGATION, SERI~S 2003, both of which constitute a part hcrco£ For your legally issued Certificates, as described in said Notice of Sale and Bidding Instructions and Preliminary Official Statement, we will pay you % of par plus accrued interest from date of issue to date of delivery to us, plus a cash premium of $ (not to exceed 0.5% of the total par amount of the Certificates) for Certificates maturing and beating interest as follows: Principal Interest Principal Interest Principal Interest Maturity Amount Rate Maturity Amount Rate Mattuity Amount Rate 2/15/2004 $485,000 % 2/15/2011 $ 470,000 % 2/15/2017 $215,000 % 2/15/2005 610,000 % 2/15/2012 385,000 % 2/15/2018 225,000 % 2/15/2006 635,000 % 2/15/2013 400,000 % 2/15/2019 200,000 % 2/I 5/2007 655,000 % 2/15/2014 190,000 % 2/15/2020 210,000 % 2/15/2008 670,000 % 2/15/2015 195,000 % 2/15/2021 220,000 % 2/1512009 475,000 % 2/15/2016 200,000 % 2/15/2022 230,000 % 2/15/2010 495,000 % 2/15/2023 240,000 % Of the principal maturities set foVah in the table above, term certificates have been created as indicated in the following table (which may include multiple term certificates, one term certiticate or no term certificate if none is indicated). For those years which have been combined into a term certificate, the principal amount shown in the table above shall be the mandatory sinking fund redemption amounts in such years except that the amount shown in the year of the term certificate maturity date shall mare in such year. The term certificates created are as follows: Year of Maturity Date First Mandatory Principal Interest February 15 Redemption Amount Rate $ % $ % $ % $ % $ % $ % Our calculation (which is not a part of this bid) of the ~ue interest cost from the above is: TRUE I1VI~-~EST COST We are having the Certificates of the following maturities insured by at a premium of $ , said premium to be paid by the Initial Purchaser. Any fees to be paid to the rating agencies as a result of said insurance will be oaid by the Citl'. The Initial Certificates shall be registered in the name of ~ which will, upon payment for the Certificates, be canceled by the Paying AgentfRegislrar. The Ce~fficates will then be registered in the name of Cede & Co. (DTC's partnership nominee), under the Book-Entry-Only System. I A bank cashier's check or ce~fled check of the Bank, , in the amount of $148,100.00, which represents our Good Faith Deposit (is attacbed hereto) or (has been made available to you prior to the opening of this bid), and is submitted in accordance with the terms as set fo~h in the Preliminary Official Statement and Notice of Sale and Bidding [astmctions. We agree to accept delivery of the Certificates utilizing the Book-En~-Only System through DTC and make payment for the Initial Certificate in immediately available funds in the Cmporata Trust Division, Bank One, National Association, not later than 10:00 AM, CDT, on April 29, 2003, or therea~er on the data the Ce~ifieates are tendered for delivery, pursuant to the terms set forth in the Notice of Sale and Bidding Insttuetions. It will be the obligation of the purchaser of the Certificates to complete the DTC Eligibility Questionnaire. The undersigned agrees to complete, execute, and deliver to the City, at least six business days prior to delivery of the Certificates, a ce~ficate relating to thc "issue price" of the Certificates in the form and to the effect accompanying the Notice of Sale and Bidding Insttuctions, with such changes thereto as may be acceptable to the City. We agree to provide in writing the initial reoffering price~ and other terms, if any, to the Financial Advisor by the close of the next business day after the award. Respectfully submitted, Syndicate Members: Name of Underwriter or Manager Authorized Representative Phone Number Signature ACCEPTANCE CLAUSE The above and foregoing bid is hereby in all thin~s accepted by the City of Denton, Texas, subject to and in accordance with the Notice of Sale and Bidding Insffuetions, this the 25"' day of Mareh, 2003. ATTEST: Mayor City of Detuon, Tex~s City Secretary I I I I I I I I I I I I I I I I I I I I ! I t I I I I I I I I I I I I I I CERTIFICATE OF UNDERWRITER The undersigned hereby certifies as follows with respect to the sale of $7,405,000 CITY OF DENTON, TEXAS CERT/FICATES OF OBLIGATION, SERIES 2003 (the "Certificates"). 1. The undersigned is the underwriter or thc manager of the underwriters and selling group (the "Underwriter") which has purchased the Certificates from thc City of Denton, Texas (the "Issuer"). 2. Thc undersigned has made a bona fide offering of thc Ccrtificates to the public. 3. The first price during the initial offering (expressed as a "yield") of each maturity of the Certificates at which a substantial amount hereof (at least 10 percent of thc principal amount of each maturity of the Certificates) has been sold to the public is set forth below: Principal Offering Principal Amount Year of Price Amount Year of Maturing Maturity (~dYield~ Maturln~ Maturity $485,000 2004 $190,000 2014 610,000 2005 195,000 2015 635,000 2006 200,000 2016 655,000 2007 215,000 2017 670,000 2008 225,000 2018 475,000 2009 200,000 2019 495,000 2010 210,000 2020 470,000 2011 220,000 2021 385,000 2012 230,000 2022 400,000 2013 240,000 2023 Offering Price (%/Yield) 4. For purposes of this certificate, the term "public" does not include (a) the undersigned, Co) members of thc syndicate, if any, managed by the undarsigned, or (c) any bondhoascs, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers that are related to, or controlled by, or are acting on behalf of or as agents for the undersigned or members ofa~y syndicate in which the undersigned is participating in the sale of the Certificates. 5. The offering price described above reflects current market prices at the time of such sales. 6. If any or all of the obligations constituting the Certificates are to be gnarantecd then the premium paid for such guarantee in an amount equal to $ is a reasonable amount payable solely for the {l~usfer of credit risk for the payment of debt service on the Ce~iflcates and does not include any amount payable for a cost other than such guarantee, e.g., a credit rating fee. The Undenvriter has represented that the present value of the premium paid for the guarantee for each obligation constituting the Certificates to which such premium is properly allocated and which arc insured thereby is less than the present value of the interest reasonably expected to be saved ~s a result of the insurance on each obligation constituting the Cartificates. The premium has been paid to a person which is not exempt from federal income texatiun and which is not a user or related to the user of any proceeds of the Certificates. In determining present value for this purpose, the yield of the Certificates (determined with regard to the payment of the guarantee fee) has been used as the discount rate. 7. The undersigned understands that the statements made herein will be relied upon by thc Issuer in its effort to comply with the conditions imposed by the Internal Revenue Code of 1986 and by Bond Counsel in rendering their opinion that the interest on the Certificates is excludable from the gross income of the owners thereof. EXECUTED and DELIVERED this __ day of ,2003. (Name of Undervaiter or Manager) By (Title) I THIS PAGE LEFT BLANK INTENTIONALLY I I I i I I I I I I I I I I I I I t I I I I I I I I I I I i II I I I I I I NEW ISSU~ - Book-Entry-Only PRELIMINARY OFFICIAL STATEMENT Dated March 14, 2003 Ratings: Moody's: "Applied For" S&P: 'Applied For' See (**Other Information - Ratings" herein) In the opinion of Bond Counsel, interest on the Bonds will be excludable from gross income for federal income tax purposes under statutes, regulations, published rulings and court decisions existing on the data thereof, subject to the matters dascribed under "Tax Matters" herein, including tho alternative minimum tax on corporations. THE BONDS WILL NOT BE DESIGNATED AS "OUALIFIED T~X-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $0,080,000 CITY OF DENTON, TEXAS (Denton County) GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS, SERIES 2003 Dated Date: March 15, 2003 Due: February 15, as shown below PAYMenT TERMS... Intarest on the $8,080,000 City of Denton, Texas General Obligation Refunding and Improvement Bonds, Series 2003 (the "Bonds") will accrue f~om Mm~h 15, 2003, (tho "Datad Date") and will be payable February 15 and Auguzt 15 of each year commencing February 15, 2004, and will be enlculatad on the basis nfo 360-day year consisting of twelve 30-day months. Thc definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of Tbe Depositor/Trust Company CDTC") pursuant to the Book-Entry-Only System described heroin. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to tho owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds - Book-Enay-Only System" herein. The initial Paying Agent/Registrar is Bank One, National Association (see "The Bonds and Certificates - Paying Agent/Registrar"). AUTHORITY FOR ISgEANCE... The Bonds are issued pursuant to the Constitution and general laws of the Stata of Texas, (the "State") including particularly Chapters 1207 and 1331, Texas Government Coda, as amended, and are direct obligations of the City of Denton, Texes (the "City"), payable from a eonimuing ad valorem tax levied on all taxable proper~ within the City, within the limits pxesedbed by law, as provided in the ordinance authorizing the Bonds (the "Bond Ordinance") (see 'The Bonds and Certificates - Authority for Issuance"). I~EI'OSE... proceeds ~om the sale of the Bonds will be used to (a) refund a portion of the Cgy's outstanding general obligation debt as shown on Schedule I hereto, for the purpose of lowering tho debt service requirements, 0o) pay for various street improvements and library improvements, park improvements and (e) to pay the costs of issuance of the Bonds. MATURITY SCHEDULE CUSIP Prefix: 248865o) $ 1,060,000 2004 $ 315,000 2014 1,030,000 2005 205,000 2015 675,000 2006 215,000 2016 625,000 2007 220,000 2017 620,000 2008 235,000 2018 410,000 2009 245,000 2019 265,000 2010 255,000 2020 275,000 2011 270,000 2021 285,000 2012 280,000 2022 300,000 2013 295,000 2023 (Accrued Interest from March 15, 2003 to be added) (1) CUSIPisaregisteredtrademarkoftheAmericanBankersAssociafion. CUSIPdatahereinisprovidedbyStandardandPoor'sCUSIP Service Bureau, a division of thc McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substituta for the CUSPP Services. RgOEMIrrlON... The City reserves thc right, at its option, to redeem Bonds having stated maturities on and aRer Februapd 15, 2014, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on Febru~y 15, 2013, or any date thereaier, at the par value thereof plus accrued interest to the date of redemption. Additionally, the Bonds may be subject to mandatory redemption in the event the Initial Purchaser of the Bonds elects to aggregata one or more maturities as a Term Bond (see "The Bonds and Certificates - Optional Redemption" and "The Bonds and Certificates - Mandatory Sinking Fund Redemption"). LEGALITY... The Bonds arc offered for del/very when, as and if issued and received by the Initial Purchaser and subject to thc approving opinion of the Attorney General of Texas and the opinion of McCall, Parkhurst & Horton, L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, Form of Bond Counsel s Opinions ). DELIVERY... It is expected that the Bonds will be available for delivery through The Depository Trust Company on April 29, 2003. BIDS DUE TUESDAY, MARCH 25, 2003, AT 10:30 AM, CST THIS PAGE LEFT BLANK INTENTIONALLY I I I i I I I I I I I i I I I I I I I PRELIMINARY OFFICIAL STATEMENT Ratings: Moody's: "Applied For" Dated March 14, 2003 S&P: "Applied For" See ("Other Information - NEW ISSUE - Book-Entry-Ordy Ratings" herein) In the opinion of Bond Counsel, interest on thc Ce~fficates will be excludable from gross income for federal income tax purposes under stemtes, regulations, published rulings and court decisions existing on the date thereof, subject to the matters described under '"tax Matters" herein, including the alternative minimum tax on corporations. THE CERTIFICATES WILL NOT BE DESIGNATED AS "OUAL]F1ED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS S7,405,000 CITY OF DENTON, TEXAS (Deninn County) CERTIFICATES OF OBLIGATION, SERIES 2003 Dated Date: March lS, 2003 Due: February 15, as shown below PAYMENT TZRMS . . . Interest on the $7,405,000 City of Denton, Texas Certificates of Obligation, Sedes 2003 (the "Certificates") will accrue from March 15, 2003, (the "Dated Date'*) and w0l be payable February 15 and August 15 of each year commencing Fchruav] 15, 2004, and wi0 be calculated on the basis oFa 360-day year consisting of twalve 30-day months. The definitive Cerifficates will be initially registered and dal~vercd only to Cede & Co., the nominee of The Depos0ov/ Trust Company ("DTC") pursuant to the Book-EnW/-Only Sysmm described herein. Beneficial ownership of the Certificates may be acquired in denominations of $5,000 or integral mu01pies thereof. No physical deliveW of the Certificates will he made to the owners thereof. Principal of, premium, if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to C. cde& Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Certificates. See 'The Bonds and Certificates - Book-Entry-Only System" herein. The initial Paying Agunt/Rcgistrar is Bank One, National Association (see "The Bonds and Certificates - Paying Agent/Registrar"). AUTHORITY ~OR ISSUANCE... The Certificates are issued pursuant to the Consfitetion and general laws of thc State of Texas, (the "State") parficuinrly Subehapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, and constitute direct obligations of the City of Denton, Texas (the 'City"), payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a limited pledgu of surplus net revenues of the City's Utility System not in excess of $10,000, as provided in the ordinance authorizing the Certificates (the "Ordinance") (see "The Bonds and Certificates - Authority for Issuance"). pURPOSE.., proceeds from the sale of the Certificates will be used to pay the costs of(a) acquisition of land for conshualion of pubiin safety facilities, (b) acquisition of land for expansion of City warehouse factiities, (c) impwvements at thc City's pubilc parka, (d) improvements to the City's solid waste disposal system and acquisition of related equipment, (e) computer and technology equipment and upgrades for thc City's information te~hnalogy and communication systems, (0 road and sireet improvements and equipment and (§) miscetianeous renovations and imp~ovemente to City owned facilities; and also for the purpose of paylng all or a portion of the City's contractual obllgations for proIesslonal services, including engineers, architects, attorneys, map makers, auditors, and financial advisors, in conu~chon with said Certificates. CUSIP Amount Maturity Rate Yield Suffix(]) Amount Maturity $ 485,000 2004 $ 190,000 2014 610,000 2005 195,000 2015 635,000 2006 200,000 2016 655,000 2007 215,000 2017 670,000 2008 225,000 2018 475,000 2009 200,000 2019 405,000 2010 210,000 2020 470,000 2011 220,000 2021 385,000 2012 230,000 2022 400,000 2013 240,000 2023 (Accrued Interest from March 15, 2003 to be added) CUSIP Rate Yield Suffix(0 (1) CUSIP is a n;gistered trademark of the American Bankers Association. CUSIP date herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Htil Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. R~DEI~ION... The City l~serves the right, at its option, te redeem Certificates having stated materities on and aBer Februav/ 15, 2014, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on Fcbma~ 15, 2013, or any date thcreafier, at the par value tbercof plus accrued interest to the date of redemption. Additionally, the Certificates may be subject to mnndatuvj redemption Jn the event the Initial Purchaser of thc Counsel's Opinions"). BIDS DUE TUESDAY, MARCH 25, 2003, AT 10:30 AM, CST THIS PAGE LEFT BLANK INTENTIONALLY I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I This Preliminary O~cial Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Preliminary Official Statement, and, if given or made, such other information or representations must not be relied upon. The information set forth herein has been obtained from the City and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor. This Preliminary Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Preliminary O~cial Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described. TABLE OF CONTENTS PRELIMINARY OFFICIAL STATEMENT SUMMARY ............................................................. 6 CITY OFFICIALS, STAFF AND CONSULTANTS.....8 ELEC~B OEHCIALS ................................................... 8 SELECTED ADMINISTRATIVE STAFF ............................. 8 CONSULTANTS AND ADVISORS .................................... 8 INTRODUCTION ............................................................ 9 THE BONDS AND CERTIFICATES ............................. 9 TAX INFORMATION ................................................... 14 TABLE 1 = VALUATION, t~XEMPTIONS AND GEI~ERAL OELIGAT/ON DEBT .......................................... 16 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY ...................................................... 17 DEBT HISTORY ................................................ 18 TABLE 5 ~ TEN LARGEST TA)~AYERS ...................... 18 TABLE 6 - TAX ADEQUACY ...................................... 19 DEBT INFORMATION ................................................. 20 TABLE 8 - PRO-FOP. MA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS ................................. 20 TABLE 9 - INTEREST AND SINKING FUND BUDGET PBOJEC'aON .................................................... 21 TABLE l0 = COMPUTATION OF SELF-SUPPOKTINO DEBT .............................................................. 21 TABLE I 1 - AUTHOPJZED BUT UNISSUED GENERAL OBLIGATION BONDS ........................................ 22 TABLE 12 - OTrmR OBLIGA'I~ONS ............................ 22 FINANCIAL INFORMATION ..................................... 23 TABLE 13 - CEANOES IN NET ASSETS ...................... 23 TABLE 13-A - GENERAL FUl~D REVENUES AND EXPENDrruRE I-hSTOR¥ .................................. 24 TABLE 14 -Mba, aCIFAL SALES TAX HISTORY .......... 25 TABLE 15 - CURRENT INVESTMEr~rS ......................... 27 TAX MATTERS ............................................................. 28 OTHER INFORMATION ............................................. 30 RAXINOS .................................................................. 30 LITIOATION .............................................................. 30 REGISTRATION AND QUALIFICATION OF BONDS AND CERTIFICATES FOR SALE ................................. 30 PUBLIC FUNDS IN TEXAS ................................. 30 LEGAL OPINIONS AND No-L1TIOATION CERTIFICATE 30 A~CITY OF FINANCIAL DATA AND OTHER INFORMATION .................................................31 CoNTn~uING DISCLOSURE OS INFORMATION ............. 31 COMPUTATIONS .............................................. 32 INITIAL PURCHASER OF ~ BONDS .......................... 32 INITIAL PURCHASER OF THE CERTIFICATES ............... 32 FINANCIAL ADVISOR ................................................ 33 CERTIFICATION OF 3X-IE OFFICIAL STATEMENT .......... 33 SCHEDULE OF REFUNDED BONDS ............ Schedule I APPENDICES GENERAL INFORMATION REGARDING THE CITY ........ A EXCERPTS FROM THE ANNUAL FINANCIAL KEPORT.. B FORM OF BOND COUNSEL'S OPINIONS ...................... C The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Preliminat3, Official Statement. 5 pRELIM]NARY OFFICIAL STATEMENT SUMMARY This summat~ is subject in all respects to the mom complete information and de£mitions contained or incorporated in this Preliminary Official Statement. The offering of the Bonds and Certificates to potential investors is made only by means of this entire Preliminary Official Statement. No person is authorized to detach this summary from this Preliminary Official Statement or to otherwise use it without the entire Preliminary Official Statement. Tile C17¥ ..................................... The City of Denton is a political subdivision and municipal corporation of the State, located in Denton County, Texas. The City covers approximately 67.6 square miles (see "Introduction - Description of City"). THE BONOS .................................. The Bonds are issued as $8,080,000 General Obligation Refunding and Improvement Bonds, Series 2003. The Bonds are issued as serial bonds maturing February 15, 2004 through February 15, 2023, unless the Initial Purchaser of the Bonds designates one or more maturities as a Term Bond (see "The Bonds and Certificates - Description of the Bonds"). THE CERTIFICATES .....................The Certificates are issued as $7,405,000 Certificates of Obligation, Series 2003. The Certificates are issued as serial ceraficatas maturing February 15, 2004 through February 15, 2023, unless the Initial Purchaser of thc Certificates designates one or more maturities as a Term Certificate (see "The Bonds and Certificates ~ Description of the Certificates"). PAYMENT OF INTEREST .............. Interest on the Bonds and Certificates accrues from March 15, 2003, and is payable February 15, 2004, and each August 15 and February 15 thereafter until maturity or prior redemption (sec "The Bonds and Certificates - Description of' the Bonds," "The Bonds and Certificates - Optional Redemption"). AUTHOIUTYI~ORISSlJA~C~ .......... The Bonds are issued pursuant to the general laws of the State, including particularly Chapters 1207 and 1331, Texas Government Code, as mended, and the Bond Ordinance passed by the City Council of the City (see "The Bonds and Certificates - Authority for Issuance"). The Certificates are issued pursuant to the general laws of the State, particularly Subchaptcr C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, and the Certificate Ordinance passed by the City Council of the City (see "The Bonds and Certificates - Authority for Issuance"). SECUlU~VORTH~BoNOS .......... The Bonds constitute direct and voted obligations of the City, payable from a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property located within the City (see "The Bonds and Certificates - Security and Source of Paymant"). CERTIFICATES .............................. The CeFdficates constitute direct obligations of the City, payable from a combination of (i) a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property ~ithin the City, and (ii) a limited pledge (not to exceed $10,000) of surplus net revenues oftheCty,sUtdtySystem(sec The BondsandCertfficates-Seetmty and SourceofPayment ) ]~EDEMPTION ............................... Thc City reserves the right, at its option, to redeem Bonds and Certificates, as the case may be, having stated maturities on and after February 15, 2014, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2013, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. Additionally, the Bonds and Certificates may be subject to mandatory redemption in the event the Initial Purchaser of the Bonds and/or Certificates elects to aggregate one or more maturities as a Term Bond or Term Certificate (see "The Bonds and Certificates - Optional Redemption" and "The Bonds and Certificates - Mandatory Sink ng Fund Redcmpt'on TAXEXEMPTION ............................ In the opinion of Bond Counsel, the interest on the Bonds and Certificates will be excludable from gross income for federal income tax purposes under existing law, subject to the matters described under the caption "Tax Matters" herein, including the alternative minimum tax on corporations. USEOFPROCEEDS ....................... Proceeds from the sale of the Bonds will be used to (a) refund a portion of the City's outstanding general obligation debt as shown on Schedule I hereto, for the purpose of lowering the debt service requirements, Co) pay for various street improvements and library improvements, park improvements and (c) to pay the costs of issuance of the Bonds. I I I I I I I I I I I I I I I I I I I I I I I I i I i ! I I I I I ! I I Proceeds from the sale of the Certificates will be used to pay the costs of(a) acquisition of land for construction of public safety facilities, (b) acquisition of land for expansion of City warehouse facilities, (c) improvcmcnts at the City's public parks, (d) improvements to thc City's solid waste disposal system and acquisition of related equipment, (e) computer and technology equipment and upgrades for the City's information technology and communication systems, (0 road and sheet improvements and equipment and (g) mlsccllaneous renovations and improvements to City owned facilities; and also for thc purpose of paying all or a portion of the City's cont~actaal obligations for professional services, including engineers, architects, attorneys, map makers, auditors, and financial advisors, in connection with said Certificates. RATINGS ...................................... Thc presently outstanding general obligation debt of the City is rated "Aa3" by Moody's Investors Service, Inc. ("Moody's") and "AA-" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P"). The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Bonds and Ce~fieataa have been made to Moody's and S&P (see "Other Information - Ratings"). BOOK-ENTRY-ONLY SYSTEM ...... The de£mitive Bonds and Certificates will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds and Ceflificatas may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds and Certificates will be made to the benefieial owners thereof. Principal of, premium, if any, and interest on the Bonds and Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make disUlbution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds and Certificates (see "The Bonds and Certificates - Book-Entry-Only System"). PAYMENT RECORR ...................... The City has anver defaulted. Ratio Funded Fiscal Per Capita Net Per Capita Tax Debt to Year Estimated Taxable Taxable Funded Funded Taxable Ended City Assessed Assessed Tax Tax Assessed 9~30 Population Valuation Valuation Debt Debt Valuation % of Total Tax Collections 1999 75,300 $2,455,921,130 $32,615 $59,001,730 $ 784 2000 80,537 2,711,322,093 33,666 60,985,922 757 2001 87,227 3,108,068,750 35,632 82,139,222 942 2002 91,588 3,432,871,212 37,482 99,990,494 1,092 2003 96,168 3,703,412,515 o) 38,510 103,883,037 (2) 1,080 2.40% 2.25% 2.64% 2.91% 2.81% 99.96% 100.19% 100.24% 99.76% 92.87% (3) (1) Source: Denton Central Appraisal District as of July 22, 2002. (2) Projected, includes the Bonds and Cert/flcatas, excludes the Refunded Bonds. (3) Colleodons for part year only, through February 15, 2003. For additional information regarding the City, please contact: Kathy DuBose Assistant City Manager of Fiscal and Municipal Services City of Denton 215 E. McKinney Street Denton, Texas 76201 (940) 349-8228 David K. Medanich Laura Alexander First Southwest Company or 777 Main Street Suite 1200 Fort Worth, Texas 76102 (817) 332-9710 I CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS TefIfl City Council Ex~ires Euline Brock May, 2004 Mayor Mark Burroughs May, 2004 Mayor Pro Tern Raymond Redmon Councilmember, District 1 May, 2003 Jane Fulton May. 2003 Couneilmember, District 2 Michael Phillips May, 2003 Councilmember, District 3 Pew/McNeill May, 2003 Councilmember, District 4 Bob Montgomery Councilmember, At Large May, 2004 SELECTED ADMINISTRATIVE STAFF Name Michael A. Conduff Howard Martin Kathy DuBose David Hill Jori Fortune Diana Ortiz Jennifer K. Walters Herbert L. Prouty Robin Ramsay Position City Manager Assistant City Manager of Utilities Assistant City Manager of Fiscal and Municipal Services Assistant City Manager of Development Services Assistant City Manager of Public Safety and Transportation Operations Director of Fiscal Operations City Secretary City Attorney Municipal Judge CONSULTANTS AND ADVISORS Auditors ........................................................................................................................................................ Deloitte & Touche LLP Fort Worth, Texas Bond Counsel ............................................................................................................................. McCall, Parkhurst & Horton L.L.P. Dallas, Texas Financial Advisor ...................................................................................................................................... First Southwest Company Fort Worth, Texas I I I I I I i I I I ! I I I I I I I I I I I I I I I I I I i I I I I ! I ! PRELIMINARY OFFICIAL STATEMENT RELATING TO $8,080,000 CITY OF DENTON, TEXAS GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS, SERIES 2003 $7,405,000 CITY OF DENTON, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2003 INTRODUCTION This Preliminary Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $8,080,000 City of Denton, Texas, General Obligation Refunding and Improvement Bonds, Series 2003 (the "Bonds") and $7,405,000 City of Denton, Texas, Ce~ficatas of Obligation, Series 2003 (the "Certificates"). Capitalized terms used in this Preliminary Official Statement have the same meanings assigued to such terms in the Bond Ordinance and Certificate Ordinance each to be adopted on the date of sale of the Bonds and Certificates which will authorize thc issuance of the Bonds and Certificates, respectively, except as otherwise indicated herein. There follows in this Preliminary Official Statement descriptions of the Bonds and Certificates and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor, First Southwest Company, Dallas, Texas. DESCRIPTION OF THE CITY... The City of Denton, Texas is a political subdivision located in Dcntun County operating as a home- nde city under the laws of the State of Texas and a charter approved by the voters in 1959. Thc City operates under the Council/Manager form of government where thc Mayor and six Councilmembers are elected for staggered two-year terms. The City Council formulates operating policy for the City whde the City Manager is thc chief administrative officer. The City is approxlmatciy 67.0 square miles in area. THE BONDS AND CERTIFICATES DESCRIPTION OF THE BONDS AND CERTIFICATES ... The Bonds and Certificates are dated March 15, 2003, and mature, or are subject to redemption prior to maturity, on Fchmap] 15 in each of thc years and in the amounts shown on the cover page. Interest will be computed on the basis of a 360-dey year of twelve 30-day months, and will be payable on August 15 and Febmal~ 15, commencing February 15, 2004. The definitive Bonds and Certificates will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. No physical delivery of the Bonds and Certificates will be made to the owners thereof. Principal of, premium, if any. and interest on the Bonds and Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds and Certificates. See "Book-Ent~-Only System" herein. REFUNDED BONDS... The ptincipal and interest due on thc Refunded Bonds are to be paid on the redemption date from funds to be deposited pursuant to a certain Escrow Agreement (the "Escrow Agreement") between the City and The Bank of New York Trust Company of Florida, N.A., Jacksonville, Florida (thc "Escrow Agent"). The Ordinance provides that from the proceeds of the sale of the Bonds received from the Purchaser, the City will deposit the amount necessary to accomplish the discharge and final payment of the Refunded Bonds on such redemption date. Such funds will be held by the Escrow Agent in a trust clearing account pending their disbursement to pay the Refunded Bonds on the aforesaid redemption date or thc date the same are presented for redemption. (]rant Thornton LLP, a nationally recognized accounting firm, will verify at the time of delivery of the Bonds to thc Purchaser thereof the mathematical accuracy of the schedules that demonslrata the Federal Securities will mature and pay interest in such amounts which, together with uninvested funds, if any, in.the trust clearing account, will be sufficient to pay, when due, the principal of and interest on the Refunded Bonds. Such maturing principal of and interest on the Federal Securities will not be available to pay the Bonds (see "Other Information - Verification of Arithmetical and Mathematical Computations"). By the deposit of thc Federal Secmitics and cash, if necessary, with thc Escrow Agent with finn banking arrangements, the City will have effected the defeasance of all of the Refunded Bonds in accordance with the law. It is the opinion of Bond Counsel that as a result of such defeasance and in reliance upon the report of Grant Thornton LLP, the Refunded Bonds will be outstanding only for the purpose of receiving payments from the Federal Securities and any cash held for such purpose by the Escrow Agent and such Refunded Bonds will not be deemed es being outstanding obligations of thc City payable from taxes nor for the ptupose of applying any limitation on the issuance of debt. The City has covenanted in the Escrow Agreement to make timely deposits with the Escrow Agent, from lawfully available funds, of any additional amounts required to pay the principal of and interest on the Refunded Bonds, if for any reason the cash balances on deposit or scheduled to be on deposit in the trust cleating account be insufficient to make such payment. AUTHORITY FOR ISSUANCE... The Bonds am being issued pursuant to the Constitution and general laws of the State of Texas, particularly Chapters 1207 and 1331, Texas Government Code, as amended; an election held and passed by a majority of the participating voters; and the Ordinance. The Cerdficates are being issued pursuant to the Constitution and general laws of the State of Texas, particularly Subchapter C of Chapter 271, Texas Local Oovarnment Code (the Certificate of Obligation Act of 1971), as amended, and an Ordinance passed by the City Council. SECURITY AND SOURCE OF PAYMENT... The Bonds... All taxable property within the City is subject to a continuing direct annual ad valorem tax levied by the City sufficient to provide for thc payment of principal of and interest on all Bonds which tax must be levied within the limits prescribed by law. The Certificates... All taxable properW within the City is subject to a continuing direct annual ad valorem tax levied by the City sufficient to provide for the payment of principal of and interest on all obligations payable in whole or in part from ad valorem taxes, which tax must be levied within limits prescribed by law. Additionally, the Certificates are payable from and secured by a limited pledge of surplus net revenues of the City's Utility System, not in excess of $10,000, as provided in the Ordinance authorizing the Certificates. TAX RATE LIMITATION... All taxable property within the City is subject to the assessment, levy and collection by tho City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constiturionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. OPTIONAL REDEMPTION... Tile City reserves the fight, at its option, to redeem Bonds and Certificates having stated maturities on and abet February 15, 2014, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2013, or any date thereafter, at the par value thereof plus 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 maturities of Bonds and Certificates to be redeemed. If less than all the Bonds and Certificates of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds and Certificates are in Book-Entry-Only form) shall determine by lot the Bonds and Certificates, or portions thereof, within such maturity to be redeemed. If a Bond or Certificates (or any portion of the principal sum thereof) shall have been called for redemption and notice of soch redemption shall have been given, such Bond or Certificate (or the principal amount thereof tu be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and aBer the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. MANDATORY SINKING FUND REDEMPTION.,. hi addition to being subject to optional redemption as provided above, should the Ini~ia! Purchaser of the Bonds or Certificates select a combination of serial bonds or serial certificates and term bonds or term certificates in accordance with the Notice of Sale for the Bonds and Certificates, the term bonds or term certificates are subject to mandatory redemption on the first February 15th next following the last maturity of the serial bonds or serial certificates, and annually thereafter on each Febranry 15th until the stated maturity for the term bonds at the redemption price of par plus accrued interest to the date of redemption. In each of the years the term bonds or term certificates are to be mandatorily redeemed, the Paying Agent/Registrar shall select by lot the numbers of the term bonds or term certificates within the applicable Stated Maturity to be redeemed on the next following February 15th from moneys set aside for that purpose in the Interest and Sinking Fund. Any term bond or term certificate not selected for prior redemption shall be paid on the date of its Stated Maturity. The principal amount of the term bonds or term certificates for a Stated Maturity required to be redeemed pursuant to the operation of such mandatory redemption provisions shall be reduced, at the option of the City, by the principal amount of the term bonds or term certificates of like Stated Maturity which (1) shall have been acquired by the City at a price not exceeding the principal amount of such term bonds or term certificates plus accrued interest to the date of purchase thereof, and delivered to thc Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions and not theretufure credited against a mandatory redemption requirement. l0 I I I I I I I I I I I i I I I ! I I I ~oad Th~ C t ! ov~ $5 ~ th~ the i and change take )f the/r request fi ~eden]pt/on no.: n~ay wi~ to ~s to deterrein~ ~Uces Shall be s~-, o. ~ch ~ ~each Direct ~gafion~ With; ~r and SOon ' ~csP~t in SUc~ai~ ~SSUe are bein ~ueemed. , oTc' s Practice Upon Direct requested accounts Pa. Ymenta ~- date in Wtll be the DTc may discon. to ~!~y orp t, lh 8nueprevid'.~ .~ and ( cer//fiCates ~a~y~g Agant/Re~,;~s us serv/ces ao ~ may be ~re required to ~,~c. ar. Under SUc~° ~epository With - of s~ ,?i~ reay decide to' . Pnnted and deli~'e~.!~Umstances, i~et~P~ect to the Obli~, ,~ DWn~ that a SUCcessor d~Y~o~ree by giving re '"uCates wip ~.- System Of e~,tory is not ob~: eso. nable not/c ' "~ Pnnted...~ ?°ffk~en/fy tra. ~ City -"'~ uehvered for ~S~r,s.,through DTc, ~ ,'~,nea, Obhgati~ -,,ues aepository) In shall . se °fbusiness rd Date,,) for , or,ce ~nterest on ~e last ,,~: the ~ntemst Oa~abl of such b~sanss day of the ~th~ on the BUnds £or such 12 ~t five last I I 1 I I i I ! I ! I BONDHOLDERS' REMEDIES . . . The Ordinances do not establish specific events of default with respect to the Bonds and Certificates. Under State law there is no right to tho acceleration ofmantrity of the Bonds and Certificates upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner of Bonds and Certificates could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Bonds and Certificates, such judgment could not be satialied by execution against any property oftha City. Such registered owner's only practical remedy, ifa default occurs, is a mandamus or mandatory injunction proceeding to compel the City to assess and collect rates and charges for water and sewer services sufficient to pay principal of and interest on the Bonds and Certificates as it becomes due. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. Neither the Bond Ordinance nor the Certificate Ordinance provides for the appointment ora trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, and also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionm3, powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds and Certificates are qualified with respect to the customary rights of debtors relative to their creditors. I 13 TAX INFORMATION AD VALOREM TaX LAW... The appraisal of property within the Cily is the responsibility of the Denton Central Appraisal District (the "Appraisal District"). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, the Appraisal Distsiet is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohthited from applying any assessment ratios. In determining market value of propeWy, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be use& State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the leas of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the prope~y for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the proper~ for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal Dish'Jnt. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual ravinw at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition tiled with the Appraisal Review Board. Reference is made to the V.T.C.A., ProperW Tax Code, for identitication of property subject to taxation; property exempt or which may be exempted flora taxation, if claimed; the appraisal of property for ad valorem taxation pu~oses; and the procedures and Ihnitafions applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and Stats law provide for certain exemptions fi.om property taxes, the valuation of agricultural and open-space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section l-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled fi'om all ad valorem taxes thereafter levied by the political subdivision; (2) An exemption of up to 20% of the market value of residence homesteads. The minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under Section l-b, Axticle VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem ~axes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Afl/cie VIII, mandate an additional property tax exemption for disabind veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal properiy with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Article V/II provides that eligible owners of both agricultural land (Section l-d) and open-apace land (Section 1-d-l), including open-space land devoted te farm or raanh purposes or open-apace land devoted to timber pwduction, may elect to have such property appraised for pwperty taxation on the basis of its productive capacity. The same land may not b~ qualitiod under both Section 1 -d and l-d-1. Nonbusiness personal property, such as automobiles or light trucks, are exempt fi.om ad valorem taxation unless the governing body cfa political subdivision elects to tax this property. Boats owned as nonbusineas property are exempt from ad valorem taxation. Artinin VIII, Section l-j, provides for "freeport properW" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for ~e purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on properly in the zone are "frozen" at the value of the property at the time of creation of the zone. The City al~o may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees ta consh'ant ceflain improvements on its properW. The City in turn agrees not to levy a tax on all or part of the increased value at/ributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. EFFECTIVE TAX RATE AND ROLLBACK TAX RATE... By each September 1 or as soon thereafter as practicable, the City Council adopts a tax rate per $100 taxable value for the eun'ent year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". The City Council may not adopt a tax rate that exceeds the prior year's levy until it has held a public hearing on the proposed increase following notice to the taxpayers and otherwise complied with the Property Tax Code. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. 14 I I I I I I I I i I ! I I I I i I I I I I I I I I I I I I I i I I I I ! I "Effective tax rote" means the rote that will produce last year's total tax levy (adjusted) from this year's tolal taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will pwduce last year's maintenance and operation tax levy (adjusted) fi.om this year's values (adjusted) multiplied by 1.08 plus a rate that will produce ~his year's debt service fi.om this year's values (unadjusted) divided by the anticipated tax collection rate. The Properly Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retell sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to thc Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT ANO TAX PAYMENT... Property within the City is generally assessed as of January 1 of each year. Business inventmy may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October I of the same year, and become delinquent on Febmat~ I of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on Febma~' 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June I0 5 15 July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, a 15% attorney's collection fee is added to the total tax penalty and interest charge. Under certain eimumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on propeay and prevents liens for post-petition taxes from at~aching to prope~,y and obtaining secured creditor status unless, in either ease, an order lifting the stay is obtained from the bankruptcy court. In many cases post-pedtinn taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION O17 TAX CODE... The City grants an exemption to tha market value of the residence homestead of persons 65 years of age or older of $25,000 and those who are disabled of $10,000. The City grants an additional one-half of one percent, or a minimum of $5,000 exemption of the market value of residence homesteads. See Table I for a listing of the amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbaniness personal property; and the City collects its own taxes. The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. The City collects the additional one-half cent sales tax for reduction of ad valorem taxes. The City has adopted a tax abatement policy. 15 TAX ABATEMENT POLICY... The City has established a tax abatement program to encourage economic development. In 1990 the City Council adopted a resolution setting guidelines and cdteria for granting abatements in reinveslment zones created within the City. These guidelines specifically note that incentives are limited to companies which create new wealth and do not adversely affect existing businesses opem6ng within the City. Since 1990, the City has agreed to abate taxes for only one company. On January 6, 1998, the council voted to abate taxes on 25% of $37,000,000 in new construction and equipment to United Copper Industries ("United Coppe~") for 6 years beginning in 1999. United Copper is a new corporate citizen and began producing copper wive in JanuaEt 1999. United Copper employs approximately 170 employees and estimates 800 employees in its tenth year. TABLE 1 - VALUATION~ EXEMPTIONS AND GENERAL OBLIGATION DEBT 2002/03 Market Valuation Established by Denton Central Appraisal District Less Exemptions/Reductions at 100% Market Value: Residence Homestead Exemptions Over 65 Exemptions Disabled Persons Exemptions Disabled Veterans Exemptions Agricultural Land Use Productivity Historical/Other Exemptions Freeport Exemptions Abatement Exemptions Homestead Cap Adjustment 2002/03 Taxable Assessed Valuation (as of 7-22-02) City Funded Debt Payable from Ad Valorem Taxes (as of 2-15-03) o)(2) General Obligation Bonds Tax and Utility System Certificates The Certificates The Bonds Funded Debt Payable from Ad Valorem Taxes Less Self-Supporting General Obligation Debt {2×a) Solid Waste System General Obligation Debt Dminagu System General Obligation Debt Motor Pool System General Obligation Debt Net Tax Supported Debt Payable from Ad Valorem Taxes Interest and Sinking Fund as of 2-15-03 $ 61,594,373 75,547,365 2,115,874 3,154,636 160,019,780 14,672,849 131,150,554 3,661,206 23,507~841 $ 53,983,037 35,065,000 7,405,000 8.080.000 $4,178,836,993 $ 13,248,667 5,438,632 2,338,374 475,424,478 $3,703,412,515 $ 104,533,037 21~025~673 83,507,364 1,549,912 2.82% 2.25% Ratio Total Funded Debt to Taxable Assessed Valuation ........................................... Ratio Net Funded Debt to Taxable Assessed Valuation ............................................ 2003 Estimated Population - 96,168 Per Capita Taxable Assessed Valuation - $38,510 Per Capita Total Funded Debt $1,087 Per Capita Net Funded Debt - $868 (1) The above statement of indebtedness does not include currently outatanding $254,180,000 Utility System Revenue Bonds or $49,620,000 Utility System Revenue Refunding and Improvement Bonds, Series 2003 anticipated to sell in April 2003, as those bonds are payable solely from the net revenues of the Utility System (the "System"), as defined in the ordinances authorizing the bonds. (2) Excludes the refunded bonds. (3) General Obligation debt in the amounts shown for which repayment is provided from revenues of the respective revenue systems. The amount of self supporting debt is based on the percentages of revenue support as shown in Table 10. It is the City's current policy to provide these payments from respective system revenues; this policy is subject to change in the future. (4) Includes a portinn of the Bonds and Certificates. (5) Includes a portion oftha Bonds. 16 I I i I I I I I I I I I I I I I I I I I I i I I I I I I I I I I I I i I I Taxable Appraised Value for Fiscal Year Ended Seotamber 30. 2003 0) 2002 2001 Category Amount Real, Residential, Single Family $ 2,016,091,440 Real, Residential, Multi-Family 395,673,434 Real, Vacant Lots/Tracts 72,222,153 Real, Acreage (Land Only) 204,320,591 Real, Farm and Ranch Improvements 17,390,233 Real, Commercial and Industrial 742,450,124 Real and Tangible Personal, Utilities 75,691,705 TangibIe Personal, Commercial and Induslrial 556,273,112 Tangible Personal, Other 30,663,435 Real and Special Propen3', Inventory 68.060.766 Total Appraised Value Befol~ Exemptions $4,178,836,993 Less: Total Exemptions/Reductions (475,424,478} Supplements Taxable Assessed Value $3,703,412,515 %of %of %of Total Amount Total Amount Total 48.25% $1,745,672,780 47.72% $1,499,810,076 45.72% 9.47% 366,376,170 10.02% 318,471,031 9.71% 1.73% 102,824,427 2.81% 93,798,664 2.86% 4.89% 158,854,055 4.34% 163,090,873 4.97% 0.42% 13,976,287 0.38% 14,492,037 0.44% 17.77% 693,626,894 18.96% 637,492,133 19.43% 1.81% 65,153,809 1.78% 73,159,120 2.23% 13.31% 464,720,534 12.70% 438,110,750 13.36% 0.73% 26,830,819 0.73% 23,856,058 0.73% 1.63% 19.973.109 0.55% 17.998.601 0.55% 100.00% $ 3,658,008,917 100.00% $3,280,279,343 100.00% 081,281,194) (365,320,399) 156.143.489 193J09,806 $ 3,432,871,212 $3,108,068,750 Real, R~idential, Single Family Real, Residential, Multi-Faintly Real, Vacant Lots/Tra~ts Real, Acreage (Land Only) Real, Farm and Ranch Improvements Real, Commercial and Industrial Real and Tangible Personal, Utilities Tang~le Personal, Commer~:ial and Industrial Tangible Personal, Other Real property, Inventory Total Appraised Value Before Exemptions L~s: Total Exemptions/Reductions Supplements T~xable Assessed Value Tmxable Appraised Value for Fiscal Year Ended SePtember 30. 2000 1999 %of %of Amount Total Amount Total $1,312,487,434 46.62% $1,206,052,143 44.69% 266,491,602 9.47% 275,779,723 10.22% 76,821,071 2.73% 60,023,868 2.22% 121,567,790 4.32% 117,603,417 4.36% 11,822,334 0.42% 11,539,149 0.43% 531,506,133 18.88% 528,737,835 19.59% 66,645,636 2.37% 65,700,112 2.43% 405,861,036 14.42% 403,988,273 14.97% 22,094,045 0.78% 29,096,188 1.08% 0.00% 0.00% $2,815,297,081 100.00% $2,698,520,708 100.00% (282,172,449) (265,718,289) I78.197.461 23.118.711 $ 2,711,322,093 $2,455,921,130 (1) Valuations shown are certified taxable assessed values reported by the Denton Central Appraisal District to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. For the Fiscal Year ended 2003 the values are as of July 22, 2002. 17 I TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY Fiscal Taxable Year Taxable Assessed Ended Estimated Assessed Valuation 9/30 Population Valuation Per Capita 1999 75,300 $2,455,921,130 $32,615 2000 80,537 2,711,322,093 33,666 2001 87,227 3,108,068,750 35,632 2002 91,588 3,432,871,212 37,482 2003 96,168 3,703,412,515 0) 38,510 Ratio Tax Debt Tax Debt Funded Outstanding to Taxable Debt at End Assessed Per of Year Valuation Capita $ 59,001,730 2.40% $ 784 60,98~,922 2.25% 757 82,139,222 2.64% 942 99,990,494 2.91% 1,092 103,883,037 (2) 2.81% 1,080 (1) Source: Denton Central Appraisal District as of July 22, 2002. (2) Projected, includes the Bonds and Certificates. Excludes the Refunded Bonds. TABLE 4 - TAX RATEs LEVY AND COLLECTION HISTORY Fiscal Year Dislfibution Ended Tax Geneml Interest and % Current % Total 9/30 Rate Fund Sinking Fund Tax Levy Collections Collections 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 0.52815 0.31948 0.20867 16,442,224 98.20% 100.24% 2002 0.54815 0.31948 0.22867 18,824,890 98.26% 99.76% 2003 0.54815 0.33816 0.20999 20,300,256 92.01% O) 92.87% (1) Collections for part year only, through February 15, 2003. TABLE 5 - TEN LARGEST TAXPAYERS Name of Taxpayer Columbia Medical Center of Denton Verizon Southwest Paccar Inc. Anderson Merchandisers Triad Denton Hospital LP United Copper Industries Tetra Pek Inc. James Wood Motors Denton Mall CO LP P/S Walmart Supercenter 2002/03 % of Total Taxable Taxable Assessed Assessed Nature of Property Valuation Valuation Hospital/Professional Building $ 61,329,997 1.66% Telephone Utility 44,536,920 1.20% Diesel Track Manufacturing 42,567,677 1.15% Distribution Center 30,881,113 0.83% Hospital 30,728,404 0.83% Copper Wiring Manufacturer 29,296,322 0.79% Aseptic Packaging 27,548,928 0.74% Automobile Dealership 20,784,743 0.56% Retail/Merchandising 18,025,063 0.49% Discount Store 17~693,609 0.48% $ 323,392,776 8.73% Source: Information provided by City Officials. GENERAL OnLmATION DEnt LIMItATIOi~... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Bonds and Certificates - Tax Rate Limitation"). 18 I I I I I I I I I I I I ! I I I I I I I I I I I I I I I I I I I I I I I I 2003 Principal and Interest Requirements $0.2699 Tax Rate at 99.00% Collection Produces $ 9,892,911 $ 9,895,555 Average Annual Principal and Interest Requirements, 2003 - 2023 $0.1671 Tax Rate at 99.00% Collection Produces 6,124,632 6,126,518 Maximum Principal and Interest Requirements, 2004 $0.2760 Tax Rate at 99.00% Collection Produces $ 10,116,446 $ 10,1 I9,204 (1) Includes the Bonds and Certificates, less self-supparting debt, excludes the Refunded Bonds. TABLE 7 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on prope~ins within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or eompletaness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional bonds since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional bonds, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. 2002/03 City's Authorized Taxable 2002/03 Total Estimated Overlapping But Unissued Assessed Tax Funded i/~ Funded D~bt Debt As Of Taxin~ Jurisdiction Value Rate l~bt A~olieable As of 2-15-03 2-15-03 CityofDenton $ 3,703,412,515 $0.54815 $ 83,507,3641t) 100.00% $ 83,507,364 $ 4,467,000 Denton Independent School District 4,802,063,315 1.86400 303,877,329 85.04% 267,533,601 85,250,000 Denton County 1,366,569,388 0.24897 135,027,571 12.81% 17,297,032 41,845,000 Argyle Independent School District 502,442,286 1.75520 28,068,989 1.84% 516,469 12,500,000 Krum Independent School Dist~ct 228,742,972 1.62300 13,795,000 0.59% 81~391 1,400,000 Total Direct and Overlapping Funded Debt $368,935,856 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation ............................... 9.96% Per Capita Overlapping Funded Debt .............................................................. $ 3,836.37 (1) Includes the Bonda and Certificates, less self-supporting debt, excludes the Refundad Bonds. (2) Assumes the Bonds herein have been issued. 19 DEBT INFORMATION 2O I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION Tax Supported Debt Service Requirements, Fiscal Year Ending 9/30/2003 ................................ $ 9,833,866 Interest and Sinking Fund Balance as of 9/30/02 ...................................... $ 934,406 Interest and Sinking Fund Tax Levy ................................................ 7,776,959 Budgeted Transfers ............................................................. 1 ~265~430 9~976~795 Estimated Balance, 9/30/03 ..................................................................... $ 142,929 TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT Net Revenue from Solid Waste System, Fiscal Year Ended 9-30-02 ...................................... $ 2,234,344 Less: Solid Waste System Revenue Bond Requirements, 2003 Fiscal Year ................................. 0 Balance Available for Other Purposes .............................................................. $ 2,234,344 Solid Waste System General Obligation Bond Requirements, 2003 Fiscal Year ............................. 2~234~344 Balance ..................................................................................... $ 0 Net Revenue from Drainage System, Fiscal Year Ended 9-30-02 ......................................... $ 741,262 Less: Drainage System Revenue Bond Requirements, 2003 Fiscal Year ................................... 0 Balance Available for Other Proposes .............................................................. $ 741,262 Drainage System General Obligation Bond Requirements, 2003 Fiscal Year ................................ 706~091 Balance ..................................................................................... $ 35,171 Net Revenue from Motor Pool System, Fiscal Year Ended 9-30-02 ....................................... $ 5,082,908 Less: Motor Pool System ReVenue Bond Requirements, 2003 Fiscal Year ............................... 0 Balance Available for O~her Purposes .............................................................. $ 5,082,908 Motor Pool System General Obligation Bond Requirements, 2003 Fiscal Year .............................. 672~912 Balance ..................................................................................... $ 4,409,996 (1) Balance includes transfer from Reserves. The City has implemented a rate increase for Fiscal Year End 2002-03. 21 1 TABLE ! l - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Amount Amount Date Amount Heretofore Being Purpose Authorized Authorized Issued Issued Unissued Balance StraetandTmfficImprovements 12/13/1986 $ 7,736,000 $ 6,979,000 $ 0 $ 757,000 Parks 12/13/I 986 5,950,000 4,550,000 0 1,400,000 Street and Traffic Improvements 2/24/1996 11,112,000 11,110,000 0 2,000 Drainage Improvementg 2/24/1996 7,238,000 4,930,000 0 2,308,000 Street 1/15/2000 17,045,000 15,145,000 1,900,000 0 Library 1/15/2000 6,800,000 5,600,000 1,200,000 0 Parks 1/15/2000 10,175,000 9,325,000 850,000 0 $66,056,000 $57,639,000 $3,950,000 $4,467,000 TABLE 12 -OTHER OBLIGATIONS The City has entered into capital lease agreements. The following is a schedule of future minimum lease payments under these capital leases and the present value of the net minimum lease payments as of September 30, 2002: Year Annual Ending Lease 30-Sep Payment 2003 $ 317,721 2004 317,721 Total Minimum Lease Payment $ 635,442 Less: Amount Representing Interest (43~216) Present Value of Net Minimum Lease Payments $ 592,226 PENSlON FUND... The City provides pension benefits for all of its full.time employees through the Texas Municipal Retirement System ("TMRS"), a State-wide administered pension plan. The City makes annual contributions to the plan equal to the amounts accrued for pension expense. (For more detailed information concerning the retirement plan, see Appendix B, "Excerpts from the City's Annual Financial Report".) 22 I I I I I I I I I I I I I I I I I I 1 I I I I I I I I I I ! I I I I I I I TABLE 13 - CHANGES IN NET ASSETS FINANCIAL INFORMATION Fiscal Year ~,,,.-,,~.. Ended 2002 Program Revenue: Charges for Services $ 8,193,653 Operating Grants and Contributions 2,480,309 Capital Orants and Contributions 6,379,228 C~encral Revenue: Property Tax 19,075,268 Sales Tax 15,875,935 Other Taxes/Fees 13,063,774 Miscellaneous 7,237,530 Total Revenue $ 72,305,697 General Govermnent $ 16,240,418 Public Safety 27,322,153 Public Works 13,691,514 Parks and Recreation 7,362,939 Interest on Long-Term Debt 4~252~970 Total Expenses $ 68,869,994 Increose in Net Assets before Transfers Transfers Increase (Deoreose) in Net Assets Net Assets at Beginning of Year Net Assets at End of Year 23 $ 3,435,703 1,073,857 $ 4,509,560 98,745,269 $103~254.829 I TABLE 13-A - GENERAL FUND REVENUES AND EXPENDITURE HISTORY Fiscal Year Ended September 30~ ~ ......... · 2002 2001 2000 1999 1998 Taxes $27,264,954 $27,772,653 $ 24,166,751 $21,850,143 $20,738,102 Licenses and Permits 91,049 233,219 441,831 373,979 708,607 Franchise Fee 11,930,612 10,709,710 9,958,500 9,283~328 9,107,182 Fines and Forfeitures 3,522,895 3,222,517 2,680,352 2,855,899 2,257,015 Fees for Service 4,852,845 2,846,339 2,037,392 1,553,219 1,430,236 Interest Revenue 1,011,454 843,423 1,005,545 781,093 801,351 Net Increase in Fair Value of Investments 16,805 Intergovernmental 458,189 700,137 689,843 724,718 621,457 Miscellaneous 268,673 643.659 1,442,097 458,523 684,675 Total Revenues $49,417,476 $46,971,657 $42,422,311 $37,880,902 $36,348,625 General Government $10,430,176 $12,119,014 $10,706,489 $ 7,918,901 $10,178,434 Public Safety 25,913,382 22,836,527 21,230,610 17,857,765 16,018,327 Public Works 7,866,251 6,760.208 4,738,828 5,050,028 5,447,174 Parks and Recreation 5,610,114 5,156,722 4,367,680 3,589,047 3,257,070 Capital Outlay 267,558 422,852 377,614 886,576 2,137,298 Total Expenditures $50,087,481 $47,295,323 $41,421,221 $35,302,317 $37,038,303 Excess (deficiency) of Revenues Over Expenditures $ (670,005) $ (323,666) $ 1,001,090 Proceeds of Long-Term Debt Proceeds of Capital Lease Operating Transfers In Operating Transfers (Ou0 195,259 668,689 938,904 (831.469~ (43,000) (925,576) Over (Under) Expenditures and Other Uses $ 2,578,585 $ (689,678) Application of New Accounting Principal Beginning Fund Balance Ending Fund Balance 10,918 554,625 605,253 824,433 (2,701,009) (504,733) $ (1,306,215) $ 302,023 $ 1,014,418 $ 493,747 $ 184,647 (437) 9,770.835 9,468,812 8~454,394 7,960,647 7,776,437 $ 8,464,620 $ 9,770,835 $ 9,468,812 $ 8,454,394 $ 7,960,647 24 I I I I I I I I I I I I I I I I I I I I ~e Cit~ ~nded ~ ~ ~ $0-5~13 /gg 11~. 0.5594 185 ~000 16,095,534 g4.33% 0.1051 ~00~ 3,g9~,OIg of Se~ces for 1oO~3' ~ ea~u p~op~"~. _.6Co~~ i Sales ~ ~ C~ les ~se~ ~te Sa~ To~t 0.50~; 0.00¢ x Cae i~ iN A.,~,ct A.b P O b"CI'Z'S nit ,~' . ~shed B~dg~ ~fica~' n ~e ~e Ci~ h~ m ~ ' iB 200~03 budget ~o ~e G~0 baSiS I I 7.5 Theol,.i Ci ,..v nvests its in ty Council of t~, · Vestsble Fun.~ . ~,e C~y °fDento as m investment. u. Both state la~ a~.thotized by T~ .~ s investment ~o,?~°rdanee Wi,~ . not less of/ts n mulual The ( The Placed ~SSUrned ~Vhose 26 of any f I I I I ! I I I I ! I I I I 1 I I ! I ! Under Texas law, City inveslments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an invoslment report detailing: (1) the investment position of the City, (2) that all investment officers joindy prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting pefind, (5) the maturity date of each separately invested a~set, (6) the aosount or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and Co) slate law. No person may invest City funds without express written authority from the City Council. AOOITIONAL PGOVISIONS... Under Texas law the City is additionally required to: (1) annually review ils adopted policies and strategies; (2) require any invcstmant officers' with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and thc City Council; (3) require the registered principal of finns seeking te sell securities to the City to: (a) receive and review the City's investment policy, Co) acknowledge that maannable controls and procedures have been implemenled to preclude imprudent investment activities, and (c) deliver a writtan statement altastlng to these requirements; (4) perform an annual audit of the management con~ols on investments and adherence to the City's investment policy; (5) provida specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) res~et reverse repurchase agreements to not more then 90 days and restrict the invcsl~nent of reverse repurchase agreement funds to no greater than fue team of thc reverse repurchase agreement4 (7) resh'ict the inveslment in non-money market mutual funds of any portion of bond proceeds, reserves and funds held for debt sei-qice and to no more than 15% of the enfity's monthly average fund balance, excluding bond procecda and reserves and other funds held fur dabt service; and (8) require local gnvement invnslment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisopd board requiremenls. As of Febnm~ 15, 2003, the City's investable funds were invested in the following categories: Book Market Description Percent Value Value Federated/Money Market U.S. Federal Agency Coupon U.S. Federal Agency Discount U.S. Federal Agency Callables Cash Investments 5.89% $ 16,000,000 $ 16,000,000 50.09% 136,120,472 138,586,684 3.28% 8,905,716 8,905,815 38.83% 105,504,010 106,149,016 1.91% 5,196,220 5,196,220 100.00% $ 271,726,418 $ 274,837,735 27 TAX MATTERS OPINION . . . On the date of initial delivery of the Bonds and Certificates, McCall, Parkhurst & Horton L.L.P, Dallas, Texas, Bond Counsel, will render its opinion that, in aocordance with statutes, regulations, published rulings and court decisions existing on the date thereof CExist[ng Law"), (1) interest on the Bonds and Certificates for federal income tax purposes will be excludable from the "gross income" of the holders thereof and (2) the Bonds and Certificates will not be heated as "specified private activity bonds" the interest on which would be included as an alternative minimum tax preference item under section 57(a)(5) of the internal Revenue 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 or disposition of the Bonds and Certificates. See Appendix C -- Form of Bond Counsel's Opinions. In rendering its opinion, Bond Counsel will rely upon (a) eartain'information and representations of the City, including information and representations contained in the City's federal tax certificate, and Co) covenants of the City contained in the Bond documents relating to certain matters, including arbitrage and the use of the proceeds of the Bonds and Certificates and the property financed or refinanced therewith. Failure of the City to comply with these representations or covenants could cause the interest on the Bonds and Certificates to become includable in gross income retroactively to the date of issuance of the Bonds and Certificates. The Existing Law is subject to change by the Congress and to subsequent judicinl and administrative interpretation by the courts and the Department of the Treasuxy. There can be no assurance that such Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Bonds and Certificates. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of Existing Law and the representations and covenants of the City described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the metiers addressed in the opinion of Bond Counsel, and no assurance can be given that the Service would agree with the opinion of Bond Counsel, if the tax-exempt status of the interest on the Bonds and Cartifieates were the subject of an audit, ffan audit is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Bonds and Certificates would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds and Ceaificatas, the City may have different or conflicting interests from the owners of the Bonds and Certificates. FEDERAL INCOME TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT, .. The initial public offering price to be paid for one or more maturities of the Bonds and Certificates (the "Original Issue Discount Bonds" or "Original Issue Discount Certificates") may be less than the principal amount thereof or one or more periods for the payment of interest on the Bonds or Certificates may not be equal to the accrual period or be in excess of one year. In such event, the difference between ti) the "stated redemption price at maturity" of each Odginal Issue Discount Bond or Original Issue Discount Certificate, and (ii) the initial offering price to the public of such Original Issue Discount Bond or Original Issue Discount Certifieata would constitute original issue discount. The "stated redemption price at maturity" means the sum of afl payments to be made o the Bonds and Certificates less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under existing law, any owner who has purchased such Original Issue Discount Bond or Original Issue Discount Certificate in the initial public offering is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond or Origlnal Issue Discount Certificate equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain coflataral federal tax consequences, see discussion set forfl~ below. In the event &the redemption, sale or other taxable disposition of such Original Issue Discount Bond or Original Issue Discount Certificate prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond or Original Issue Discount Certificate in the hands of such owner (adjusted upward by thc portion of the original issue discount allocable to the period for which such Original Issue Discount Bond or Original Issue Discount Certificate was held by such initial owner) is includable in gross income. Under existing law, the original issue discount on each Original Issue Discount Bond or Original Issue Discount Certificate is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and Certificatas and ratably within each such six-month period) and thc accrued amount is added to an initial owner's basis for such Original Issue Discount Bond or Original Issue Discount Certificate for purposes of determining the amount of gain or loss recoguizcd by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less Co) thc amounts payable as current interest during such aceraal period on such Bonds and Certificate. 28 ! I ! I I I I I I I I I ! I ! I I ! I I i I I 1 I I I I I I I I I I The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Bonds or Original Issue Discount Certificates which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ fi'oru those described above. All owners of Otiginal Issue Discount Bonds or Original Issue Discount Certificates should consult their own lax advisors with respent to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds or Original Issue Discount Certificates and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds or Original Issue Discount Certificates. COLL&TERAL FEDERAL INCOM~ Tax CONSEQUENCES... The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Bonds and Certificates. This discussion is based on existing statutes, regulations, published rulings and court decisions, ail of which are subject to change or modification, retroactively. The following discussion .is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed earned income credit, owners of an interest in a FASIT, certain S corporations with Subchapter C earnings and profits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT 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, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIOATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE BONDS AND CERTIFICATES. Interest on the Bonds and Certificates will be includable as an adjustment for "adjusted current earnings" to calculate the alternative minimum tex imposed on corporations by section 55 of the Code. Section 55 of the Code imposes a tax equal to 20 percent for corpurations, or 26 percent for non corporate taxpayers (28 percent for taxable excess exceeding $175,000), of the taxpayer's "alternative minimum taxable income," if the amount of such alternative minimum tax is greater than the taxpayer's regular income tax for the taxable year. interest on the Bonds and Certificates may be subject to the "branch profits tax" imposed by section 884 of th= Code on th= effectively-connected earnings and profits of a foreign corporation doing business in the United States. Under section 6012 of the Code, holders of tax-exempt obligations, such as the Bonds and Certificates, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tex-exempt obligation, such as the Bonds and Certificates, if such obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal to or exceeds, one year from the date of issue. Such trealment applies to "market discount bonds" to the extent such gain does not exceed the accrued market discount of such bonds, although for this purpose, a de minimis amount of market discount is ignored. A "market discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price or, in the ease of a bond issued at an original issue discount, the "revised issue price" (i.e., the issue price plus accrued original issue discount.). The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. STATE, LOCAL AND FOREIGN TAXES... Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Bonds and Certificates under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. 29 OTHER INFORMATION The presently outstanding tax supported debt of the City is rated "Aa3" by Moody's and "AA-" by S&P. The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Bonds and Certificates have been made to Moody's and S&P. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The rath~gs reflect only the respective views of such organization and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Bonds and Certificates. LITIGATION It is the opinion of the City Attorney and City Staff that there is no pending litigation against the City that would have a material adverse £mancial impact upon the City or its operations. I~EGISTRATION AND QUALIFICATION OF BONDS AND CERTIFICATES FOR SALE The sale of the Bonds and Certificates has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds and Certificates have not been qualified under the Secutifies Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds and Certificates been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds and Certificates under the securities laws of any jurisdiction in which the Bonds and Certificates may be sold, assigned, pledged, hypothecated or otherwise transferred. 'I~is disclaimer of responsibility for qualification for sale or other disposition of the Bonds and Certificates shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. LEGAL INVESTMENTS AND ELIGmtLITY TO SECURE PUSLIC FIJNt~S 1N TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds and Certificates are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance eompanins, fiduciaries, and trustees, and for the sinking funds of munidipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Bonds and Ceifificates by municipalities or other political sulidivisinns or public agencies of the State of Texas, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Bonds and Certificates be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency. See "Other Information - Ratings" herein. In addition, various provisions offue Texas Finance Code provide that, subject to a prudent investor standard, the Bonds and Certificates are legal invbstmetus for state banks, savings banks, trust companies with at capital of one million dollars or more, and savings and loan associations. The Bonds and Certificates am eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Bonds or the Certificates are legal investments for various institutions in those states. LEGAL OPINIONS AND No-LITIGATION CERTIFICATE The City will fuimsh a ¢ompleta transcript of proceedings had incident to the authorization and issuance of the Bonds and Certificates, including the unqualified approving legal opinion of the At~ntney General of Texas approving the Initial Bond and Initial Certificate and to the effect that the Bonds and Certificates are valid and legally binding obligations of the City, and based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel, to like effect and to the effect that fu¢ interest on the Bonds and Certificates will be excludable from gross income for federal income tax purposes under Section 103(a) of the Code, subject to the matters described under "Tax Mat~ers" herein, including the alternative minimum tax on corporations. The customary einsing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Bonds and Certificates, or which would affect the provision made for their payment or security, or in any manner questioning the validity of said Bands and Certificates will also be furnished. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Notice of Sale and Bidding lnstruetinns, the Official Bid Form and the Official Statement, and such firm has not assumed any responsiliility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information desctibing the Bonds and Certificates in the Official Statement to verify that such description conforms to the provisions of the Ordinanoes. The legal fee to be paid Bond Counsel for services rendered in connection with thc issuanan of the Bonds and Certificates is contingent on the sale and delivery of fue Bonds and Certificates. The legal opinion will accompany the Bonds and Certificates deposited with DTC or will be printed on the Bonds and Certificates in the event of the discontinuance o£the Book-Entry-Only System. 30 ! I I I I I I I I I I I I I I I I I I ! ! I 1, i I ! I I I ! I 1 I The various legal opinions to be dsiivered concurrently with the delivery of the Bonds and Certificates express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. The financial data and other information contained herein have been obtained from City records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaxies of the stototcs, documents and resolutions contained in this Preliminary Official Statement are made subject to all of the provisions of such statotes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds and Ce~ificatas. The Cfly is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds and Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be avaiInhle to securities brokers and others who subscribe to receive the information from the vendors. ~UAL REPORTS . . . The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative fmanclal information and operating data with respect to the City of the general ~pe included in this Preliminary Official Statement under Tables numbered I through 6 and 8 through 15 and in Appendix B. The City will update and provide tbis information within six months a~er the end of each fiscal year ending in or after 2003. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State of Texas and approved by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12. The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if sunh audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless thc City changes its fiscal year. If the City changes its fiscal year, it will noflfy each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advism3, Council is 600 West 8th Street, P. O. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 512/476-6947. ~'.ATERIAL EVENT NOTICES... The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds and Certificates, if such event is material to a decision to purchase or sell Bonds and Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of thc Bonds and Certificates; (7) modifications to rights of holders of the Bonds and Certificates; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds and Certificates; and (11) rating changes. (Neither the Bonds and Certificates nor the Ordinance make any provision for debt service reserves, liquidity enhancement, or early redemption for the Bonds and Certificates.) In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMS1R or the Municipal Securities Rulemaking Board CMSRB"). AVAILABILITY OF INFORMATION FROM NRMSIRs A~O SID... The City has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of Bonds and Certificates only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. 31 I LIMITATIONS AND AMENDMENTS,.. The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its £maneial 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 usethlness to a decision to invest in or sell Bonds and Carfiftcates at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds and Certificates may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the idenrity, 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 and Certificates in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds and Certificates consent to the amendment or Co) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds and Certificates. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions offue SEC Rule 15e2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds and Certificates in the primary offering of the Bonds and Certificates. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial informafion and operating data so provided. COMPLIANCE WITH PRtOR UNDERTAKINGS . . . The City bas complied in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15e2-12. VERIFICATION OF ~kRITHMETICAL AND MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations ineinded in the schedules provided by First Southwest Company on behalf of the City relating to (a) computation of forecasted receipts of principal and interest on the forecasted payments of principal and interest to redeem the Refunded Bonds and (b) computation of the yields of the Refunding Bonds and the restricted Federal Securities were varified by Grant Thornton, LLP, coS/fled public accountants. Such computations were based solely on assumptions and information supplied by First Southwest Company on behalf of the City. Grant Thomten, LLP has restricted its procedures to verifying the arithmetical accuracy of cefiain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievabifity of the forecasted outcome. INITIAL PURCHASER OF THE BONDS Afrer requesting competitive bids for the Bonds, the City accepted the bid of (the "Initial Purchaser of the Bonds") to purchase the Bonds at the interest rates shown on the cover page of the Official Statement at a price of the principal amount thereof plus a cash premium (if any) of $ . The Initial Purchaser of the Bonds can give no assurance that any trading market will be developed for the Bonds after their sale by the City to fue Initial Purchaser of the Bonds. The City has no control over the price at whinh the Bonds are subsequently sold and the initial yield at whleh the Bonds will be priced and reoffered will be established by and will be the responsthility of the Initial purchaser of the Bonds. INITIAL PURCHASER OF THE CERTIFICATES After requesting competitive bids for the Certificates, the City accepted the bid of (the "Initial Purchaser of the Certificates") to purchase the Certificates at the interest rates shown on page 3 of the Official Statement at a price of % of the principal amount thereof plus a cash premium (if any) ors . The Initial Purchaser of the Certificates can give no assurance that any trading market will be developed for the Certificates after their sale by the City to the Initial Purchaser of the Ce~ificates. The City has no control over the price at which the Certificates are subsequently sold and the initial yield at which the Ceflificates will be priced and reoffered will be established by and will be the responsibility of the Initial Purchaser of the Certificates. 32 I I I i ! ! I I 1 I I I I I I I i I I I I I I I I I I i I ! I I I FINANCIAL ADVrsOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Bonds and Certificates. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds and Certificates is contingent upon the issuance and delivery of the Bonds and Certificates. First Southwest Company may submit a bid for the Bonds and Certificates, either indepeudantly or as a member of a syndicate organized to submit a bid for the Bonds and Certificates. First Southwest Company, in its eapaalty as Financial Advisor. has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds and Certificates, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. In the normal course of business, the Financial Advisor may from time to time sell investment securities to the City for the investment 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 semence for inclusion in this Preliminary Official Statement. The Financial Advisor has reviewed the information in this Preliminary Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws es applied to the facts and eireumstanees of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. CERTIFICATION OF THE OFFICIAL STATEMENT At the time of payment for and delivery of the Bonds and Certificates, the City will furnish a certificate, executed by proper officers, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in its Official Statement, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of sale of said Bonds and Certificates and the acceptance of the best bid therefor, and on the date of the delivery, were and me true and correct in all material respects; Co) insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrua statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light oftbe circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pe~aining to entities, other than the City, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are unffua in any material respect; and (d) there has been no material adverse change in the financial condition of the City since the date of the last audited financial statements of the City. The Bond Ordinance and the Certificate Ordinance authorizing the issuance of the Bonds and Certificates will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize/ts further use in the reoffering of the Bonds and Cer~ficates by the Initial Purchaser. ATTEST: EULINE BROCK Mayor City of Denton, Texas JENNIFER WALTERS City Secretary 33 THIS PAGE LEFF BLANK INTENTIONALLY I I I I I I I I i 'i ! I I I I I I I ! SCHEDULE OF REFUNDED BONDS Schedule I General Obligation Bonds, Series 1993 Original Maturity Interest Principal Dated Date Date Rate Amount 3/1/1993 7/1/2004 5.10% $150,000 7/1/2005 5.20% 150,000 The 2004 - 2005 maturities will be redeemed prior to original maturity on June 1, 2003 at par, plus accrued interest, if any. i I I I I I I I I I General Obligation Refunding Bonds, Series 1993-A Original Maturity Interest Principal Dated Date Date Rate Amount 6/1/1993 2/15/2004 5.10% $625,000 2/15/2005 5.25% 615,000 2/15/2006 5.30% 420,000 2/15/2007 5.40% 370,000 2/15/2008 5.40% 365,000 2/1512009 5.40% 155,000 The 2004 - 2009 maturities will be redeemed prior to original maturity on June 1, 2003 at par, plus accrued interest, if any. Certificates of Obligation, Series 1993-A Original Maturity Interest Principal Dated Date Date Rate Amount 11/1/1993 7/I/2004 4.75% $205,000 7/1/2005 5.00% 80,000 7/1/2006 5.00% 85,000 7/1/2007 5.00% 90,000 7/1/2008 5.00% 95,000 7/1/2009 5.00% 100,000 7/1/2010 5.00% 105,000 7/1/2011 5.00% 110,000 7/I/2012 5.00% 115,000 7/1/2013 5.00% 120,000 7/1/2014 5.00% 130,000 The 2004 - 2014 maturities will be redeemed prior to original maturity on July 1, 2003 at par, plus accrued interest, if any. I I I I THIS PAGE LEFT BLANK INTENTIONALLY I i I I I I t I I I I I I I I I ! I ! I I I I I I I i I I I I I I APPENDIX A GENERAL INFORMATION REGARDING THE CITY LOCATION . . . The City of Denton is located in the northern portion of the Dallas/Fort Worth Consolidated Statistical Area (CSMA). The City is a part of the Dallas/Fort Worth Meiroplex, and is situated at ~he apex ora triangle based by Dallas (38 miles to the southeast) and Fort Worth (36 miles to the southwest). The City has excellent access to and from all parts of the area. ECONOMY... Denton is in the midst of a rich agricultural and livestock awa; The hub city of Texas' new "Land of Lakes" region, which provides Denton and neighboring cities with abundant water for municipal, industrial and recreational purposes; One of the three major university centers in 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 Mobilization; One of the key cities in the economically significant Dallas Consolidated Metropolitan Area. ECONOMIC FnTIJRE... The fiscal year 2001-2002 brought exciting news in economic development. Listed below ara just a few of the highlights. Major Employer & Industrial News · Peterbilt's parent company PACCAR expanded their regional headquarters in Denton. The 31,000 square foot facility was completed in April. About 40 employees from the PACCAR financial office in Las Colinas were relocated to the regional office. The expansion also included 65 parking spaces in an underground parking garage, and guest rooms for visitors and corporate auditors. · A Peterbilt supplier, Alcoa, opened a 30,000 square foot facility in north Denton. The plant provides tire and wheel assembly and storage for "just-in-rime" delive~ to Peterbilt. · FEMA completed and occupied its new 82,000 square foot facility on Karina St. The new facility consolidated several office and call center operations at various locations around Denton. Sally Beauty Company announced its plans to stay in Denton and expand at their currant location. The beauty supply distributor has had its interanrional headquarters in Denton since 1982. To accommodate the ~'emendous growth of the company, officials plan to convert warehouse space into a 2-stm3' office building. This would increase the company's square footage from 40,000 square feet to 100,000 square feet. Conasco Doka Ltd., an international concrete supplier, announced that it would open a distribution facility in Denton. The company purchased 9 acres in north Denton and will construct a 10,000 square foot distribution center. After considering several other Metroplex locations, Denton was chosen. The Denton location will create 25 new jobs. Denton Community Hospital (DCH) today announced plans to build a new 272,538 square foot, $100 million hospital in Denton. The hospital will be located on 35 acres that front 1-35, adjacent to the current ll-acre DCH campus on Bonnie Brae. Groundbreaking is projected to take place in late sununer 2003. North Denton is proving to be a development focus · Early summer brought the announcement of Clear Creek Ranch, located between FM 2164 and Bonnie Brae. Upon completion this will be a 750-acre mixed-use development completa with 1500 homes, 600 apartments, retail development, hiking and biking trails and schools. · Prominence Square, a 112 acre housing development located in the NW comer of HWY 377 and Loop 288 also announced in Summer of 2002. The Denton School District and the City of Denton have partnered on an aquatic center to be called Waterworks Park. The indoor natatorium will ineinde a competition pool plus a warm water therapy pool for swim lessons, water aerobics and physical therapy year-round. The outdoor portion &the park will include 2 large slides, a children's play pool and a "lazy river" feature. Construction is currently underway. In August of 2002 the University of North Texas officially opened the LINT Research Park. A-I i t i I I i ! ! I ! I I i ! I I I I I I I I I I I I I I I I I I I ! I ! Development at Denton Municipal dirport · June 2001 brought the ground breaking of the new airport control tower. The addition of the tower will greatly increase the safety of the airport. The project was completed in December 2002. · A new fixed based operation (FBO), Business Air Center, opened in 2002. U. S Flight Academy broke ground on a new hangar in Spring of 2002. · Flight Line, which also opened in Spring of 2002 offers Cessna aircraft for r~nt and for flying lessons. · Chelton Flight Systems, an international avionics company, will soon open its Denton location where employees will design and install autopilots in aircrat~ to get certification fi.om the Federal Aviation Administrafion. · Future plans for the airport include adding a parallel runway, a runway extension and a new terminal building. Retail News · Denton Crossing Partners is developing a 52-acre site off of Loop 288 into a retail "Lifestyle Center". The comer should include large anchor tenants and many other smaller shops and restaurants. The city estimates that the development will create approximately 325 new full-time jobs and 130 part-time jobs. Tenants for the center include T.J. Maxx, Best Buy, Bed Bath & Beyond, Pier I Imports, World Market, Dress Barn, Michaels and a Kroger Signature Store. · Denton's "Restaurant Row" is under construction on Brinker Road. Texas Roadhouse and On the Board will celebrate its grand opening in October of 2002. Olive Garden is currently under construction. · Denton Park 35 is another area attractive to developers. Johnny Carino's Italian restaurant has been in operation for several months. Chuck E. Cheese recently opened for business and Hampton Inn is under construction. · Other retail announcements during the 2001-2002 fiscal year included Car Toys, Family Dollar, Albertson's grocery store and Wing Zone. Other Developments · City/Economic Development visioning process was started. In cooperation with TWU, UNT, and the City of Denton, the Chamber hosted Denton Tomorrow in October 2001. The purpose of this event was to provide City and Metroplex stakeholders with a glimpse of Dentun's economic development opportunities. Following the October meeting, several community leadere attended a strategic planning retreat held in November. A task force has been created and will work with consultants from TIP Development Strategies to compose a strategic plan for economic development fueusing on specific projects and opportunities available for Denton. · The City of Denton's new development code was approved by the city council and is now in effect. The new code offers developers the opportunity to mix various densities and land uses without compromising quality. · Denton was named one of the "Best Biotech Locations in the South" by Southern Business and Development magazine. Denton was featured in a full-page article in the November 2001 issue. The purchase of the former Texas Instruments facility by the University of Noflh Texas was named one of the Real Estate Deals of the Year by the Dallas Business Journal. A total of sixteen awards were given - One for "Best Real Estate Deal of the Year" and fifteen in specialized categories. The University of North Texas - Texas fustmments Project received the award for "Best Deal with Developed Real Estate". A-2 Employer University of North Texas Denton Independent School District Denton State School Peterbilt Motors/PACCAR De~ton County City of Denton Texas Woman's University Denton Regional Medical Center FEMA (Regional HQ & Call Center) Denton Community Hospital Victor Equipment Sally Beauty Anderson Merchandisers Andrew Corporation Teleservices Marketing Corp. C B S Mechanical Vacation Tour & Travel Infinity Partners Citigroup Tetra Pek General Telemarketing Inc. Josten's Verizon Morfison Milling The Vintage Russell Newman Manufacturing Acme Brick Good Samaritan Village Safety Kleen Wells Fargo United Copper Industries Denton Publishing Company Mayday Manufacturing Radisson Hotel Sanmian/SCI Major Employers Approximate Number of Description Employees Educational Facility 6,995 School System 2,000 MHMR Facility 1,380 Diesel Truck Assembly/Regional HQ 1,325 County Government 1,225 Municipal Govemmem 1,200 Educational Facility 900 Hospital 850 Federal Governmetu Call Center 750 Hospital 500 Welding Equipment 470 World HQ Beauty Supply Company 360 Warehouse/Distribution 310 Teleeommuincations 300 Call Center 300 Construction Servlees 300 Call Center 300 Jet Interior Manufacturing 300 Financial Services 290 Aseptic Packaging 280 Call Center 250 Class Ring Manufacturer 250 Telephone Company 230 Flour/13min Mill 200 Assisted Living/Nursing Facility 185 Lingerie Manufacturer 180 Brick Manufacturer 160 Retirement Center 150 Fuel Reeyellng 140 Banking 135 Copper Wire Manufacturer 120 Newspaper 117 Aerospace Machined Parts 115 Hotel 110 Plastic Molding 100 Soume: City of Denton and Denton Chamber of Commeme Economic Development Offices Denton is proud to boast over 30 companies and institutions that employ 100 or mom people, several of them representing a corpomta, regional and international headquarters. Well over 100 companies that produce, manufacture, and distribute goods all over the world call Denton home. More than 3,000 businesses employing 1 to 6,995 people choose to do business in Denton. With small, medium, and large businesses operating in a variety of industries, diversity is strength in Denton. Statistics show most of these workers are skilled and receive their training right here in Denton. A-3 I I ! I I I I i I I I I I I I I I I I I I I I I I I I I i I I I I I I I I ECONOMIC AND POPULATION GAINS... Denton has noted a consistent population increase and a steady economic growth in the last four decades. Historical population totals from U.S. Census records are: 1940 Census - 11,192 1950 Census - 21,345 1960 Census - 26,844 1970 Census- 39,874 1980 Census- 49,079 1990 Census- 66,270 2000 Census - 80,537 The City's ascension toward a top rung on Texas' economic ladder is attributed pauly to thc steady influences of governmental activity which includes the year-by-year expansion of the two state-supported universities, and partly beeanse of such environmental factors as its location in a rich agricultural region, some oil and gas production in the northwest section of Denton County, its inclusion in the Dallas/Fort Worth Met~oplex, its proximity to three of Texas' largest raservoira (Lake Texoma is only 40 miles from Denton), its mild climate, and the less tangible but influential aspects of social, cultural and educational advantages that have prompted professional workers to choose Denton as a place of residence. ECONOMIC RANgiNG... The following data was taken from Sales and Marketing Management 2001 Survey of Buying Power, dated August 2002. % of Population Whose Age is: 18-24 25.30% 25-34 17.20% 3549 18.10% 50 and Over 18.80% Households 32,800 Median Household Effective Buying Income Total Effective Buying Income 32,210 1,471,949,000 % of Households by EBI Group $20,000 - $34,999 23.20% $35,000 ~ $49,999 15.40% $50,000 and Over 32.00% Retail Sales Food Eating and Drinking General Merchandise Furnitare-Home Furnishings-Appliances Automotive $I,263,973,000 120,726,000 132,098,000 168,725,000 56,945,000 275,645,000 A~4 EMPLOYMENT/LABOR FORCg... Tho 2001 annual average available workforce in Denton is 60,501 Additionally Denton is fon'unate to draw workers from the Dallas and Fort Worth/Arlington MSA's representing 5.1 million people, as well as north to southern Oklahoma. Average Average Average Average Average November Annual Annual Annual Annual Annual City of Denton 2002 2001 2000 1999 1998 1997 Civilian Labor Force 60,432 58,946 57,834 56,286 53,298 50,418 Total Employed 56,546 56,360 56,126 54,726 51,749 48,747 Total Unemployed 3,886 2,586 1,708 1,560 1,549 1,671 Percent of Unemployed 6.43% 4.39% 2.95% 2.77% 2.91% 3.31% Denton County Civilian Labor Force 266,162 261,347 257,610 250,861 237,439 224,314 Total Employed 254,268 253,431 252,383 246,086 232,698 219,198 Total Unemployed I 1,894 7,916 5,227 4,775 4,741 5,116 Percent of Unemployed 4.47% 3.03% 2.03% 1.90% 2.00% 2.28% State of Texas Civilian Labor Force 10,751,678 10,462,712 10,324,527 10,219,113 10,094,763 9,838,951 Total Employed 10,104,730 9,955,270 9,887,039 9,746,879 9,609,026 9,309,966 Total Unemployed 646,948 507,442 437,488 472,234 485,737 528,985 Percent of Unemployed 6.02% 4.85% 4.24% 4.62% 4.81% 5.38% Source: Texas Employment Commission. EnllCATION . . . Denton is home to the University of North Texas, founded in 1890, Texas Woman's University, founded in 1901, and an extension campus site for North Central Texas College, established in 1924. The two universities and community college have a combined enrollment of more than 36,000 students and approximately 7,788 faculty members. With an enrollment of over 27,000, the University of North Texas exceeds the enmbined enrollment of Southern Methodist University in Dallas, Texas Christian University in Fort Worth and Rice University in Houston. Texas Woman's University has an approximate enrollment of 6,500 in Denton with an additional 1,500 students attending in Dallas and Houston. The University of North Texas (UNT) campus comprises a land area of more than 425 acres valued in excess of $167 million. The University encompasses nine colleges and schools of study and offers Bachelor's degrees in 93 fields, Master's degrees in 124 areas and Doctoral programs in 47 disciplines. UNT maintains a Iow 16:1 student-faculty ratio more prevalent among private rather than public institutions. LINT is listed in both America's 100 Best College Buys and America's 100 Most Wired Colleges. Texas Woman's University (TWU), a major state-supported teaching and rasanrah institution, is the nation's largest public university attended primarily by women, who comprise 90% of attandlng students. Almost 90% of TWO"s faculty members hold a Doctoral degree or other appropriate terminal degree in their field. Through its seven schools and colleges, TWU offers 106 programs leading to a Bachelor's degree, I06 Master's degree fields, and Doctoral degrees in 23 specialization areas. In 2001, TWU's Doctoral health studies program fled with Harvard University for second place nationally in a study of recommended practices by the National Assoeialmn of Greduate-Professional studies. North Central Texas College (NCTC), established in I924, offers Associate Degrees in Occupational Therapy Assistance, Criminal Justice, Mid-Management Training and Micro Computer Applications, among other fields. NCTC speeializes in training geared directly to business and industry needs. NCTC serves the citizens of Denton with quality education by offering a broad scope of educational choices and offers the local business community educational options as well. The competitive need to keep employees current with modern technology and methodology is easier due to NCTC's customized training which teaches curriculum developed closely with business management to ensure individual company needs are met. A-5 I I I I I I I I I' I I I I I I I I I I I I I I I I I I I I I I I I ! I I I Approximately 15,068 students enrolled in the Denton Independent School District (DISD) for the 2002-2003 school year. Students attend 24 schools, including 12 elementary schools (grades K-5), four middle schools (6-8), two high schools (9-12), one early childhood center and six alternative schools. DISD offers classes at each school and at the instructional center for students who experience learning disabilities or handicaps. Counselors, speech and language spociahsts, psychologists, and reading and diagnostic consultants are available for all grade levels. In 2001-2002, DISD continued to experience a very iow drop out rate of less than 1%. In a "Best High Schools" survey conducted by D Magazine, Denton High School was ranked 260` and Ryan High School was 36* out of 95 high schools surveyed in the Dallas-Fort Worth Metrop[ex. The rankings were based on AP scores and the percentage of studeuts who passed the exams. The district had lg students who qualified as National Merit Scholar winners; three National Merit Schlolar Semifinalists, I0 commended students, five National Hispanic Recognized students and one African-American Recognized student. Denton State School is one of the country's most modem and progressive educational institutions. This state supported educational institution for mentally handicapped Texas residents is located on a 200-acre site paid for by Denton citizens. Present facilities include residences that accommodate 677 students, more than 20 buildings for physically handicapped individuals with a capacity of 600, and a 32 bed acute hospital with supporting facilities such as X-my, laboratory, dental, and pharmaceutical. Additional buildings include a modem administration building, an academic building, launch3' facility, maintenance shop and a warehouse. The school has a staffer 1,380 with an annual payroll in excess of $28,705,000. DENTON UNIVERSITIES EXPAND,.. Texas Woman's University - The UnivaralW completed expansion of its $500,000 food sciences lab to advance the development and analysis of new foods and taste4esting. In a joint effort with Texas A & M University, TWU is the first university in the countty to fund a position responsible for conunercinlization of intellectual property for food sciences. University of North Texas - UNT purchased a 277-acre property in north Denton approximately 4 miles from the main campus that includes four interconnected buildings totaling 553,000 square feet. Purchased for $8.9 million from Texas Instruments, the university will move some administration and academic programs to the new site almost immediately. Longer-term considerations for the new site include housing a new business incubator program or as the potential site of a new $28 million health science center. UNT has been recognized since 1976 by the Carnegie Foundation Center as a Doctoral I Research University. In 2001, UNT experienced record enrollment which was impacted by the opening of its new System Center in Dallas. AamcuL~t~u~... Northwastem Denton County is one of the mor~ diversified agricultural areas in Texas. With soil types ranging from rich black to sandy loam, and good, sofr artesian water, it is ideal for diversified farming and livestock. Principal 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 concentration of valuahle world champion horses and horse ranches, located immediately to the north and east of the City's corporats boundaries, provide a prosperous economic manuree for the City and area. Products significant to the economy are horses, beef, eggs, wheat, grain sorghums, hay, and nursery crops. TRANSPORTATION . , , Denton is located only 20 miles northeast of the Dallas-Fort Worth International Airport which began operations in January 1974. In addition, Dallas' Love Field Airport and Fort Worth's Meaaham Interaational Airport are in close proximity to Denton. Alliance Airport, located about 20 miles southwest of Denton, is the only purely industrial alrpor~ in the world. Accompanying the Alliance Ahport are five business parks. Together, Alliance's access to highway, rail and air transportation offers an excellent oppoflunity for future industrial growth. Much development is oecurrlng at the Denton Municipal Airport. The runway will be expanded by 1,500 feet within the next 24 months, taking it to 7,000 feet. A control tower and additional private hangar space has also been built. A terminal building will also be constructed The Kansas City Southern Railroad and the Union Pacific Railroad provide daily service to Denton. Full switching is available, providing direct access to all major markets across the nation. Greyhouodrl'raitways serves Denton through Dallas and Oklahoma City. Motor freight in Denton is included in the D/FW commercial trade zone and is served by major freight carriers. BANKnqG . . . There are eleven banks in Denton: Bank of America, N.A., Bank One, N.A., Wells Fargo Bank, Farmers and Merchants State Bank, Northwest Bank Texas, N.A., prowdent Bank, Guaranty Federal Bank, Point Bank, Texas Bank and Den on s only locally-owned bank, Northstar Bank. A~6 City State Fiscal Building Values (millions/ Water Sewer Electric Unemployment Unemployment Year Commercla] Residential .Total Customers Customers Customers Rates Rates 1998 $109 $ 75 $ 184 17,92I 17,799 33,540 2.91% 4.81% 1999 39 167 206 18,825 I8,259 35,549 2.77% 4.62% 2000 41 176 217 21,146 19,325 33,833 2.95% 4.24% 200I 40 219 259 22,772 20,931 35,704 4.39% 4.85% 2002 22 216 238 24,054 22,225 36,59I 6.43% 6.02% (1) New Constn~ction Only. MEDICAL. , . Denton Regional Medical Center is a 186 bed community hospital that serves the growing population of Denton, Wise, Cooke, and Montague Counties. Offering a full-spectrum of haalthcare including advanced open-heart surgery and neurosurgnry programs. Denton Regional's more than 1,000 employees and 250 physicians are constantly striving to offer the highest quality service to the north Texas area. Denton Community Hospital is a 110 bed (all private room) acute cam facility with 10 well baby cribs and three intermediate care units. The hospital consists ora three story stmetore with approximately 128,000 square feet. R has approximately 500 employees and more than 200 physicians on staff. Patient care is available to neonates, pediatric, adult, and geriatric patients based on their needs, diagnostics, acuity of illness, and specialized treatments. ~ECREATION... Lake Ray Roberts, located approximately 8 miles northeast of'he City's cmporate boundary on the Elm Fork oftha Trinity River, is a major water conservation and flood control facility of more than 799,600 acre-feet of storage that allows for an abundance of parks and other water and outdoor related ree~ational facilities. Nearby Lake Lewisville, one of North Texas' largest lakes is one of Texas' most popular recreation areas. Lake Lewisville has a shoreline of 183 miles located entirely in Denton County. Lake Lewisville attracts over 3,000,000 visitors to its shores annually. The upper reaches of the lake are only about 3 miles east of the Denton City Limits, while the dam is 15 miles fi.om downtown Denton. Grapevine Lake, another large body of water was created by the U.S. Army Corps of Engtheers, is located in Denton and Tarrant Counties. The dam is 23 miles from Denton. Parks and recreational areas abound on the shores of Lake Ray Roberts, Lake Lawisville and Grapevine Lakes. Boating, fishing, hunting, swimming and ali water sports are the favorite recreational pastimes, which, because of this area's favorable climate, are in use the year round. The City of Denton Parks and Recreation Department and the Denton Independent School District have created a partnership to produce a signature water recreation attraction. The $12,165,782 Denton Aquatic Park will open in 2003. A-7 I I I I I ! I I I I I I I I I I I I I I I I I I I I I I I I I I I ! t I I APPENDIX B EXCERPTS FROM THE CITY OF DENTON, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2002 The information contained in this Appendix consists of excerpts from the City of Denton, Texas Annual Financial Report for the Year Ended September 30, 2002, and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete Report for fu~er information. THIS PAGE LEFT BLANK INTENTIONALLY I I I I ! I I I I I I I I I I I I I I I I I I I ! I I I I I i I I I ! I I I Deloitte &Touche INDEPENDENTAUDITORS'REPORT City Council Members City of Denton, Texas We have audited the accompanying financial statements of the governmental activities, business- type activities, major funds; aggregate remaining fund information, of the City of Denton, Texas (the ~'City') as of and for the year endedSeptember 30, 2002, as listed in the table of contents; These:financial statements are the responsibility of the City's management. Our responsibility is to express an opinion On these f'maneial statements:and supporting schedules based on our audit. We conducted our audit .in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial andits contained in Government Auditing Standards, issued bythe comptroller General Of the United. States. Those standards require that we plan and perform the audit to obtain reasonable assurance aboat whether the financial statements am free of material misstatement. An audit includes examining, on a test basiS, evidence supporting:the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for Our opinion. Inour opinion, the basic financial.statements referred to above present fairly, in all material respects, the financial position of the governmental activities, business-type activities, major funds, and aggregate remaining fund information of the City, as of September 30, 2002, and the results of its operations and cash flows of its proprietary funds for the yem' then ended in conformity with accounting s~andards generally accepted in the United States of America. As described in Note I to thefinaneial statements, in fiscal year 2002, the City adopted Govemmentai Accounting Standards Board ("GASB') GASB Statement NO. 34, Basic Financial Statements~and.Management's Discussion and Analysis-for State and Local Governments, GASB Statement No. 37, Basic Financial Statements-and Management ~s Discussion amtAnalysis-for State and Local Governments: Omnibas, and GASB Statement No. 38~ Certain Financial Statement Note ~Disclosures. Manageraent's Discussion and Analysis (on pages 3 through 10) and the budgetary comparison information (on page 49)are not required parts of the basic financial statements, but is supplementary information required by the GASB. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express nO opinion on it. Deloitte Tourhe Tohmatsu Our audif was conducted for the perpose of forming an opinion on the basic financial statements taken as a whole. The combiningand individual fund financial statements and schedules listed in the~foregoing table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements of the City. These financial statements and schedules are the responsibility of management of the City. Such additional information has been subjected to the auditing procedures applied in our audit of general purpose financial ~tatements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial,statementa taken as a whole. The introductory section and the statistical data listed in the table of contents are presented for the purpose of additional analysis and are not a required part of the basic financial statements for the City. Such additional information has not been subjected to the auditing procedures applied in our audit Of the basic:financial statements and, accordingly, we express no opinion on it. In accordance with Govermnent Auditing Standards,.we have also issued our report dated February 11, 2003, on our consideration of the City's intemal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report isan integral part of an audit performed in accordance with Government .~tuditing Standards and should be read in conjunction wifl~ this report in considering the results of our audit. February I'1, 2003 I I I I I I I I I I i I I I I I i I I I I I I I I I I I I I I I I I I I I MANAGEMENT'S DISCUSSION & ANAINSIS CITY OF DENTON, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2002 The City of Detaon's discussion and analysis is designed to (a) assist the reader in focusing on significant financial issues, Co) provide an overview of the City's financial activity, (c) identify changes in the City's fmancial position (its ability to address the next and subsequent years challenges), (d) identify any material deviations from the financial plan (the approved budget), and (e) identify individual fund issues or concerns. Since the Management's Discussion and Analysis (MD&A) is designed to focus on the current year's activities, resulting changes and currently known facts, please read it in conjunction with the Transmittal Letter (beginning on page i) and the City's fmancial statements (beginning on page 1 I). FINANCIAL HIGHLIGHTS · The assets of the City exceeded its liabilities at thc close of the fiscal year ending September 30, 2002, by $357.4 million (net assets). Of this amount, $108.4 million (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors. · The City's total net assets increased by $18,133,394. This increase can be attributed to increases to proceeds from long-term debt and enterprise fund revenues and contributed capital. · As of Septomber 30, 2002, the City's governmental funds reported combined fund balances of $49,376,605, an increase of $5,070,356 in comparison with the prior fiscal year. Approximately one-fifth of this total amount, $10,423,157 is available for spending at the government's discretion (unreserved fund balance). · At the end of the current fiscal year, unreserved fund balance for the general fund was $8,033,092, or 16.03% of actual general fund expenditures. · The City's total debt increased by $81,690,463 during the current fiscal year. The primary reason for the increase was the issuance of $70,695,000 in revenue bonds and $24,665,000 in general obligation bonds and certificates of obligation. OVERVIEW OF THE FINANCIAL STATEMENTS The management discussion and analysis are intended to serve as an introduction to the City of Denton's basic financial statements. The City's basic financial statements comprise three components: 1) government- wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic £mancial statements themselves. Government-wide Financial Statements. The govemment-wide financial statements are designed to provide readers with a broad overview of the City's finances in a manner similar to private-sector business. The statement of net assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Overtime increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities present information showing how the City's net assets changed during the most recent fiscal year. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but not used vacation leave). Both the statement of net assets and the statement of activities are prepared using the accrual basis of accounting as opposed to the modified accrual basis used in prior reporting models. I I I I I I I I I I I I I I I I I I I I I I I I I I I i I I I I I I I I I I CITY OF DENTON, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) SEPTElVIBER 30, 2002 In it's Statement of Net Assets and the Statement of Activities, the City is divided between two kinds of activities: · Governmental activities. Most of the City's basic services are reported here, including the police, fire, libraries, development, public services and operations, public works, technology services and general administration. Property taxes, sales taxes and franchise fees finance most of these activities. ·Business-type activities. The City charges a fee to customers to help cover all or most of the cost of certain services it provides. The City's utility system (electric, water and wastowater), solid waste and - building inspection activity are reported here. The government-wide financial statements can be found on pages 11 - 13 of the report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activitias or objectives. Fund financial statements provide detailed information about the most significant funds, not the City as a whole. Some funds are required to be established by state law or bond covenants. However, the City Council establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants and other money. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. · Governmental funds. The majority of the City's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances lef~ at year-end that are available for spending. These funds are reported using an accounting method identified as the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. By comparing information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements, readers may better understand the long-term impact of the government's near-term financing decisions. The relationship or differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is detailed in a reconciliation following the fund financial statements. The City of Denton maintains 11 individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures and changes in fund balances for the general fund, debt service fund and capital projects fund, all of which are considered to be major funds. Data from the other 8 governmental funds are combined into a single, aggregated presentation. Individual fund data for each of thase non-major governmental funds is provided in the form of combining statements elsewhere in this report. Proprietary funds. The City charges customers for the services it provides, whether to outside customers or to other units within the City. These services are generally reported in proprietary funds. Proprietary funds are reported in the same manner that all activities are reported in the Statement of Net Assets and the Statement of Activities. In fact, the City's enterprise funds (a component of proprietary funds) are identical to the business-type activities that are reported in the government-wide statements, but provide more detail and additional information, such as cash flows. The internal service funds (the other component of proprietary funds) are utilized to report activities that provide supplies and services for the City's other programs and activities, such as the City's municipal warehouse, the City's self insurance fund and equipment maintenance function. Because these services benefit both governmental and 4 I CITY OF DENTON, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2002 I business-type functions, they have been included in both the governmental and business-type activities in the government-wide financial statements. The City of Denton maintains five enterprise funds. The City uses enterprise funds to account for its electric, water and wastewatar systems as well as its solid waste and building inspections activities. The funds provide the same type of information as the government-wide financial statements, only in more detail and include some of the internal service fund-type activity. The City considers all enterprise funds to be major funds. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. Agency funds are a component of fiduciary fimds. Agency funds differ from other fiduciary funds in that they do not typically involve a formal trust agreement. Agency funds are used to account for situations where the City's role is purely custodial, such as receipt, temporary investment and remittance of fiduciary resources to individuals, private organizations or other governments. The City maintains three fiduciary funds. The City uses agency funds to account for the collection and payment of the City's payroll and associated liabilities, employee-purchased insurance and other similar relationships. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 27 - 48 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS The City's combined net assets were $357,384,376 as of September 30, 2002. Analyzing the net assets and net expenses of governmental and business-type activities separately, business-type activities' net assets are $254,129,547. This analysis focuses on the net assets (Table 1) and changes in general revenues (Table 2) and significant expenses of the City's governmental and business-type activities. The largest portion of the City's net assets (61.4%) reflects its investment in capital assets (e.g., land building, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. I I I I I I I I I I I I Governmental Business-type Activities Activities Total 2002 2002 2002 Curtant and other assets $ 71,714,230 $ 272,132,471 $ 343,846,701 Capital assets 135~222,400 308,086~743 443,309,143 Total assets 206,936~630 580~219~214 787~155~844 Long-term liabilities outstanding 84,614,093 281,141,943 365,756,036 Other liabilities 19~067,708 44,947~724 64~015~432 Total liabilities 103~681~801 326~089~667 429~771~468 Net assets: Invested in capital assets, net of related debt 88,162,242 131,316,531 219,478,773 Restricted 1,000,906 28,456,447 29,457,353 Unrestricted 14,091,681 94~356,569 108~448~250 Totalnet assets $ 103.254.829 $ 254.129~47 $ 357.384.376 I I I I I I I i I I I I I ! I I I i I I ! I i i CITY OF DENTON, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2002 Governmental activities. This is the City's first year to implement the requirements of GASB Statement No. 34. Because of this, comparative data from the prior year is not available. The City's general revenues for governmental activities (excluding transfers) are detailed below (Table 2). Table 2 Genera[ Revenues 2002 Property taxes $19,075,268 Sales taxes 15,875,935 Franchise fees 11,930,612 Hotel occupancy taxes 938,225 Beverage taxes 174,264 Bingo taxes 20,673 Unrestricted investment earnings 3,990,679 Miscellaneous 3~246~851 Total general revenues $55 252 507 Governmental activities increased the City's net assets by $4,509,560. The key elements of this increase are contained in Table 3. Table 3 Changes in Net Assets Governmental Business-type Activities Activities Total 2002 2002 2002 Program Revenue: Charges for services $ 8,193,653 Operating grants and contributions 2,480,309 Capital grants and contributions 6,379,228 Property tax 19,075,268 Sales tax 15,875,935 Other taxes/fees 13,063,774 Miscellaneous 7~237,530 Total revenue 72,305,697 Expenses: General government 16,240,418 Public safety 27,322,153 Public works 13,691,514 Parks and recreation 7,362,939 Interest on long-term debt 4,252,970 Electric Water Wastewater Solid waste Building inspections Total expenses 68,849,994 Increase in net assets before transfers 3,435,703 Transfers 1,073,857 Increase (decrease) in net assets 4,509,560 Net assets at beginning of year 98,745,269 Net assets at end of year $103~254~829 $140,865,909 $149,059,562 2,480,309 8,504,900 14,884,128 19,075,268 15,875,935 13,063,77413,0 12~198,869 19,436,399 161,569,678 233,875,375 16,240,418 27,322,I53 13,691,514 7,362,939 4,252,970 99,831,597 99,831,597 18,095,107 18,095,107 15,555,687 15,555,687 11,658,565 11,658,565 1,731,031 1,731~031 146,871,987 215,721~981 14,697,691 18,133,394 (1,073,857) 13,623,834 18,133,394 240,505,713 339~250~982 $254~129~547 $357~3841376 The most significant governmental expense for the City was in providing public safety, which incurred expenses of $27,322,153. These expenses were offset by revenues collected from a variety of sources, with the largest being from property taxes, which are $19,075,268 for the fiscal year ending September 30, 2002. The 6 CITY OF DENTON, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2002 I most significant portion of public safety is the cost of personnel, which is estimated at $22,159,613. Other significant governmental expenses for the City include general government, which incurred approximately $16,240,418 in expenses, of which $8,412,340 represented personnel charges. The public works activities of the City incurred $13,691,514 in expenses, of which $3,985,389 represented personnel expense. Business-type activities. Bnsiness-type activities increased the City's net assets by $13,623,834, accounting for 75.1% of the total growth in the government's net assets. Key elements of this increase are as follows: · Capital contributions emerged as a major revenue source for the Water and Wastewater utilities during the current fiscal year, producing $8,504,900 in revenue. Water recorded revenue in the amount of $2,922,152 and Wastewater recorded revenue in the amount of $5,582,748 from contributions. Contributions of assets arise from new property development within the City. · The value of the investments in the business-type activities increased $3,063,558. This increase to market value significantly increased the mvenne for the business-type activities. GENERAL FUND BUDGETARY HIGHLIGHTS During fiscal year 2001-2002 there were no amendments to the City of Denton general fund budget. For fiscal year 2001-2002, actual expenditures on a budgetary basis were $56.6 million compared to the original budget expenditures of $58.0 million. The $1.4 million variance was primarily due to reduced spending for the general government. Actual revenue on a budgetary basis was $55.9 million compared to the original budget of $56.8 million. The $915,403 variance was due to actual tax receipts and municipal fmcs being below expectations. The City of Denton's actual year-end fund balance, on a budgetary basis was $8.5 million. This compares favorably to the projected year-end fund balance of $7.9 million. The actual year-end fund balance is within the City's policy of maintaining 13% in unreserved fund balance. Many factors were considered when setting the fiscal year 2001-2002 budget, tax rates and fees to be charged for business-type activities. A major factor was the economy. One of the more pressing challenges facing the City, and one that imposes the heaviest burden on the resources included in the budget, is the growth occurring in the community. The growth in Denton, in terms of both corporate service area and population, anntinues to increase the demand for City services. The city grew 20.7% from a population of 66,720, in 1990, to a 2000 census population of 80,537. Over 16% of that growth occurred after 1995. The 1999 Denton Plan population forecast assumed an annual growth of 3%. Current trends indicate an accelerating annual rate approaching 5%. Annexations have also created an increased demand for City services; since January 1999, Denton city limits have increased from 55.7 square miles to a July 2001 total of 64.4 square miles. Most of the increase in service area (5,568 acres or 8.7 square miles) became subject to development that required City services. As projects are completed from both the 1996 and 2000 bond elections, more operating resources become necessary to maintain the new streets, parks and other infrastructure improvements. Maintaining existing service levels for police, fire, utilities, streets, parks and other programs, as the growth rate rises and improvements are brought on-line, requires the commitment of additional resources. Additional and enhanced levels of service desired by the community have also exerted significant funding pressure. Though the issues were numerous and complex, the 2001-2002 budget included the neeessat3, programs and enhancements needed to modestly address these growth-related challenges and serves as a foundation to plan for the imminent growth in the community beyond the next fiscal year. 7 I I I I I I I I I i i I I I I I i I I I I I I I I I I I I I i I I I I i CITY OF DENTON, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2002 The budget incorporated a scheduled two-cent tax increase. Denton's 2001 certified appraised value increased 10.055% over the 2000 certified value and 8.31% over the 2000 final value (afier supplements). Over the years, the Denton City Council has followed a policy of maintaining a general fund balance in order to plan for unforeseen emergencies and place the City in a more favorable position. In 1997-1998, the policy level was increased from 10% to 12.5% of general fund expenditures. In 1999-2000, the pemantage was increased to 13%. The 2001-2002 budget maintains the policy level at 13%. Below is a listing of the ending unreserved balances for the past three years, as well as fiscal year 2001-2002 projected and actual. For those years where the actual ending balance has exceeded the policy level, the following year's budget has included utilization of that mount for one-time expenditures. By using the fund balance for ene-time expenditures only, the financial impact on future budgets is eliminated. Unreserved balances % of total expenditures Policy level Actual Actual Actual Projected Actual 9/30/99 9/30/00 9/30/01 9/30/02 9/30/02 $7,625,431 $8,536,438 $9,571,700 $7,659,139 $8,033,092 18.32% 18.51% 18.20% 13.00% 13.83% 12.50% 13.00% 13.00% 13.00% 13.00% The second largest revenue source of the General Fund was the ad valorem tax. Denton's ad valorem tax rate is comprised of two components. The first is the operations and maintenance component that is used to calculate revenue for the City's General Fund operations. The second component is the debt portion that is used to calculate revenue to pay the City's general debt service obligations. The Denton Central Appraisal District's certified appraisal roll shows an increase of 10.055% over the prior year certified value and 8.31% over the final 2002-2001 fiscal year value (including supplements). This increase consisted of $180.1 million of new value added for 2001 and a $78.2 million increase in value for property on the tax rolls in 2000. The proposed budget incorporates no change in the operations and maintenance portion of the ad valorem tax rate and a $.02 increase in the debt service portion. The total 2001-2002 ad valorem tax rate increased from $.52815 per $100 of valuation to $.54815 per $100 of valuation. The general fund budget also included a minimal fee increase for animal control fees related to rabies testing and euthanasia. CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets. At the end of fiscal year 2002, the City had $443,309,143 invested in a broad range of capital assets, including police and fire equipment, buildings, park facilities, roads, bridges and water and sewer lines. (See Table 4.) This amount represents a net increase (including additions and deductions) of $78,022,888 or 21.4% over the prior fiscal year. Table 4 Capital Assets at Year-end (Net of Depreciatiun, in Thousands) Governmental Business-type Activities Activities 2001 2002 2001 Land $ 1,407 $ 1,407 $ 3,051 $ 3,051 $ 4,458 $ 4,458 Landfill improvements 8,770 7,741 8,770 7,741 Buildings and improvements 16,497 16,132 16,497 16,132 Plant, machinery and equipment 16,793 16,633 131,440 147,258 148,233 163,891 Water rights 61,348 60,652 61,348 60,652 Infrastructure 58,620 62,461 7,631 7,558 66,251 70,019 Construction in progress 26,439 38,589 33,289 81,827 59,728 120,416 Totals $119,756 $135,222 $245,529 $308,087 $365,285 $443,309 Totals 2002 2001 2002 CITY OF DENTON, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2002 I This year's major additions included: Descdpfion Amount $ 2,346366 1,161,016 913,202 627,796 555,610 524,578 522,543 487.384 470,961 419,721 404.457 376,407 341,868 330,554 312,382 306,444 266,148 262,149 200,000 Central Fire Station construction Aquatic Center Upgrades to existing parks Loop 288 bypass & right-of-way City Hall renovations North Branch Library Airport control tower Technology Plan 2 upgrade Cross Timbers Park acquisition & development Public safety plan YMCA building Oak & Hickory Streets Mingo & Paisley Streets Athletic field improvements Sherman Drive Daniels & US 377 Street construction - Willowwood Gret Street paving Highway 2181 Total $ 10,829,686 I I I I I I ! I Debt. At year-end, the City had $378,005 million in bonds and notes outstanding as compared to $296,316 million at the end of the prior fiscal year, an increase of 27.5%, as shown in Table 5. Table 5 Outstanding Debt, at Year-end (in thousands) Governmental Business-type Activities Activities Totals 2001 2002 2001 2002 2001 2002 General obligation bonds $49,951 $58,664 $ 1,760 $ 1,508 $ 51,711 $ 60,172 Certificates of obligation 21,925 27,628 8,505 12,189 30,430 39,817 Revenue bonds 211,035 274,875 211,035 274,875 Notes 3,141 3,141 3,I41 3,141 Totals $71,876 $86,292 $224,441 $291,713 $296,317 $378,005. During the current fiscal year the City issued debt in May 2002. The new debt resulted primarily from the issuance of $70,695,000 in revenue bonds and $24,665,000 in general obligation bonds and certificates of obligation. Moody's Investor's Service, Inc. has given the City's General Obligation Bonds and the Certificates of Obligation a rating of"Aa3." Standard and Poor's Corporation has given both the City's General Obligation Bonds and Certificates of Obligation an "AA-" rating. The City's utility revenue bonds carry A1 and AA- ratings, as assigned by two of the national rating agencies. The City is permitted by Article XI, Section 5, of the State of Texas Constitution to levy taxes up to $2.50 per $100 of assessed valuation for general governmental services including the payment of principal and interest on general obligation long-term debt. The current ratio of tax-supported debt to assessed value of all taxable property is 2.53%. I I i I I I i i I I I I I i I I I I I I i i I I ! ! I I CITY OF DENTON, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2002 The City maintains a self-insurance program for general liability, public officials' errors and omission, police professional liability, property loss and workers' compensation. Claims for property loss over $100,000 per occurrence and for workers' compensation over $500,000 per occurrence are covered by private insurance companies. The City has claims and judgments of $1.8 million outstanding at year-end compared with $900,000 at the end of the prior fiscal year. Other obligations include accrued vacation pay and sick leave. More detailed information about the City's long-term liabilities is presented in Note IV. G. to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The general fund's largest revenue source is sales tax receipts. Because of the volatile nature of the sales tax revenue source and because of the recent statewide decline in sales tax receipts, the City has been conservative in sales tax projections for fiscal year 2002-2003. The fiscal year 2002-2003 budget projects only a 2.5% growth in overall receipts over the prior year's revised estimate. The City anticipates a very tight budget year for 2002-2003. The fiscal year 2002-2003 budget incorporates no increase in the property tax rote. It remains at $.54815 per $100 valuation. The 2002-2003 budget uses $577,630 of fund balance to cover grant matching funds and other one-time needs. By policy, the City maintains an unreserved fund balance of 13% of budgeted expenditures. The use of available fund balance for one-time expenditures eliminates the financial impact on future budgets. The fiscal year 2002-2003 utility's operating budgets include Electric, Water, Wastewatar and Solid Waste. The Electric budget includes no base rate changes. The Energy Cost Adjustment (ECA) rate remains at $.0250 per kilowatt-hour. No rate changes are planned for Water and Wastewater. The Solid Waste budget includes a residential rate for the new curbside recycling program, which is scheduled to start November 2002. Commercial collection service rates will increase slightly for front-load and side-load containers. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City's finances for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Denton Controller, 215 E. McKinney, Denton, Texas 76201. 10 THIS PAGE LEFT BLANK INTENTIONALLY I ! I I I I I I I I I I i I I I I I i i I i I I I I I I I I i i I I ! I I I BASIC FINANCIAL STATEMENTS THIS PAGE LEFT BLANK INTENTIONALLY I I I I I I I I I I I I I I I I I I I i I I I I I I I I I I i I I I i I I I CITY OF DENTON, TEXAS STATEMENT OF NET ASSETS AS OF SEPTEMBER 30, 2002 Primary, Government Governmental Business=type Activities Activities Total ASSETS: Cash and cash equivalents $ 7,066,294 Investments 53,798,493 Receivables, net of allowances for uncoliecfibles: Taxes 3,624,947 Accounts Unbified utility service Emergency medical service fees 502,497 Court fines 189,894 Interest 595,818 Other 509,065 Internal balances (1,443,108) Due from other governments 1,163,959 Inventory 5,460,050 Prepaid items 81,403 Deferred debt issuance costs 164,918 Restricted assets: Cash and cash equivalents Investments Escrow deposits Accrued interest Capital assets, net of accumulated depreciation: Land 1,407,252 Buildings 16,132,301 Plant, machinery and equipment 16,632,791 Infrastructure 62,460,755 Landfill improvements Water rights Construction in progress 38~589~221 Total assets 206,936~630 LIABILITIES: Accounts payable and accrued liabilities 3,742,632 Claims payable, current 911,178 Retainage payable 268,444 Compensated absences payable, current 2,868,602 Deposits 162 Payable from restricted assets: Accounts payable and accrued liabilities Retainage payable Accrued interest Revenue bonds payable, current General obligation bonds, current Certificates of obligation payable, current Deferred revenue impact fees Notes payable, current General obligation bonds, current ' 3,418,572 Certificates of obligation, current 2,617.350 Accrued interest 916,978 Due to other governments 3,993 Due to fiduciary funds 3,026,517 Other liabilities 72,637 Leases payable, current 317,721 Long-term liabilities: Arbitrage rebate payable 534,149 Revenue bonds payable General obligation bonds 55,245,219 Certificates of obligation payable 25,010,934 Leases payable 317,721 Compensated absence payable 3,506,070 Claims payable 902,922 Landfill closure/postclosure cost Total liabilities 103~681,801 NET ASSETS: Invested in capital assets, net of related debt 88,162,242 Restricted 1,000,906 Unrestricted 14~091n681 Total net assets $ 1 fl3_2~4.829 Exhibit I The notes to the financial statements are an integral part of this statement. $ 12,705,641 $ 19,771,935 17,137,346 70,935,839 9,093,803 7,482,740 190,091 119,170 1,443,108 2,512 2,254,409 392,444 217,143,592 1,728,365 2,439,242 3,051,340 147,257,612 7,557,921 7,740,886 60,682,030 81,826,954 580~219.214 13,780,061 17,165 820,754 1,427,220 1,038,023 2,336,301 4,982,491 9,965,000 83,887 1,387,650 6,267,95O 3,141,222 481,629 264,910,129 1,424,130 10,801,228 636,477 2~888.350 326~089~667 131,316,531 28,456,447 94,356~569 3,624,947 9,093,803 ~482~48 502,497 189,894 78~909 628,235 1,163,959 5,462~62 81~03 2,419,327 392,444 217,143,592 1,728,365 2,439~42 4,458,592 16,132,381 163,890,403 70,018,676 7,740,886 60,652,030 120~416~175 787~155~844 17,522,693 911,178 285,609 3,389~56 1,427~82 1,038,023 2~36~01 4~82,491 9,965,000 83,887 1,387,650 6,267,950 3,141,222 3~18,572 2,617~50 916,978 3,993 3,026,517 72,637 317,721 1,015,778 264,910,129 86,669,349 35,812,162 317,721 4,142,547 902,922 2~888.350 429~771~468 219,478,773 29,457,353 108~448~50 11 CITY OF DENTON, TEXAS STATEMENT OF ACTMTIES FOR THE YEAR ENDED SEPTEMBER 30, 2002 Functions/Programs Primary government: Governmental activities: General government Public safety Public works Parks and recreation Debt service - interest Total governmental activities Business-type activities: Electric system Water system Wastewater system Solid waste Building inspections Total business-type activities Total prima~y government Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions $ 16,240,418 $ 1,428,098 $ 1,990,489 $ 6,585 27,322,153 4,082,859 406,785 83,496 13,691,514 1,085,200 83,035 6,237,524 7,362,939 1,597,496 51,623 4,252,970 68,869,994 8,193,653 2,480,309 6,379,228 99,831,597 91.315,761 18,095,107 22.352,636 2,922,152 15,555,687 15,398,218 5,582,748 11,658,565 10.383,296 1,731,031 1,415,998 146,871,987 140,865,909 8,504,900 $ 215~741~981 $ 149~059~562 ~ 2~480~309 $ 147884~128 Property tax Sales tax Franchise fees Hotel occupancy tax Beverage tax Bingo tax Investment income Miscellaneous Transfers Total general revenues, special items, and transfers Change in net assets Net assets at beginning of year Net assets at end of year The notes to the financial statements are an integral part of this statement. 12 I I I I I I I I I I I I i I I I I I I Exhibit II Net (Expense) Revenue and Changes in Net Assets Governmental Activities Primary Government Business-type Activities Total $ (12,815,246) (22,749,013) (6,285,755) (5,713,820) (4,252,970) $ (12,815,246) (22,749,013) (6,285,755) (5,713,820) (4,252,970) (51,816,804) (51,816,804) (8,515,a36) (8,515,836) 7,179,681 7,179,681 5,425,279 5,425,279 (1,275,269) (1,275,269) (315,033) (315,033) 2,498,822 3,834,977 (51,816,804) 2,498,822 (49,317,982) 19,075,268 15,875,935 11,930,612 938,225 174,264 20,673 3,990,679 3,246,851 1,073,857 56,326,364 4,509,560 98,745,269 $ 103~254~829 19,075,268 15,875~935 11,930,612 938,225 174,264 20,673 11,819,512 15,810,191 379,357 3,626,208 (1,073,857) 11,125,012 67,451,376 13,623,834 18,133,394 240,505,713 339,250,982 $ 254~129~547 $ 357~384t376 13 CITY OF DENTON, TEXAS BALANCE SHEET GOVERNMENTAL FUNDS AS OF SEPTEMBER 30, 2002 Exhibit III General Capital Fund Debt Service Proiects ASSETS: Cash and cash equivalents Investments, at faiF value Receivables, net of allowances for uncollectibles: Taxes Accrued interest Other Due from other funds Due from other governments Total assets LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable and accrued liabilities $ 551,029 Retainage payable Deposits 162 Arbitrage payable Due to other funds 3,044,715 Due to other governments 3,993 Other liabilities 24,908 Deferred revenues 793~861 Total liabilities 4~418~668 FUND BALANCES: Reserved for debt service Reserved for encumbrances 431,528 Reserved for capital projects Unreserved, undesignated 8,033,092 Unreserved, undesignated in special revenue funds Total fund balances 8,464~620 Total liabilities and fund balances ~ 12.~g3.288 Other Total Governmental Governmental Funds Funds $ 1,549,748 $ 871,054 $ 713,069 $ 1,143,054 $ 4,276,925 1,791,005 39,154,290 1,350,678 42,296,773 3,624,947 21,994 303,418 925,485 62,661 4,964,289 63,439 862,028 5~020 12.1~g3.288 ~g q34.493 ~ 41.t7~.466 $ 87 $ 1,938,517 268,444 534,149 049,741 3,624,947 3,294 408,706 122,880 1,111,026 450 5,890,206 1.158.939 1~163~959 87 3~590~851 $ 308,689 $ 2,798,322 268,444 162 534,149 706,742 4,601,198 3,993 17,647 42,555 353~253 I~147~114 1~386,331 9~395~937 37,584,615 934,406 2,899 - 21390.065 934~406 37 584 615 2.392.964 934.493 $ 4t.17~.466 $ 3.779.29~ The notes to the financial statements are an integral part of this statement. 934,406 434,427 37,584,615 8,033,092 2~390,065 49~376~605 14 I I I I I I I I ! I I I i I I I I I I CITY OF DENTON, TEXAS RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS AS OF SEPTEMBER 30, 2002 Total fund balances - governmental funds (Exhibit Ill) Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Certain receivables will be collected next year but are not available soon enough to pay for the current period's expenditures and therefore are reported on deferred revenues in the funds. An internal charge to business-type activities is not recorded at the fund level. Several internal service funds are used by the City's management. The assets and liabilities of the internal service fund are included with governmental activities. The net property of $20,588,163 as it relates to the internal service funds is included in the capital asset amount above. The net long-term liability of $6,549,695 as it relates to the internal service funds is included in long-term liabilities amounts below. Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: Bonds payable Certificates of obligation payable Less: Deferred charge for issurance costs Accrued interest on the bonds Leases payable Compensated absences Total net assets of governmental activities (Exhibit I) The notes to the financial statements are an integral part of this statement. 15 Exhibit IV $ 49~376,605 135,222,400 1,117,031 (1,519,283) 13,112,325 $ (58,663,791) (27,628,284) 164,918 (916,978) (635,442) (6,374,672) (94,054,249) $ 103,254,829 CITY OF DENTON, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES 1N FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 Exhibit V General Fund REVENUES: Taxes $ 27~264,954 Licenses and permits 91,049 Franchise fees 11,930,612 Fines and forfeitures 3,522,895 Fees for services 4,852,845 Investment revenue 1,011,454 Net increase in fair value of investments 16,805 Intergovernmental 458,189 Miscellaneous 268~673 Total revenues 49~417~476 EXPENDITURES: Current: General government 10,430,176 Public safety 25,913,382 Public works 7,866,251 Parks and recreation 5,610,114 Capital outlay 267,558 Debt service: Principal retirement Interest and other charges Total expenditures 50~087~481 Excess (deficiency) of revenues over (under) expenditures (670~005) OTRER FINANCING SOURCES (USES): Proceeds of long-term debt Operating transfers in 195,259 Operating transfers (out) (831~469) Total other financing sources (uses) (636~210) Net change in fund balances Fund balances at beginning of year Fund balances at end of year Other Total Capital Governmental Governmental Debt Service__ Projects Funds Funds $ 7,699,986 $ 1,410,285 $ 938,225 $ 35,903,165 91,049 11,930,612 3,522,895 1,965,518 6,818,363 57,743 2,479,482 444,102 23,366 484,273 138,151 2,977,059 3,573,399 - 1601094 227~419 656~186 7~699~986 2 152 632 67189,330 657459~424 (1,306,215) 9~7707835 $ $~464.620 $ 14,535,652 5,019,164 4,155~704 59 969 9~174~868 1415951621 (1,474~882) (12~442~989) 4,318,666 14,748,842 242,494 26,155,876 83,221 7,949,472 1,352,259 6,962,373 202,449 15,005,659 6~199~089 (9~759) 5,019,164 41215~673 80~057~059 (14~597~635) 20,120,000 20,120,000 814,668 444,614 1,454,541 - (840,458) (234,673) 0,906,600) 814~668 19~279~542 209~941 19~667~941 (660,214) 6,836,553 200,182 5,070,306 1~594~620 30~748~062 2~192~782 441306~299 934.406 $ 37.584.615 $ 2.392.964 $ 49.376.605 The notes to the financial statements are an integral part of this statement. 16 i I I I I ! I I I I I I i I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF DENTON, TEXAS RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2002 Net change in fund balances-total governmental funds (Exhibit V) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays ($15,005,659) exceeded depreciation ($6,216,568 $8,842,361 - $2,625,793 internal service portion) in the current period. Statement of activities reports an increase in revenues due to current activity in deferred revenues which is not reported at fund level. Capital contributions from developers Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. This is the amount by which repayments exceeded proceeds. Fund level flnancials report bond costs as expenditures, however these are deferred and amortized on the government-wide financials. Certain expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Internal service funds are used by management to charge the costs of certain activities, such as insurance and telecommunications, to individual funds The net revenue (expense) of certain internal service funds is reported with governmental activities. Change in net assets of governmental activities (Exhibit II) The notes to the financial statements are an integral part of this statement. 17 Exhibit VI 5,070,306 8,789,091 889,308 4,468,186 (15,099,814) 164,918 (356,938) 584,503 4,509,560 CITY OF DENTON, TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUNDS AS OF SEPTEMBER 30, 2002 Electric System Business-type Activities - Enterprise Funds Water Wastewater Solid System System Waste ASSETS: Cash and cash equivalents $ 8,532,489 Investments, at fair value Receivables, net of allowances for uncailecfibles: Accounts (Note I.D.2) 5,913,324 Unbilled utility service 4,897,242 Accrued interest 21,047 Other 92,856 Due from other funds 6,000 Merchandise inventory Prepaid items Deferred bond issuance costs 810,029 Restricted assets: Cash and cash equivalents Investments, at fair value 103,187,954 Escrow deposit 760,401 Accrued interest 1,133,271 Fixed assets, net of accumulated depreciation 66~061~548 Total assets 191~416~241 LIABILITIES: Accounts payable and accrued expenses 8,259,411 Claims payable Retainage payable Compensated absences payable 323,145 Deposits 1,183,912 Payable from restricted assets: Accounts payable and accrued expenses 570,431 Arbitrage payable 93,759 Retainage payable 55,657 Due to other funds Accrued interest 1,247,675 Revenue and general obligation bonds 3,185,000 Deferred revenue impact fees 842,130 Accrued interest Due to other funds 178,301 Leases payable General obligation bonds payable Certificates of obligation Revenue bonds payable, net of discount 65,279,910 Deferred amount on refunding (119,411) Notes payable Landfill closure/postclosure costs Total liabilities 81~099~920 NET ASSETS: Invested in capital assets, net of related debt Restricted for debt service Unrestricted Total net assets $ 903,535 $ 1,786,175 $ 980,905 12,710,379 4,426,967 1,375,804 1,036,116 768,559 1,406,123 826,844 352,539 121,430 47,614 19,928 141,579 5,000 186,044 2,512 772,207 512,255 159,918 392,444 67,988,034 40,515,085 5,451,719 639,495 328,389 759,340 502,100 44,531 149~1527561 82~185~773 10~674~951 235~991~215 127~697~737 237489~503 2,839,020 2,293,632 384,509 16,952 213 315,797 212,359 23%156 160,979 82,329 131,894 200,330 135,368 221,145 153,471 13,254 1,747,477 449,478 83,689 182,307 12,287 2,597,505 1,015,069 122,162 4,135,000 2,645,~00 1,471,537 4,805,609 620,210 655 27,821 14,228 143,516,506 57,195,054 (476,205) (485,725) 3,141,222 1,424,130 10,801,228 2~888~350 163~335~951 64~339~199 17~654~940 27,322,968 47,658,719 53,877,555 2,457,289 10,490,806 12,638,995 5,326,646 72~5§2,547 12~357~550 4~154~337 3~3771274 $ 110.316.321 $ 72.655.264 $ 63.358.538 $ 5,834.563 Adjustment to reflect consolidation of internal service fund activities related to enterprise funds. Net assets of business-type activities (Exhibit 1) The notes to the financial statements are an integral part of this statement. 18 I I I I I I I I I I I I I I I I I I I ExhibltVII Building Inspection Total Enterprise Funds Activities - Internal Service Funds $ 502,537 $ 12,705,641 17,137,346 $ 2,789,369 11,501,720 6,386 9,093,803 7,482,748 190,091 119,170 339,423 2,512 2,254,409 187,112 90,430 168,674 5,460,050 81,403 11~910 520~833 392,444 217,143,592 1,728,365 2,439,242 300~0867743 579~115~529 20~58%163 40~066~922 3,481 71,774 13,780,061 17,165 1,157,231 1,427,220 944,311 1,814,100 191,570 1,038,023 481,629 2,336,301 194,594 4,982,491 11,436,537 6,267,949 221,005 1,424,130 10,801,228 265,991,470 (1,081,341) 3,141,222 27888~350 75~255 326~505~265 50,180 4~08,023 635,442 25~99 5~46,705 13~7161130 131,316,531 14,915,659 28,456,447 4451578 92~837~286 12~235~133 $ 445.578 $ 252.610.264 $ 27.150.792 1~519~283 254.129.547 19 CITY OF DENTON, TEXAS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 Business-type Activities - Enterprise Funds REVENUES: Utility services Charges for goods and services Other fees Miscellaneous Total operating revenues OPERATING EXPENSES: Operating expenses before depreciation Depreciation Total operating expenses Operating income 0oss) NON-OPERATING REVENUES (EXPENSES): Investmeat revenue Net increase in fair value of investments Interest expense and fiscal charges Impact fee revenue Loss on disposal of capital assets Other non-operating revenues (expenses) Total non-operating revenues (expenses) Income (loss) before contributions and transfers CONTRIBUTIONS AND TRANSFERS: Capital contributions Operating transfers in Operating transfers (ou0 Total contributions and transfers Change in net assets Net assets at beginning of year, Net assets at end of year Electric Water Wastewater Solid System System System Waste $ 87,736,178 $ 18,202,404 $ 14,085,531 $ 10,293,097 3,579,583 750,232 418,687 90,199 91,315,761 18,952,636 14,504,218 10,383,296 92,476,041 9,473,560 11,608,117 9,180,213 5,911,068 3,187,548 2,142,281 2,047,891 98,387,109 12,661,108 13,750,398 11,228,104 (7,071,348) 6,291,528 753,820 (844,808) 3,983,171 2,940,947 1,482,307 309,202 946,146 740,429 828,722 548,261 (2,361,667) (5,669,737) (1,956,889) (627,794) 3,400,000 g94,000 219,823 138,104 21,430 2,567,650 1,631,462 1,386,244 251,099 (4,503,698) 7,922,990 2,140,064 (593,709) 2,922,152 5,582,748 (112,556) (70,716) (806,783) (75,630) (112,556) 2,851,436 4,775,965 (75,630) (4,616,254) 10,774,426 6,916,029 (669,339) 114,932,575 61,880,838 56,442,509 6,503,902 $ 110,316,321 $ 72,655,264 $ 63,358,538 $ 5,834,563 Adjustment to reflect consolidation of internal service fund activities related to enterprise funds. Net assets of business-type activities (Exhibit H) The notes to the financial statements are an integral part of this statement. 20 I I I I I I i I I I I I I I i I I I I I I I I ! I I I ! I I I I I I I I I I Exhibit V1H Governmental Activities - Total Internal Building Enterprise Service Inspection Funds Funds $ $ 130,317,210 $ 20,174,438 1,415,998 6,254,699 353,058 1,415,998 136,571,909 20,527,496 1,740,168 124,478,099 18,000,830 8,296 13,297,084 2,831,963 1,748,464 137,775,183 20,832,793 (332,466) (1,203,274) (305,297) 40,327 8,755,954 579,701 3,063,558 447,223 (10,616,087) (315,857) 4,294,000 (99,501) 379,357 (190,254) 40,327 5,876,782 421,312 (292,139) 4,673,508 116,015 8,504,900 461,854 1,618,551 (8,172) (1,073,857) (92,635) (8,172) 7,431,043 1,987,770 (300,311) 12,104,551 2,103,785 745,889 240,505,713 25,047,007 $ 445,578 $ 252,610,264 $ 27,150,792 1,519,283 $ 254,129,547 21 CITY OF DENTON, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers Cash paid to employees for services Cash paid to suppliers Net cash provided by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Operating transfers out to other funds Principal payment on long-term advance from other funds Other sources from noncapital financing Net cash provided (used) by noncapital financing activities: CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES: Capital contributions Principal payments on revenue bonds and certificates of obligation Interest and fiscal charges Principal payments under capital lease oblibation Proceeds from sale of revenue bonds and certificates of obligation Loss from sale of capital assets Proceeds from impact fees Acquistion and construction of capital assets Net cash provided (used) by capital financing activities CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale and maturities of investment securities Purchase of investment securities Interest received on investments Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents Business-type Activities - Enterprise Funds Electric Water Wastewater System System System $ 95,033,220 $ 20,379,815 $ 15,252,146 (4,390,748) (5,033,596) (3,772,170) (86,093,357) (536,108) (5,563,767) 4~5491115 14~810~111 51916~209 (112,556) (70,716) (806,783) 219~823 1381104 (112,556) 149,107 (668,679) 2,922,152 5,582,748 (1,465,561) (2,955,000) (1,995,000) (2,233,420) (5,340,946) (1,792,066) 21,737,705 31,243,022 17,246,806 3,115,673 641,354 (14~070r351) (38~838~494) (19~488~893) 3~968~373 (97853~593) 194~949 1g0,097,218 72,341,504 42,726,001 (184,066,089) (79,611,257) (47,778,894) 3~466~260 3~067~663 1,396~589 (502~603) (4~202~090) (3~656~304~ 7,902,329 903,535 1,786,175 Cash and cash equivalents at beginning of year 630~160 Cash and cash equivalents at end of year $ 8.532.489 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Oper sting income (loss) $ (7~071~348) Adjustments: Depreciation expense 5,911,068 Decrease (Increase) in long-term leases Closure/postclosure expense Decrease (Increase) in recelvables 3,906,917 Decrease (Increase) in due from other funds 110,196 Decrease (Increase) in inventories 690,202 Decrease (increase) in prepaid items Increase (Decrease) in accounts payable 1,737,677 Increase (Decrease) in accumulated unpaid compensated absences (11,965) Increase (Decrease) in due to other funds (723~632) Total adjustments 11~620~463 Net cash provided (used) by operating activities $ 4.549.115 SUPPLEMENTAL SCHEDULE OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES: Noncash activity during the year consisted of contributed assets for the Water and Wastewater Funds in the amount of $2,922,152 and $5,582,748, respectively and the change in the fair value of investments of $946,146, $740,429, $828,722 and $548,261 for the Electric, Water, Wastewater and Solid Waste Funds. The notes to the financial statements are an integral part of this statement $ 903.535 $ 1.786.175 $ 6~2917528 $ 753?820 3,187,548 2,142,281 1,457,870 1,215,398 (30,691) 39,681 3,853,128 1,761,977 51,074 33,941 (346) (30?889) 8~518~583 5~162~389 $ 14.810.111 $ 5.916.209 22 I I I I I I I I I I I I I I i I I I I ! I i i ! ! I I ! I I I I ! i I I ! I Exhibit IX Total Activities Solid Building Enterprise Internal Waste Inspection Funds Service $ 10,944,469 $ 1,427,544 $ 143,037,194 $ 20,458,971 (4,241,681) 0,002,449) (18,440,644) (3,690,963) (4,032~270) (732,199) (96,957,701) (13034~209) 2~670~518 (307~104) 27,638,849 3~433,799 (75,630) (8,172) (1,073,857) (92,635) (76,584) (76,584) 1,618,551 21~430 379,357 (190,254) 030,784) (8,172) (771,084) 1035~662 (1,069,162) (638,744) 4,501,540 (3,456~089) (662,455) 8,504,900 (7,484,723) (684,467) (i0,005,176) (312,092) (7,521) 74,729,073 (99,501) 3,757,027 (75,853,827) (3~6997086) (6052,726) (4,802,657) 23,257,491 1,027,486 319,449,700 6,391,339 (25,130,000) (250,000) (336,836,240) (6,280,083) 288~526 40027 8,259,373 706~881 (1~583~983) 817,813 (9,127~167) 818,137 293~296 502,537 11,387,872 784,941 1~080~053 1,710,213 2~004~428 $ 1.373.349 $ 502.537 ~; 13.098.085 $ 2.789.369 S (844~808) $ (332,466) S (1,203,274) $ (305?297) 2,047,891 8,296 13,297,084 2,831,963 32,590 421,397 421,397 735,739 11,553 7,327,477 7,282 (174,566) (55,380) (75,809) 22,200 712,402 219,958 (145,490) 582,817 273 7,935,872 1,127,834 29,233 9,098 111,381 (3,804) (149085) (3,858) (908,110) (255,429) 3,5151326 25~362 28~8427123 3~7391095 $ 2.670.518 $ (307.1041 $ 27.638.849 $ 3.433.798 23 CITY OF DENTON, TEXAS STATEMENT OF NET ASSETS FIDUCIARY FUNDS AS OF SEPTEMBER 30, 2002 Exhibit X ASSETS: Cash and cash equivalents $ Investments Due from other funds Other receivables Total assets $ Agency Funds Employee Other Total Payroll Insurance Agency Agency Fund Fund Funds Funds 3,026,517 5,656 3,032,173 $ 27,202 $ 1,378,497 $ 1,405,699 824,844 824,844 3,026,517 2,042 11,.305 19,003 $ 29,244 $ 2,214,646 $ 5,276,063 LIABILITIES: Accounts payable $ Salaries payable Total liabilities $ 1,480,403 $ 29,244 $ 2,214,646 $ 3,724,293 1,551,770 1,551,770 3,032,173 $ 29,244 $ 2,214,646 $ 5,276,063 The notes to the financial statements are an integral part of this statement. 24 I I I I I i I I ! I I I I ! I i I I I I i ! I I I I I I I ! I ! I I i I ! I CITY OF DENTON, TEXAS STATEMENT OF CHANGES IN ASSETS AND LIABILITES FIDUCIARY FUNDS FOR THE Y~AR ENDED SEPTEMBER 30, 2002 Balance September 30, 2001 PAYROLL FUND ASSETS Cash and deposits $ 1,316,209 Due from other funds Other receivables 5,656 Total assets $ 1,321,865 Exhibit XI Additions $ 99,395,647 3,026,517 $ 102,422,164 Deduction September 30, 2002 LIABILITIES Accounts payable $ 1,321,865 $ 60,026,563 Salaries payable 1,551,770 Total liabilities $ 1,321,865 $ 61,578,333 $ 100,711,856 $ 3,026,517 5,656 $ 100,711,856 $ 3,032,173 $ 59,068,025 $ 1,480,403 1,551,770 $ 59~868,025 $ 3,032,173 EMPLOYEE INSURANCE FUND ASSETS Cash and deposits $ 200,618 Other receivables 2,042 Total assets $ 202,660 LIABILITIES Accounts payable $ 202,660 Total liabilities $ 202,660 $ 6~.90,897 $ 6,464,313 $ 27,202 2,042 $ 6,290,897 $ 6,464,313 $ 29,244 $ 6,984,870 $ 7,158~86 $ 29,244 $ 6,984,870 $ 7,158,286 $ 29,244 OTHER AGENCY FUNDS ASSETS Cash and deposits $ 1,328,397 Investments $ Other receivables Total assets $ 1,328,397 $ 972,620 $ 922,520 $ 1,378,497 824,844 824,844 11,305 11,305 $ 1,808,769 $ 922,520 $ 2,214,646 LIABILITIES Accounts payable $ 1,328,396 $ 1,858,870 Total liabilities $ 1,328,396 $ 1,858,870 $ 972,620 $ 2,214,646 $ 972,620 $ 2,214,646 TOTAL AGENCY FUNDS ASSETS Cash and cash equivalents $ 2,845,224 $ 106,659,164 Investments 824,844 Due from other funds 3,026,517 Other receivables 7,698 11,305 Total assets $ 2,852,922 $ 110,521,830 108,098,689 $ 1,405,699 824,844 3,026,517 19,003 100,098,689 $ 5,276,063 LIABILITIES Accounts payable $ 2,852,921 Salaries payable Total liabilities $ 2,852,921 $ 68,870,303 1,551,770 $ 70,422,073 $ 67,998,931 $ 3,724,293 1,551,770 $ 67,998,931 $ 5,276,063 The notes to the financial statements are an integral part of this statement 25 I I I ! I I I I I I ! I I I I I I I I I I i I I I I I I I I I I ! ! I I ! I CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2002 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Denton is a municipal corporation governed by an elected mayor and six-member council. The City receives funding fi.om state and federal government soumes and must comply with the requirements of these funding source entities. However, the City is not included in any other governmental "reporting entity," as defined in pronouncements by the Governmental Accounting Standards Board (GASB) Statement No. 14, "The Reporting Entity," since Council members are elected by the public and have decision-making authority, the authority to levy taxes, the power to designate management, the ability to significantly influence operations, and primary accountability for fiscal matters. The f'mancial statements of the City have been prepared to conform to generally accepted accounting principles (GAAP) as applicable to state and local governments. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial repotting principles. The following is a summary of the more significant policies: A. Reporting entity The City is governed by an elected mayor and a six-member council. As required by generally accepted accounting principles, these financial statements present the City (the primary government) and its component units, which are entities for which the City is considered to be financially accountable. Blended component traits, although legally separate entities, are, in substance, part of the City's operations, and so data fi.om these units are combined with data of the primary government. A discretely presented component unit, on the other hand, is reported in a separate colnmn in the combined financial statements to emphasize it is legally separate from the City. The City had no discretely presented or blended component units at September 30, 2002. B. Government-wide and fund financial statements The basic financial statements include both government-wide (based on the City as a whole) and fund financial statements. The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all non~fiduciary activities of the primary government and its component units. For the most part, the effect of inter-fund activity has been removed fi.om these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately fi.om business-type activities, which rely to a significant extent on fees and charges for support. The previous reporting model emphasized fund types (the total of all funds of a particular type); in the new reporting model, as def'med by GASB Statement No. 34, the focus is either the City as a whole or major individual funds (within the fund financial statements). Effective October 1, 2001, the City adopted GASB Statement No. 34, Basic Financial Statements-and Management's Discussion and ~tnalysis-for State and Local Governments, GASB Statement No. 37, Basic Financial Statements-and Management's Discussion/lnalysis-for State and Local Governments: Omnibus, and OASB Statement No. 38, Certain Financial Statement Note Disclosures. As a result of implementing GASB Statement No. 34, the previously reported combined governmental and business-type fund balances reconcile to beginning net assets at October 1, 2001, as follows on the next page: 27 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 Equity, September 30, 2001, as previously reported Add: General fixed asset account group Less: Accumulated depreciation on general fixed asset account group General long-term debt account group Change from modified accrual to accrual accounting Change to accumulated depreciation of water fights Net assets, October 1, 2001 Business-type Governmental Activities $ 69,353,306 $243,328,023 152,418,712 (51,041,752) (71,232,279) (752,718) (2,822,310) $98,745,269 $240,505,7 ! 3 The government-wide statement of activities demonstrates the degree to which the direct expenses of a functional category (public safety, public works, etc.) or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment, 2) grants and eontxibutions that are restricted to meeting operational requirements of a particular function or segment and 3) grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. The net cost (by function or business-type activity) is normally covered by general revenue (property taxes, sales taxes, franchise fees, intergovernmental revenues, interest income, etc.). Separate fund-based financial statements are provided for governmental funds, proprietmy funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. The major governmental funds are the general fund, debt service fund and capital projects fund. GASB Statement No. 34 sets forth minimum criteria (percentage of assets, liabilities, revenues or expenditures/expenses of either fund category for the governmental and enterprise combined) for the determination of major funds. Non-major funds are combined in a column in the fund financial statements. Non-major funds are detailed in the combining section of the statements. Internal service funds, which traditionally provide services primarily to other funds of the government, are presented in the summary form as part of the proprietary fund financial statements. Because the principal users of internal services are the City's governmental and business-type activities, financial statements of internal service funds are allocated (based on the percentage of goods or services provided) between the governmental and business-type activities when presented at the government-wide level. The City's fiduciary funds (which have been redefined and narrowed in scope) are presented in the fund financial statements by type. Since by definition these assets are being held for the benefit of a third party (other local governments, individuals, pension participants, etc.) and cannot be used to address activities or obligations of the government, these funds are not incorporated into the govermment-wide statements. The government-wide focus is more on the sustainability of the City as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. The focus of the fund financial statements is on the major individual funds of the governmental and bnsiness-type categories, as well as the fiduciary funds (by category). Each presentation provides valuable information that can be analyzed and compared to enhance the usefulness of the information. 28 I I I I I I I I I I I I I ! I ! I I ! ! I I i I I i I I I I i I I I i I I CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 C. Measurement focus, basis of accounting and financial statement presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Government fund-level financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible witidn the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property tax, franchise fees, sales tax and sales interest associated with the current fiscal period are all susceptible to accrual and so have been recognized as revenues of the current fiscal period. All of the revenue items am considered to be measurable and available only when cash is received. The City reports the following major governmental funds: The general fund is the City's primary operating fund. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. From the fund are paid general operating costs, freed charges and capital improvement costs that are not paid through other funds. The debt service fund accounts for the payment of principal and interest on general long-term liabilities, paid primarily by taxes levied by the City, and for payment of principal and interest on capital leases in the governmental fund. The capital projects fund accounts for financial resources used for the acquisition or construction of major capital facilities being financed from bond proceeds, contributed capital, or transfers from other funds, other than those recorded in the enterprise funds and internal service funds. Other governmental funds is a summarization of all of the non-major governmental funds. The City reports the following major proprietary funds: The City utility system is made up of three separate funds as follows: The electric fired accounts for electrical utility services to the residents of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The water fund accounts for water utility services to the residents of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The wastewater fund accounts for sewer and storm water services to the residents of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The City provides additional services through the follovfmg two funds: 29 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 The solid waste fund accounts for the provision of solid waste services to the residents of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The building inspection fund accounts for the provision of building inspection services to the residents of the city. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The City additionally reports the following fund types: Internal Service Funds are used to account for the financing of materials and services provided by one department of the City to other departments of the City on a cost-reimbursement basis. Agency Funds are used to account for assets held by the City in an agency capacity for individuals, private organizations or other governments. GASB Statement No. 34 eliminates the presentation of Account Groups but provides for these records to be maintained and incorporates the information into the Governmental Activities column in the govemmant-wide Statement of Net Assets. Private-sector standards of accounting and f'mancial reporting (as issued by the Financial Accounting Standards Board) issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conffict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services or privileges provided, 2) operating grants and contributions and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietazy Funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's electric, water, wastewater, solid waste and building inspections funds are charges to customers for services. Operating expenses for the enterprise funds and internal service funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this del'tuition are reported as nonoperating revenues and expenses. D. Assets, liabilities and net assets or equity 1. Cash, cash equivalents and investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Investments are carded at fair value or cost, if maturities are one year or less. Fair value is determined as the price at which two willing parties would complete an exchange. Interest earned on investments is recorded in the funds in which the investments are recorded. 3O I I ! I i I I I i I i I I I I I I I I I I I I I ! I ! I I I I I i I i I I I CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 2. Receivables Outstanding balances between funds are reported as "due to/fi.om other funds." Any residual balances between governmental activities and business-type activities are reported in the government-wide statements as "internal balances." Nonrecurring or non-routine transfers of equity between fimds are accounted for as transfers. Trade and property tax receivables are shown net of an allowance for uncollectibles. During this fiscal year, the City changed its methodology in estimating uneolleetibles for the electric fund, water fund, wastewater fund and solid waste fund receivables. This change in estimate resulted in bad debt expense exceeding budget in the electric fund ($3,527,945 versus $400,000), the wastewater fund ($196,273 versus $26,000) and the solid waste fund ($147,731 versus $55,000). For the water fund, the change in estimate resulted in the budget exceeding bad debt expense [$60,000 versus ($225,052)]. The City accrues amounts for utility services provided in September, but not billed at September 30, 2002. 3. Inventories Inventories of supplies are maintained at the City warehouse for use by all City funds and are accounted for by the consumption method. Inventories are valued at the lower of cost or market. Cost is determined using a moving average method. No inventories exist in the governmental fund types. 4. Capital Assets Capital assets, which include property, plant, equipment and infi.astructare assets (e.g., roads, bridges, sidewalks and similar items), are reported in applicable governmental or business-like activities columns in the govemmant-wide financial statements. The City defines capital assets as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the time received. Major outlays for capital assets and improvements are capitalized as projects are constructed. Net interest incurred during the construction phase of capital assets of business-like aetivitias is included as part of the capitalized value of the assets constructed. For 2002, net interest capitalization of $533,809 was recorded for electric fund projects, $1,274,155 was recorded for water fund projects and $461,743 was recorded for wastewater fund projects. Capital assets are depreciated using the straight line method over the following useful lives: Assets Years Buildings 40 Infi.astmcture 30 - 40 Streets 20 General improvements 10 Machinery and equipment 10 - 20 Furniture and office equipment 10 Computer equipment 3 Plant and equipment 5 Underground pipe 40 Water storage rights 50 -100 Water recreation rights 50 Communication equipment 5 Vehicles 5 - 10 31 Ii, CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 Renewals and betterments of property and equipment are capitalized, whereas normal repair and maintenance are charged to expense as incurred. 5. Compensated Absences The City allows employees to accumulate unused vacation up to 40 days. Upon termination, any accumulated vacation time will be paid to an employee. Generally, sick leave is not paid upon termination except for fire fighters and police officers. Fire fighters and police officers accumulate unused sick leave up to a maximum of 90 days. All other employees are paid only upon illness while in the employ of the City. Accumulated vacation and sick leave is accrued when incurred in the govemmant-wide, proprietary and fiduciary fund financial statements. A liability for these amounts is reported in govemmantal funds only if they have matured, for example, as a result of employee resignations and retirements. 6. Long-term obligations In the government-wide f'mancial statements, and proprietary fund types in the fund financial statements, long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, govemmantal fired types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other f'mancing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 7. Fund equlW In the fund financial statements, gnvemmental fimds report reservations of fund balance for accounts that are not available for appropriation or are legally restricted by outside parties for use for a speeilic purpose. Designations of fund balances represent management plans that are subject to change. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A. Explanation of certain difference between the governmental fund balance sheet and the government- wide statement of net assets The governmental fund balance sheet includes reconciliation between fund balance - total governmental funds and net assets - governmental activities as reported in the government-wide statement of net assets. One element of that reconeiliatiun explains the "long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds." The details of this $94,054,249 difference are as follows: Bonds p_ayable: $ 86,292,075 Less: Deferred charge on issuance costs (to be amortized over life o f debt) (164,918 ) Aearued interest payable 916,978 Lease payable 635,442 Compensated absences 6.374.672 Net adjustment to reduce fund balance - total governmental funds to arrive at net assets - governmental activities ~ 32 I I I I ! I ! I I I i I I i I I I I I i I I I I I I I I I I I I I I I i I ! CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 B. Explanation of certain differences between the governmental fund statement of revenues, expenditures and changes in fund balances and the government-wide statement of activities The governmental fund statement of revenues, expenditures and changes in fund balances inchidcs a reconciliation between net changes in fund balances - total governmental funds and changes in net assets of goverranental activities as reported in the government-wide statement of activities. One element of that reconciliation explains, "Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense." The details of the $8,789,091 difference are as follows: Capital outlay $15,005,659 Depreciation expense (6,216,568) Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 8.789.091 Another element of that reconciliation states, "The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities." The details of this $(15,099,814) difference are as follows: Debt issued or incurred: Issuance of general obligation bonds $(20,120,000) Principal repayments: General obligation debt 3,356,866 Certificates of obligation 1,662,298 Lease payments 1,022 Net adjustment to decrease net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $(15.099.814~ Another element of that reconciliation states, "The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins and donations) is to increase net assets." The details of this $4,468,186 difference are as follows: Donation of capital assets increase net assets in the statement of activities, but do not appear in the governmental funds because they are not financial resources. $4.468.18~6 Another element of that reconciliation states that, "Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures of governmental funds." The details of the $(356,937) difference are as follows: Compensated absences Accrued interest Net adjustments to decrease net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $(470,580) 113,643 $(356.937~ 33 Ill* CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary information The City Council follows these procedures, as prescribed by City Charter, in establishing the budgets reflected in the financial statements: 1. At least sixty days prior to the beginning of each fiscal year, the City Manager submits to the City Council a proposed budget for the fiscal year beginning on the following October 1. The operating budget includes proposed expenditures and the means of financing them. 2. Public hearings are conducted prior to the adoption of the budget in order to obtain taxpayer comments. 3. The annual budget adopted by the City Council covers the general fund, special revenue funds (Recreation Fund, Police Confiscation Fund, Emily Fowler Library Fund, and Tourist and Convention Fund only), the debt service fund, the enterprise funds, and internal service funds (except for the Risk Retention Fund). The budget is legally enacted by the City Council through passage of an ordinance prior to the beginning of the fiscal year. The basic financial statements reflect the legal level of anntrol, which is at the appropriation level by function activity within an individual fund as approved by City Council. During the year, no increases were made to uny fund's budget. 4. The City Charter provides that the City Manager has the authority to transfer any unencumbered appropriation balances from one appropriation to another within a single function (office, depar~ent, or agency). City Council approval is not required at this level. The Charter also provides that at any time during the year, at the request of the City Manager, City Council may by resolution transfer uny part of the unencumbered appropriation balances or the entire balance thereof between functions, as well as make any increases in fund appropriations. All budgets are adopted on a basis consistent with generally accepted accounting principles except that for the governmental funds, proprietary funds, and the budgeted special revenue funds and depreciation expense for the proprietary funds is not budgeted. At the end of the year, encumbrances for which goods and services have not been received are cancelled. At the beginning of the subsequent year, management reviews all open encumbrances and, as provide in the budget ordinance appropriation, these encumbrances may be re- established. PAso, during the budgetary process, amounts are included in fund budgets to recognize administrative transfers between funds for goods or services. These amounts are not included in the reporting of actual activity for the funds. For funds reporting required budget-to-actual comparisons, these administrative transfers are included as adjustments - budgetary basis. During the fiscal year 2002, the following fund recorded expenditures in excess of appropriations: General fund: Public safety $266,510 B. Deficit fund equity The Community Development Block Grant special revenue fund had a deficit balance of $241,214 as of September 30, 2002. This was the result of timing of receipts and subsequent grant revenues will fund this deficit. 34 i I I I I I I I I I I I I I I I I I ! i I I I I I I I I I I I I I I I I i I CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 IV* DETAILED NOTES ON ALL FUNDS A. Cash and investments In order to facilitate effective cash management practices, the operating cash of all funds is pooled into common accounts for the purpose of increasing income through combined investment activities. At year-end, the can-ying amount of the City's deposits was $3,758,674. Of this amount, the agency funds reported $1,405,699 in investments. The City does not control the cash policies of agency funds but is required to include these amounts in its total deposits. The bank balance was covered by collateral with a fair value of $8,875,681. The City had $17,800,000 invested in money market funds included in this report as cash and cash equivalents. In addition, the City had $11,405 in petty cash at year-end. Statutes authorize the City to invest in obligations of the U.S. Treasury; U.S. agencies; fully collateralized repurchase agreements; Public Fund Investment Pools; SEC registered no-load money market mutual funds; investment-grade, rated municipal securities of any state; and fully collateralized certificates of deposit. The investments reported at September 30, 2002, were similar to those held during the fiscal year. At September 30, 2002, the City's investments (U.S. Treasury and Agency Securities and Municipal Securities) were insured or registered, or the securities were held by the City or its agent in the City's name (Category 1). The City's money market funds are not subject to categorization. The City reports all investments in the financial statements at fair value or cost if maturities are one year or less. At September 30, 2002, the City's investments carded a fair value of $288,079,431. In addition, the agency funds reported $824,844 in investments. The City does not control the investment policies of agency funds but is required to include these amounts in its investments. As of September 30, 2002, total investments were as follows: Fair Value Category 1 investments: U.S. Treasury Securities $ 5,331,720 U.S. Agency Securities 283,572,555 Total category 1 investments $288.904.275 B. Property tax revenue Property taxes at~ach as an enforceable lien on property as of January 1. Taxes are levied on October 1, and are due and payable at that time; therefore, the legally enforceable claim arises on October I and a receivable is recorded at that lime. All unpaid taxes levied October 1 become delinquent February 1 of the following year. The City records revenue from current property taxes in the year in which bills are measurable and available. An allowance is provided for delinquent taxes not expected to be collected in the future. Property taxes at the fund level are recorded as receivables and revenue at the time the tax levy is billed. Current-year revenues recognized are those ad valorem taxes collected within the current period or soon enough therea~er to pay current liabilities, generally sixty days after year-end. Current tax collectinns for the year ended September 30, 2002, were 98.3% of the tax levy. At September 30, 2002, the City had a tax margin of $0.54815 per $100 valuation based upon a maximum ad valorem tax of $2.50 per $100 valuation imposed by Texas Constitutional law. Additional revenues up to $67,158,844 could be raised per year based on the current year's assessed value of $3,440,778,953 before the limit is reached. C. Receivables Receivables at September 30, 2002, for the City's individual major funds and other funds (non-major funds, internal service funds and fiduciary funds), in the aggregate, including the applicable allowances for uncollectible accounts, are shown on the following page. 35 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 Capital Waste- General Projects Eleclric Wate~ water Receivables, net: Taxes $3,624,947 Accounts Acemed interest 21,994 Unbilled utility service Other 925.485 Net total receivables $4.572_426 Solid Waste $ $ $ 5,913,324 1,375,804 1,036,116 383,418 1,154,318 880,770 502,100 4,897,242 1,406,123 826,844 62,661 92,856 19,928 446;079 $ 12;057;740 $ 3;682;625 ~ Building Other lnsoection Funds Total Receivables, net: Taxes $ $ $ $ 3,624,947 Ac~:oants 768,559 9,093,803 Accrued interest 92,145 190,406 3,225,151 Unbilled utility service 352,539 7,482,748 Other 6.386 232.313 1.339.629 Net tolal receivables $1.213.24~3 $ 6386 58 422.719 $ 24.766.278 D. Capital assets Capital assets balances and txansactions for the year ended September 30, 2002, are summarized on the following page: Governmental activities: Balance at Balance at October 1, September 30, 2001 Increases Decreases 2002 Capital assets not being depreciated: Land $ 1,407,252 $ $ - Construction in progress 26.439.247 20.625.252 (8.475.278) Total capital assets not being depreciated 27.846.499 20.625.252 (8.475.278) Capital assets being depreciated: Buildings 23,620,749 - Infrastructure 82,427,302 8,817,413 - Machinery and equipment and other improvements 55.822.634 3.590.366 (1,170,706) Total capital assets being depreciated 161,870,685 12,407,779 (1,170,706) Less accumulated depreciation for: Buildings 7,124,043 364,325 - InfTastxucture 23,806,755 4,977,205 - Machinery and equipment and other improvements 39,030,130 3,500,831 (921,458) Total accumulated depreciation 69,960,928 8,842,361 (921,458) Total capital assets, being depreciated, net 91,909,757 3,565,418 (249,248) Governmental activities capital assets, net ~ $24.190.67__0 $(8.724.526__~ $ 1,407,252 38.589,221 39,996,473 23,620,749 91,244,715 58.242.294 173.107.758 7,488,368 28,783,960 41,609,503 77,881,831 95.225,927 $135.222A00 36 .i I I I I I I I I I I I I I I I I I I I I I I ! I I I I I I I I ! I I I I I CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 Balance at October 1, 2001 Balance at September 30, 2002 Business-type activities: Increases Decreases Capital assets not being depreciated: Land $ - $ - $ 3,051,340 Construction in progress 50,218,675 (1.680.882~ 81,826,954 Total capital assets not being depreciated 50,218,675 (1,680,882) 84.878.294 Capital assets being depreciated: Landfill improvements 13,590,472 - - 13,590,472 Water rights 69,883,098 - - 69,883,098 Infrastructure 10,393,769 15,368 - 10,409,137 Plant, machinery and equipment and other improvements 228.955.280 27,300.667 (135.608) 256.120.339 Total capital assets being depreciated 322,822.619 27,316,035 (135,608) 350.003.046 Less accumulated depreciation for: Landfill improvements 4,820,336 1,029,250 - 5,849,586 Water fights 8,534,738 696,330 - 9,231,068 Infrastructure 2,763,172 88,044 - 2,851,216 Plant, machinery and equipment and other improvements 97,514,875 11,483,460 (135,608) 108,862,727 Total accumulated depreciation 113,633,121 13.297.084 (135,608) 126,794,597 Total capital assets, being depreciated, net 209.189.498 14.018.951 - 223,208,449 Business-type activities capital assets, net $245.529.999 $64.237.62~6 $(1.680.882~ $308.086.743 $ 3,051,340 33,289,162 36.340.501 Depreciation expense was charged to functions/programs as follows: Governmental activities: General government Public safety Public works Parks and recreation $1,351,578 1,356,146 5,634,737 499,900 Total depreciation expense - governmental activities Construction commitments The City has several major construction projects planned or in progress as of September 30, 2002. These projects are evidenced by contractual commitments with contractors and ineinde: Project Spencer Road Repaving Iron Horse Interchange - Electric Loop 288 West Water Transmission Lines - Electric Denton West - Iron Horse Transmission - Electric Water Park and Natatorium North Branch Library 54th Street Finished Water Transmission Line - Water Pecan Creek Water Recovery Plant Extension Lake Ray Roberts Water Treatment Plant Remaining Spent-to-Date Commitment $387,124 $ 2,012,876 7,240 3,013,760 387,948 3,054,052 12,030 3,162,970 638,030 3,361,970 92,208 4,157,792 2,021,435 5,178,565 9,839,298 10,540,702 31,418,480 10,581,520 37 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 C. Interfund receivables, payables and transfers A summary ofinterfund receivables and payables at September 30, 2002, is as follows: Inteffund Interfund Fund Receivables Payables General fund $4,964,289 $3,044,715 Debt service fund 63,439 - Special revenue funds: Community development block grant - 382,114 Tourist and convention - 41,418 All others 450 283,210 Capital project funds 862,028 849,741 Enterprise funds Electric 6,000 178,301 Water 141,579 182,962 Wastewater 5,000 40,108 Solid waste 186,844 14,228 Internal service funds: Materials management - 4,238,424 Fleet services - 150,476 Motor pool 168,674 19,123 Agency funds: Payroll 3,026,517 - Total $9.424.820 ~ Transfers between funds during the year were as follows: Transfer In General fund $ 195,259 Debt service 814,668 Special revenue funds: Community development block grant - Recreation 32,147 Criminal justice 17,287 Emily Fowler library 7,403 All others 387,777 Capital project fund - Enterprise funds: Electric Water Wastewater Solid waste Building inspection Internal service funds: Materials management Fleet services Risk retention Technology services Total 778,093 840,458 $3.073.092 Transfer Out $ 831,469 32,147 202,526 840,458 112,556 70,716 806,783 75,630 8,172 7,128 11,868 73,639 $3.073.092 38 I I I I I I i I I I I I I I I I I I I i I I I I I i I I I I I I i I I I I I CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 F. Leases Leases payable represent the remaining principal amounts payable under lease purchase agreements for the acquisition of equipment through the motor pool fund, an internal service fund. These leases are recorded as capital leases. Remaining requirements, including interest, under these leases are as follows: Lease G. Long-term debt Year Payments 2003 $339,329 2004 339,329 Minimum future lease payments 678,658 Less: Applicable interest 43,216 Present value of minimum future lease payments $635.442 Long-term liabilities transactions for the year ended September 30, 2002, are summarized as follows: Balance at Balance at October 1, Retired and September 30, Due Within 2001 Issued Transferred 2002 One Year Governmental Activities: General obligation bonds $ 49,950,882 Certificates of obligation 21,924,825 Obligations under capital leases 1,022 Arbitrage payable 716,250 Compensated absences payable 5,904,092 Claims payable 864,873 Total general long-term liabilities 79,361,944 $12,075,000 $ 3,362,091 $ 58,663,791 $ 3,418,572 8,045,000 2,341,541 27,628,284 2,617,350 635,442 1,022 635,442 317,721 182,101 534,149 268588 876,032 405,452 6,374,672 2,868,602 2,060,465 1,111,238 1,814,100 911,178 23,691,939 7,403,445 95,650,438 10,402,011 Business-type Activities: Utility system revenue bends, net of premium (discount) General obligation bonds Certificates of obligation Obligations under capital leases Arbitrage payable Compensated absences payable Note payable Landfill closure/post-closure costs Total business-type activities Total long-term liabilities $211,035,241 $70,695,000 $6,855,112 $274,875,129 $9,965,000 1,759,622 251,605 1,508,017 83,887 8,504,895 4,545,000 861,017 12,188,878 1,387,650 7,522 7,522 - - 1,080,843 - 599,214 481,629 129,589 1,036,084 323,714 202,567 1,157,231 520,754 - 3,141,222 3,141,222 3,141,222 - 2,466,953 421,397 - 2,888,350 - 229,032,382 75,985,11! 8,777,037 296,240,456 15,228,102 $308,394,326 $99,677,050 $16,180,482 $391,890,894 $25,630,113 39 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 General bonded debt - General bonded debt at September 30, 2002, is comprised of the following: Bonded Debt Gross Amount Original Outstanding at Interest Rate Amount September 30, (%) of Issue 2002 Final Issue Date Maturity General obligation refunding 7.7 to 8.0 1985 2004 General obligation 4.65 to 7.5 1993 2005 General obligation refunding 3.0 to 5.4 1993 2009 General obligation refunding 5.75 to 8.5 1995 20I 5 General obligation 5.4 to 7.4 1996 2012 General obligation 5.0 to 7.0 1997 2017 General obligation 5.25 to 5.25 1998 2018 General obligation 4.1 to 5.0 1999 2019 General obligation refunding 3.2 to 5.0 1999 2016 General obligation 5.25 to 6.125 2000 2020 General obligation 4.5 to 5.5 2001 2021 General obligation 5.0 to 5.25 2002 2022 Total general obligation bonds Certificates of obligation 4.2 to 5.3 1993 2003 Certificates of obligation 4.4 to 7.4 1993 2014 Certificates of obligation 4.3 to 7.3 1994 2005 Certificates of obligation 5.25 to 8.25 1995 2015 Certificates of obligation 5.0 to 7.0 1996 2010 Certificates of obligation 4.0 to 5.0 1998 2018 Certificates of obligation 4.1 to 5.0 1999 2019 Certificates of obligation 5.25 to 6.125 2000 2020 Certificates of obligation 4.25 to 5.25 2001 2021 Certificates of obligation 4.7 to 5.25 2002 2022 Total other general bonded debt Total general bonded debt $ 5,171,730 $ 385,495 2,975,000 450,000 13,315,000 3,185,000 1,610,000 590,000 2,515,000 1,295,000 4,700,000 4,080,000 9,660,000 7,720,000 8,215,000 6,970,000 7,020,000 6,530,000 3,750,000 3,370,000 14,245,000 13,535,000 12,075,000 12.075.000 85.251.730 60.185.495 1,450,000 80,000 2,705,000 1,435,000 3,220,000 690,000 2,000,000 1,610,000 5,190,000 1,380,000 5,625,000 2,885,000 6,935,000 5,436,000 3,125,000 2,805,000 I2,120,000 10,895,000 12.590.000 12,590,000 54.960.000 39.806_000 $140.211.730 $99.991.495 (These mounts do not include unamortized premiums, discounts, and gain or loss on their sale of $2,252.) Proceeds of general bonded debt are restricted to the uses for which they were approved in the bond elections. The City Charter expressly prohibits the use of bond proceeds to fund operating expenses. The general obligations are collateralized by the full faith and credit of the City and, primarily, payable from property taxes. In prior years, the City defeased general obligation bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and liabilities for the defeased bonds are not included in the City's financial statements. On September 30, 2002, $4,395,000 of general obligation bonds considered defeased are still outstanding. In 2002, the government issued $12,075,000 of general obligation bonds and $12,590,000 in certificates of obligation. The debt was issued to pay the cost of various capital improvement projects. The bonds and obligations are payable over the next 20 years. 4O i I I I I I I I I I I I I i I I I I I i I I I I I I I I I I I I I I ! I I i CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 Revenue bonds - Revenue bond debt at September 30, 2002, is comprised of the following issues: Amount Net Net Original Outstanding at Unamortized Outstanding at Interest Rate Issue Final Amount September 30, Premium September 30, Revenue Bonds (%) Date Maturity oflssue 2002 (Discount) 2002 Utility system 5.8 to 8.75 1992 2006 $ 4,500,000 $ 790,000 $ - $ 790,000 Utility system 5.0 to 7.5 1993 2014 6,575,000 1,320,000 - 1,320,000 Utility system refunding 2.5 to 5.4 1993 2010 27,085,000 14,205,000 (134,172) 14,070,828 Utility system refunding 3.55 to 6.75 1993 2008 6,045,000 1,270,000 (3,951) 1,266,049 Utility system refunding 5.3 to 7.8 1996 2025 36,510,000 26,845,000 (142,301) 26,702,699 Utility system 5.3 to 7.4 1996 2017 2,750,000 565,000 - 565,000 Utility system 4.3 to 6.3 1998 2018 7,175,000 5,735,000 - 5,735,000 Utility system refunding 4.65 to 6.65 1998 2030 36,795,000 36,795,000 (481,680) 36,313,320 Utility system refunding 4.0 to 5.0 1998 2015 7,640,000 7,415,000 - 7,415,000 Utility system 4.974 to 6.0 2000 2019 54,880,000 51,770,000 56,901 51,826,901 Utility system 4.0 to 5.4 2001 2020 59,545,000 58,345,000 611,196 58,956,196 Utility system 4.25 to 5.0 2002 2022 56,710,000 56,710,000 342,782 57,052,782 Utility system 5.0 to 6.5 2002 2022 13,985,000 13,985,000 (42,305) 13,942,695 Total revenue Bonds $249,500,000 $275,750,000 $206,47~0 $275,956,470 (These amounts do not include unamortized loss on refunding in the amount of $1,081,341.) The City has the option to retire at par all or a portion of the bonds prior to maturity on or after December 1, 1993. The revenue bonds are collateralized by the revenue of the Utility System and the various special funds established by the bond ordinance. The ordinance provides that the revenue of the System is to be used first to pay operating and maintenance expenses of the System and second to establish and maintain the revenue bond funds. Any remaining revenues may then be used for any lawful purpose. The erdinanee also contains provisions which, among other items, restrict the issuance of additional revenue bonds unless the special funds noted above euntain the required amounts and certain financial ratios are met. The City is in compliance with all significant requirements. Below is a summary of the various restricted asset accounts required by the bond ordinance as of September 30, 2002: Interest and Sinking Fund Reserve Fund Emergency Fund Extension and Improvement Fund $11,476,657 16,550,930 248,251 5,139,669 $34,415,507 41 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 Assets in these accounts consist of cash and U.S. government securities. earnings are as follows: Payable fi.om restricted assets: Accrued interest Revenue bonds payable, current Retained earnings reserved for bond retirement Related liabilities and retained $ 4,959,060 11,436,537 28,027,582 $44,423,179 In 2002, the City issued $70,695,000 in utility revenue bonds. The debt was issued to pay the cost of various utility improvements. The bonds are payable over the next 20 years. In prior years, the City defeased revenue bonds by placing the proceeds of new bonds in an in'evocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and liabilities for the defeased bonds are not included in the City's financial statements. On September 30, 2002, $17,840,000 of revenue bonds considered defeased are still outstanding. Note payable In 1980 the City and the City of Dallas contracted with the Corps of Engineers for the construction and development of Ray Roberts Reservoir in Denton County. In contracts with the Corp of Engineers, the City will pay for twenty-six (26%) percent of the estimated water storage rights of the reservoir. Water obtained fi.om the Reservoir will be pro rata on the basis of each city's proportional share of total construction cost. The closing of the dam was completed in 1987 with water being available fi.om the Reservoir in 1989. Aggregate maturities of the long-term debt (principal and interest) for the years subsequent to September 30, 2002, are as follows: Bonds Certificates of General ObliRation Obligation Revenue Fiscal Year Principal Interest Principal Interest Prineinal Interest 2003 $ 3,502,458 $ 4,017,933 $ 4,005,000 $ 2,086,453 $ 9,965,000 $ 14,324,178 2004 3,688,037 3,385,945 3,825,000 1,670,828 10,240,000 13,801,684 2005 3,565,000 2,580,920 3,630,000 1,483,595 10,555,000 13,262,779 2006 3,605,000 2,394,534 3,495,000 1,308,393 10,860,000 12,716,319 2007 3,645,000 2,216,005 2,400,000 1,170,935 11,490,000 12,165,133 2008-2012 16,870,000 8,582,731 10,096,000 4,342,020 60,950,000 51,583,868 2013-2017 16,225,000 4,423,458 7,090,000 2,263,290 67,485,000 35,009,976 2018-2022 9,085,000 999,625 5,265,000 600,813 69,175,000 15,404,881 2023-2027 17,390,000 3,990,399 2028-2032 7,640,000 600,907 Total $60, I85,495 $28,601,151 $39,806,000 $14,926,327 $275,750,000 $172,860,124 (table continued on next page) 42 I I I i ! I I I I I I I I I I I I I I I I I I I I I I I I I I I i I I I I I CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 III. Fiscal Year 2003 2004 2005 2006 2007 2008-2012 2013-2017 2018-2022 2023-2027 2028-2032 Total Notes Payable Principal Interest $3,141,222 $ Capital Leases Total Principal Interest $ 20,931,401 $ 20,453,014 18,070,758 18,877,223 17,750,000 17,327,294 17,960,000 16,419,246 17,535,000 15,552,073 87,916,000 64,508,619 90,800,000 41,696,724 83,525,000 17,005,319 17,390,000 3,990,399 7,640,000 600,907 Principal Interest $317,721. $24,450 317,721 18,766 $3,141,222 $ $635,442 $43,216 $379,518,159 $216,430,818 Bonds authorized and unissued General obligation bonds authorized but unissued as of September 30, 2002, amounted to $8,417,000. When issued, the proceeds will be allocated to the applicable Capitol Projects Funds. H. Landf'fll closure and post-closure cost State and federal laws and regulations require the CiW to place a final cover on its Mayhill Road landfill site upon closure and to perform certain maintenance and monitoring functions at the site for thirty years afier closure. Although closure and post-closure care costs will be paid only upon anticipated closure, the City reports a portion of thase costs as an operating expense in each period based on landfill capacity used as of each balance sheet date. The $2,888,350 reported as landfill closure and post-closure care liability represents the cumulative amount incurred to date based on the use of 81% of the estimated capacity of the open landfill cells existing September 30, 2002. At September 30, 2002, 21% of the estimated capacity of the entire landfill site has been used. Based on this estimate, the remaining potential estimated liability for closure and post-closure care of the entire landfill is $10,441,483. The City will recognize the remaining estimated cost of closure and post-closure care as the remaining capacity is filled. These amounts are based on what it would cost to perform closure and post- closure care in 2002. Actual cost may fluctuate due to inflation, changes in technology, or changes in regulations. The landfill has a remaining life of 28 years, and the City expects to close the landfill in fiscal year 2030. The solid waste fund has provided for a reserve of cash of $980,905 at September 30, 2002, and anticipates increasing the reserve in future periods as the closure and post-closure activities are carried out. OTHER INFORMATION A. Pension plans Texas Municipal Retirement Plan Plan description The City provides pension benefits for all of its full-time employees (except fimfighters) through a nontraditional, joint contributory, hybrid-defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), one of over 758 administered by TIvlRS, an agent, multiple-employer, public employee, retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City-financed monetary credits, with interest. At the date the plan began, the City granted monetary 43 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (200%) of the employee's accumulated contributions. In addition, the City can grant, as olden as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions acanmulated with interest if the current employee contribution rate and City matching percent had always been in existence and if the employee's salary had always been the average of their salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer-financed monetary credits with interest were used to purchase an Members can retire at ages 60 and above with ten or more years of service or with 20 years of service regardless of age. A member is vested after 5 years. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Contributions The contribution rate for the employees is 7%, and the City matching ratio is currently 2 to 1, both as adopted by the governing body of the City. In addition, the City reimburses employees for 5% of the 7% employee contribution. Under the state law governing TMRS, the actuary annually determines the city contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which are the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time a retirement becomes effective. The prior service conttribution rate amortizes the unfunded or actuarial liability over the remainder of the plan's 25-year open amortization period. The unit credit actuarial cost method is used for determining the City contribution rate. Both the employees and the City make contriributions monthly. Since the City needs to know its contribution rate in advance for budgeting purposes, them is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rote goes into effect. Schedule of Actuarial Liabilities and Funding Progress Actuarial valuation date 12/31/01 12/31/00 Actuarial value of assets $70,356,623 Actuarial accrued liability Percentage funded Unfunded actuarial accrued liability (UAAL) Annual covered payroll UAAL as a percentage of covered payroll Net pension obligation CNPO) at the beginning Annual pension cost: Annual required contribution (ARC) Interest on NPO Adjustment to the ARC Contributions made Increase in NPO NPO at the end of the period $64,853,498 85,028,022 76.2% 76.3% 21,948,244 20,174,524 41,413,185 33,789,696 53.0% 53.0% $7,596,718 $6,371,989 6,371,989 7,596,718 6,371,989 $ - $ 44 I I ! I I I I I I i I I I i I I i I I CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 Actuarial Assumptions I I I I I I I I I I I I I I ! I Actuarial cost method Amortization method Remolning amortization period Asset valuation method 12/31/01 Unit Credit Level Percent of Payroll 25 Years - Open Period Amortized Cost 12/31/00 Unit Credit Level Percent of Payroll 25 Years - Open Period Amortized Cost Investment rate of return Projected salary increases Includes inflation at Cost-of-living adjustments 8% 8% None None None None None None The City of Denton is one of 758 municipalities having the benefit plan administered by TMRS. Each of the 758 municipalities has an annual, individual actuarial valuation performed. All assumptions for the December 31, 2001, valuations are contained in the 2001 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153. Fireman's Relief and Retirement Plan The City provides pension benefits for all Civil Service employees of the Fire Depamnent through a defined contribution plan. The Board of Trustees of the Denton Fireman's Relief and Retirement Fund (the Plan) is the administrator. The Plan is not considered a part of the City of Denton entity. In a defmed contribution plan, benefits depend solely on amounts contributed to the Plan plus investment earnings. Fire employees are required to become a member as a condition of employment. The Texas Local Fireflghtar's Retirement Act (TLFFRA) authorizes the benefit provisions of the Plan. TLFFRA provides the authority and procedure to amend benefit provisions. Under the Plan, an employee becomes fully vested after ten years of credited service. The Plan provides service retirement, death, disability, and withdrawal benefits. Employees may retire at age 50 with twenty years of service. The Plan provides a monthly normal service retirement benefit, payable In a Joint and Two-thirds to Spouse form of annuity, equal to 2.3% of highest 36-munth average salary for each whole year of service. City contributions for, and interest forfeited by, employees who leave employment before vesting are redistributed to plan participants. For the Plan in effect through December 31, 2001, the funding policy required contributions equal to 10% of pay by the firefighters and was equally matched by the City of Denton. Both the City and employees made the required contributions of $741,247 each. B. Deferred compensation plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all permanent City employees, permits them to defer, until future years, up to 25% of annual gross earnings not to exceed $11,000. Employees who are within three years of retirement may elect to participate in a catch-up provision allowed by Section 457, which has an annual maximum contribution amount of $22,000. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are, until paid or made available 45 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 to the employee or other beneficiary, solely the property and rights of the employees. Accordingly, the assets and associated liability of the plan are not included in the City's financial statements. It is the opinion of the City's legal counsel that the City has no liability for losses under the plan but does have the duty of due care that would be required of an ordinary prudent investor. C. Selginsurance plan The City has established a self-insurance plan for workers' compensation benefits and general liability. Accrued claims payable include provisions for claims reported and claims incurred but not reported. The provision for reported claims is determined by estimating the amount, which will ultimately be paid each claimant. The provision for claims incurred but not yet reported is estimated based on the City's expetienee. The costs associated with the self-insurance plan are reported as interfund transactions. Accordingly, they are treated as operating revenues of the Internal Service Risk Retention Fund and operating expenditures (expenses) of the other funds. Workers' compensation and general liability insurance It is the policy of the City of Denton not to purchase commercial insurance for workers' compensation claims. Commercial liability insurance coverage is purchased for public officials, airport, emergency medical services, and after-school action site programs at recreation centers. The City reports liabilities when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claims liabilities depend on such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claims liability does not necessarily result in an exact amount. Claims liabilities are re-evaluated periodically to take into consideration settlement of claims, new claims, and other factors. As of September 30, 2002, the estimated value of these liabilities was $1,814,100. Changes in balances of claims liabilities during fiscal years 2002 and 2001 were as follows: Claims Liability Claims and Claims Liability Beginning of Change in Claims End of Fiscal Year Estimates Payments Fiscal Year Workers' Compens~ion 2002 $785,279 $1,343,603 $678,882 $1,450,000 2001 334,491 971,020 530,232 785,279 General Liability 2002 $ 68,494 $ 716,862 $432,356 $ 353,000 2001 117,869 211,689 261,064 68,494 Employee Insurance 2002 $ 11,100 $ - $ - $ 11,100 2001 11,100 - - 11,100 On September 30, 2002, the City of Denton held $2,185,276 in the Risk Retention Fund for payment of claims. The City did not record $86,000 in potential losses which were considered reasonably possible and may result in losses being recorded in future periods. There were no significant reductions in insurance coverage fi.om coverage in the prior year and the amount of settlements did not exceed insurance coverage in the current year or in any of the past three fiscal years. 46 i I I I I ! I I I i I I I I I ! I I I I I I I I I I I ! I I I I I I I I I ! CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 D. Commitments and contingencies Agreement with TMPA In 1976, the City, along with the cities of Bryan, Greenville, and Garland, Texas (the Cities) entered into a Power Sales Contract with the Texas Municipal Power Agency (TMPA). TMPA was created through concurrent ordinances of the Cities and is governed by a Board of Directors consisting of eight members, two appointed by the governing body of each city. Under the terms of the agreement, TMPA agreed to construct or acquire electric generating plants to supply energy and power to the Cities for a period of not less than 35 years. The Cities in turn agreed to purchase all future power and energy requirements in excess of the amounts generated by their systems from TMPA at prices intended to cover operating costs and retirement of debt. In the event that revenues are insufficient to cover all costs and retire the outstanding debt, each of the Cities has guaranteed a portion of the unpaid debt based, generally, upon its pro rata share of the energy delivered to consumers in the prior operating year. As of September 30, 2002, total TMPA long-term debt outstanding was approximately $1,272,347,000 and the City's percentage was approximately 21.0%. In the opinion of management, the possibility of a material payment in the near future under this guarantee is remote in that TMPA is generating operating profits and assets exceed liabilities. TMPA operates a 452-megawatt, lignite-fueled generating plant. In 1996, TMPA switched to an external source of lignite to reduce costs. Should TMPA be dissolved, each city would be entitled to an undivided interest in the property. Selected f'mancial statement information of TMPA is as follows: September 30, (Unaudited) 2002 2001 (000s) (OOOs) Operating revenues $ 211,373 $ 207,579 Operating expenses 93,562 85,722 Operating income 117,811 121,857 Other non-operating sources 4,415 Current assets 58,687 68,195 Total assets 1,417,026 1,453,005 Long-term debt 1,272,347 1,307,200 Total liabilities 1,381,051 1,413,909 Total Equity 35,976 39,096 Agreement with the City of Dallas During 1985, the City entered into an agreement with the City of Dallas which provides for the purchase of a minimum of 500,000 gallons/day of untreated water from the City of Dallas from Lake Lewisville. This contract will be effective for 30 years. The cost of water purchased under this agreement during fiscal year 2002 was $112,523. E. Litigation Various claims and lawsuits are pending against the City. In the opinion of City management and legal counsel, the potential losses after insurance coverage on all claims will not have a material effect on thc City's financial position as of September 30, 2002. 47 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2002 F. Enterprise funds' equity identified for future needs At the end of the fiscal year, the City has identified certain amounts of enterprise fund net assets to be used for future needs. The amounts and purposes are identified as follows: Electric Water Wastewater Solid Waste Purpose Fund Fund Fund Fund Landfill closure $ $ $ $2,082,382 Rate stabilization 61,771,218 5,500,000 1,800,000 1,I00,000 Water tower painting 1,750,000 Infrastructure financing 1,000,000 1,000,000 O & M contingency 400,000 300,000 75,000 Capital construction 500,000 250,000 250,000 100,000 Lewisville WTP regulatory rehab 1,000,000 TXDOT highway relocations 2,000,000 Drainage 800,000 $4.150.00~0 ~$3.357.382 Total 62562,22L218 $11.900.000 48 i I I I I ! I I I I I I I I I I I I I I I I I I ! I I I I ! I I I I I I ! APPENDIX C FOP, M OF BOND COUNSEL'S OPINIONS THIS PAGE LEFT BLANK INTENTIONALLY I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I ! I I 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701-3248 LAW OFFICES M-~CALL, PARKHURST & HORTON L.L.P. 7i7 NORTH HARWOOD NINTH FLOOR CITY OF DENTON GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BOND SERIES 2003 DATED MARCH 15, 2003 IN THE PRINCIPAL AMOUNT OF $8,080,000 700 N. ST. MARY'S STREET 12~5 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 7820§-3503 AS BOND COUNSEL for the City of Denton, in Denton County, Texas (the "Issuer"), we have examined into the legality and validity of the bond issue initially evidenced by the bond described above (the "Initial Bond"), which Initial Bond originally has been issued and delivered as a single fully registered bond, without interest coupons, with the principal amount thereof payable, as set forth in the Initial Bond, and with the unpaid balance of each installment of principal, respectively, bearing interest from the date of the Initial Bond to the scheduled due date ("maturity"), or to the date of prepayment or redemption, of each installment of principal, at the rates per annum for each maturity set forth in the Initial Bond with interest, calculated on the basis of a 360-day year composed of twelve 30-day months, payable on Febma~ 15, 2004, and semiannually on each August 15 and February 15 thereatter, and with the then outstanding principal of the Initial Bond being subject to prepayment or redemption, as a whole or in part, prior to scheduled maturity, in accordance with the terms and conditions stated on the face of the Initial Bond. The Initial Bond may, at the request of the registered owner, be transferred and converted into, and/or exchanged for, fully registered bonds, without interest coupons, in the denomination of $5,000 or any integral multiple of $5,000, and such bonds again may be transferred and/or exchanged, all subject to the conditions stated and in the manner provided in the Ordinance authorizing the issuance of the Initial Bond (the "Bond Ordinance"), with any such bonds which are registered, authenticated, and delivered in accordance with the Bond Ordinance being hereinafter called "Definitive Bonds". ~rE HAVE EXAMINED the applicable and pertinent provisions of the Constitution and laws of the State of Texas, and have examined and relied upon a transcript of certified proceedings of the Issuer and other pert'merit instruments furnished by the Issuer relating to the authorization of the Initial Bond and Definitive Bonds and the issuance and delivery of the Initial Bond, including the executed Initial Bond and a printed specimen of the form for Definitive Bonds initially made available by the Issuer for completion and exchange for the Initial Bond; and we have examined and relied upon (i) the Issuer's Federal Tax Certificate, of even date herewith, incorporating certain schedules prepared by First Southwest Company, Dallas, Texas, financial advisor to the Issuer, and (ii) the report and mathematical verifications of Grant Thornton LLP, certified public accountants, with respect to the adequacy of certain escrowed funds to accomplish the refunding purposes of the Initial Bond. BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Initial Bond and Definitive Bonds have been duly authorized, and the Initial Bond has been duly issued and delivered, all in accordance with law, and that, except as may be limited by laws applicable to the Issuer relating to bankruptcy, reorganization, and other similar matters affecting creditors' rights, the Initial Bond constitutes and the Definitive Bonds will constitute valid and legally binding obligations of the Issuer; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of thc Initial Bond and Definitive Bonds have been levied and pledged for such purpose, within the limit prescribed by law. ! IN OUR OPINION, except as discussed below, the interest on the Initial Bond and the Definitive Bonds (collectively, the "Bonds") is excludable from the gross income of the owners for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Bonds are not "private activity bonds" and that, accordingly, interest on the Bonds will not be included as an individual or corporate alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, and assume compliance by the Issuer with, certain representations and covenants regarding the use and investment of the proceeds of the Initial Bond. We call your attention to the fact that failure by the Issuer to comply with such representations and covenants may cause the interest on the Bonds to become includable in gross income retroactively to the date of issuance of the Bonds. WE CALL YOUR ATTENTION TO THE FACT that the interest on tax-exempt obligations, such as the Initial Bond and the Definitive Bonds, is (a) included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax imposed on corporations by section 55 of the Code, Co) subject to the branch profits tax imposed on foreign corporations by section 884 of the Code, and (c) included in the passive investment income of an S corporation and subject to the tax imposed by section 1375 of the Code. EXCEPT AS STATED ABOVE, we express no opinion as to any federal, state, or local tax consequences of acquiring, carrying, owning, or disposing of the Initial Bond and the Definitive Bonds. WE HAVE ACTED AS BOND COUNSEL for the Issuer for the sole purpose of rendering an opinion with respect to the legality and validity of the bonds described above under the Constitution and laws of the State of Texas, and with respect to the exemption of the interest on such bonds from federal income taxes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not investigated or verified, any records, data, or other material relating to the finmacial condition or capabilities of the Issuer, and have not assumed any responsibility with respect thereto. We have relied solely on certificates executed by officials of the Issuer as to the current outstanding indebtedness and assessed valuation of taxable property of said Issuer. Respectfully, I I I I I I I I I I I I I I I I I I I I I I I I ! I I I I I I I I I I I I 60D CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701-3248 M-=CALL, PARKHURST & HORTON L.L.P. CITY OF DENTON CERTIFICATE OF OBLIGATION, SER/ES 2003 DATED MARCH 15, 2003 1N THE PRINCI?AL AMOUNT OF $7,405,000 AS BOND COUNSEL for the City of Denton, in Denton County, Texas (the "Issuer"), we have examined into the legality and validity of the issue of Certificates of Obligation initially evidenced by the certificate described above (the "Initial Certificate"), which Initial Certificate originally has been issued and delivered as a single fully registered certificate, without interest coupons, with the principal amount thereof payable as set forth in the Initial Certificate, and with the unpaid balance of each installment of principal, respectively, beating interest, calculated on the basis of a 360-day year composed of twelve 30- day months, from the date of the Initial Certificate to the scheduled due date ("maturity") of each installment of principal, at the rates per annum for each maturity, set forth in the Initial Certificate with interest payable on Febma,y 15, 2004, and semiannually on each August 15 and February 15 thereafter, and with the then outstanding principal of the Initial Certificate being subject to prepayment or redemption, as a whole or in part, prior to scheduled maturity, in accordance with the terms and eonditinns stated on the face of the Initial Certificate. The Initial Certificate may, at the request of the registered owner, be transferred and converted into, and/or exchanged for, fully registered certificates, without interest coupons, in the denomination of $5,000 or any integral multiple of $5,000, and such certificates again may be transferred and/or exchanged, all subject to the conditions stated and in the manner provided in the Ordinance authorizing the issuance of the Initial Certificate (the "Certificate Ordinance"), with any such certificates winch are registered, authenticated, and delivered in accordance with the Certificate Ordinance being hereinafter called "Definitive Certificates". WE HAVE EXAIVmqED the applicable and pertinent provisions of the Constitution and laws of the State of Texas, and have examined and relied upon a transcript of certified proceedings of the Issuer and other pertinent instruments furnished by the Issuer relating to the authorization of the Initial Certificate and Definitive Certificates and the issuance and delivery of the Initial Certificate, including the executed Initial Certificate and a specimen of the foma for Definitive Certificates initially made available by the Issuer for completion and exchange for the Initial Certificate; and we have examined and relied upon the Issuer's Federal Tax Certificate, of even date herewith. BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Initial Certificate and Definitive Certificates have been duly authorized and the Initial Certificate has been duly issued and delivered, all in accordance with law, and that, except as may be limited by laws relating to bankruptcy, reorganization, and other similar matters affecting creditors' rights, the covenants and agreements in the Certificate Ordinance constitute valid and binding obligations of the Issuer, and the Initial Certificate constitutes and Definitive Certificates (collectively, the "Certificates") will constitute valid and legally binding obligations of the Issuer, which, together with the interest thereon, and together with other parity obligations of the Issuer, are payable from and secured by (i) annual ad valorem taxes, within the limit prescribed by law, levied on all taxable property within the Issuer, and (ii) 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 (consisting of the City's combined 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 in accordance with the Certificate Ordinance, other and additional obligations, and to enter into con~'acts, payable f~om ad valorem taxes and/or revenues of the City's Utility System, on a parity with, or with respect to said revenues, superior in lien to, this Certificate. IN OUR OPINION, except as discussed below, the interest on the Certificates is excludable from the gross income of the owners for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Certificates are not "private activity bonds" and that accordingly, interest on the Certificates will not be included as an individual or corporate alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, and assume compliance by the Issuer with, certain representations and covenants regarding the use and investment of the proceeds of the Certificates. We call your attention to the fact that failure by the Issuer to comply with such representations and covenants may cause the interest on the Cer~ficates to become includable in gross income retroactively to the date of issuance of the Certificates. WE CALL YOUR ATTENTION TO THE FACT that the interest on tax-exempt obligations, such as the Certificates is (a) included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax imposed on corporations by section 55 of the Code, (b) subject to the branch profits tax imposed on foreign corporations by section 884 of the Code, and (c) included in the passive investment income of an S corporation and subject to the tax imposed by section 1375 of the Code. EXCEPT AS STATED ABOVE, we express no opinion as to any other tax consequences of acquiring, carrying, owning, or disposing of the Certificates. WE HAVE ACTED AS BOND COUNSEL for the Issuer for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates described above under the Constitution and laws of the State of Texas, and with respect to the exemption of the interest on such Certificates from federal income taxes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not investigated or verified, any records, data, or other material relating to the financial condition or capabilities of the Issuer, or the adequacy of tax rolls, tax collections, or Utility System revenues of the Issuer, and have not assumed any responsibility with respect thereto. We have relied solely on certificates furnished by the Issuer with respect to the current outstanding indebtedness of, and assessed valuation of taxable property within, the Issuer. Respectfully, I I I I I I I I I I I I I I I I I I !