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4B-R-01-13 - 4/26/2001 RESOLUTION NO. 01-13 WHEREAS, the Board of Directors of the Round Rock Transportation System Development Corporation ("RRTSDC") has authorized the Corporation' s financial advisor, First Southwest Company (the "Financial Advisor") , to prepare a Preliminary Official Statement, and WHEREAS, the Board has reviewed the Preliminary Official Statement, and WHEREAS, the Board deems itappropriate to approve and authorize the distribution of the Preliminary Official Statement, as further set forth below, Now Therefore rt BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE ROUND ROCK TRANSPORTATION SYSTEM DEVELOPMENT CORPORATION, Section 1 . APPROVAL AND DISTRIBUTION OF PRELIMINARY OFFICIAL STATEMENT. The Board hereby approves the Preliminary Official Statement substantially in the form attached hereto as Exhibit "A" with such changes, additions or deletions as authorized by the Board, acting by and through the President . The Corporation' s Financial Advisor is hereby authorized and directed to distribute the Preliminary Official Statement to the underwriters of the Bonds and make application to the appropriate bond insurance companies and rating agencies . Section 2 . OTHER MATTERS. The President or Vice President and the Secretary or Assistant Secretary of the Board are authorized to do all things proper and necessary to carry out the intent hereof, including O:\WPDOCS\RESOLUTI\RRTSDC\0013.WPD/ec the approval of appropriate changes to the Preliminary Official Statement . The Board of Directors hereby finds and declares that written notice of the date, hour, place and subject of the meeting at which this Resolution was adopted was posted and that such meeting was open to the public as required by law at all times during which this Resolution and the subject matter hereof were discussed, considered and formally acted upon, all as required by the Open Meetings Act, Chapter 551, Texas Government Code, as amended, and the Act . RESOLVED this 26th day of April, 2001 . ROUND ROCK TRANSPORTATION SYSTEM D LOPME T RP*RATION By: IL l.G� ROT A. STLUKA, . , President ATTEST: , Secretary t 2 • CERTIFICATE FOR RESOLUTION THE STATE OF TEXAS § COUNTIES OF WILLIAMSON AND'TRAVIS § ROUND ROCK TRANSPORTATION SYSTEM DEVELOPMENT CORPORATION § • We, the undersigned officers of the Board of Directors of the Round Rock Transportation Development Corporation, (the"Corporation")hereby certify as follows: 1. The Board of Directors of the Corporation convened in REGULAR MEETING ON THE DAY OF ,2001,at the designated meeting place(the"Meeting"),and the roll was called of the duly constituted officers and members of the Board,to wit: Robert Stluka-President Ruth Koughan-Vice President Larry Hathom-Secretary and all of said persons were present,except the following absentees: ,thus constituting a quorum. Whereupon,among other business,the following was transacted at the Meeting: a written RESOLUTION APPROVING AND AUTHORIZING DISTRIBUTION OF PRELIMINARY OFFICIAL STATEMENT AND OTHER MATTERS RELATED THERETO FOR THE ROUND ROCK TRANSPORTATION SYSTEM DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS,SERIES 2001 was duly introduced for the consideration of the Board. It was then duly moved and seconded that the Resolution be passed;and,after due discussion,the motion,carrying with it the passage of the Resolution, prevailed and carried by the following vote: AYES: NOES: 2. A true,full and correct copy ofthe aforesaid Resolution passed at the Meeting described in the above and foregoing paragraph is attached to and follows this Certificate;that the Resolution has been duly recorded in the Board's minutes of the Meeting;that the above and foregoing paragraph is a true,full and correct excerpt from the Board's minutes of the Meeting pertaining to the passage of the Resolution;that the persons named in the above and foregoing paragraph are the duly chosen,qualified and acting officers and members of the Board as indicated therein;that each of the officers and members of the Board was duly and sufficiently notified officially and personally, in advance, of the time, place and purpose of the aforesaid Meeting,and that the Resolution would be introduced and considered for passage at the Meeting, and each of the officers and members consented, in advance, to the holding of the Meeting for such purpose;that the Meeting was open to the public and public notice of the time,place and purpose of the Meeting was given,all as required by Chapter 551,Government Code,as amended and Section 49.064, Texas Water Code, as amended. SIGNED AND SEALED this RRTSDCSaIesTaxRevBonds2001:POS-APPRVL.CRT Secretary,Board of Directors President,Board of Directors (SEAL) • RRTSDCSalesTaxRevBonds200I:POS-APPRVL.CRT EXHIBIT "A" Preliminary Official Statement RRTSDC2001:POS-APPRVL.RES PRELIMINARY OFFICIAL STATEMENT Ratings Dated April 19,2001 Moody's: Applied For S&P: Applied For Fitch: Applied For See("0"HER INFORMATION- NEW ISSUE—Book-Entry-Only 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 date thereof,subject to the matters described under"TAX MATTERS"herein,including the alternative minimum tax on corporations. $26,000,000* THE ROUND ROCK TRANSPORTATION SYSTEM DEVELOPMENT CORPORATION (Williamson County) SALES TAX REVENUE BONDS,SERIES 2001 Dated Date: May 15,2001 Due: August 15,as shown on the inside cover page PAYMENT TERMS ...Interest on the $26,000,000* Round Rock Transportation System Development Corporation Sales Tax Revenue Bonds,Series 2001 (the`Bonds")will accrue from May 15,2001,(the"Dated Date")and will be payable February 15 and August 15 of each year commencing February 15, 2002 until maturity or prior redemption, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months.The definitive Bonds will be initially registered and delivered only to Cede&Co.,the nominee of The Depository Trust Company("DTC")pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of$5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of,premium,if any,and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede&Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See"THE BONDS-Book-Entry-Only System"herein. The initial Paying Agent/Registrar is The Chase Bank,Houston, Texas(see"THE BONDS-Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE...The Bonds are being issued by The Round Rock Transportation System Development Corporation(the "Corporation") pursuant to the Development Corporation Act of 1979, Article 5190.6, Tex. Rev. Civ. Stat. as amended (the "Act"), including Section 4B of the Act. The Bonds and their terms are governed by the provisions of a resolution authorizing the issuance of the Bonds(the"Resolution")adopted by the Corporation(see"THE BONDS-Authority for Issuance"). The Bonds are special obligations of the Corporation,payable from and secured by a lien on and pledge of certain Pledged Revenues(as defined in the Resolution)which include the proceeds of a 1/2 of 1%sales and use tax levied within the City of Round Rock,Texas(the "City")for the benefit of the Corporation(see"SELECTED PROVISIONS OF THE BOND RESOLUTION"). The Bonds are payable solely by a pledge of and lien on the moneys described in the Resolution and not from any other revenues, properties or income of the Corporation. Neither the State of Texas(the"State"),Williamson County,the City of Round Rock nor any other political corporation,subdivision,or agency of the State shall be obligated to pay the Bonds or the interest thereon,and neither the faith and credit nor the taxing power of the State, Williamson County, the City of Round Rock, or any other political corporation, subdivision,or agency of the State,except as authorized by Section 4B of the Act,is pledged to the payment of the principal of or interest on the Bonds(see"THE BONDS-Security and Source of Payment"). PURPOSE...Proceeds from the sale of the Bonds will be used to finance transportation system improvements and paying the costs of issuance relating to the Bonds. INSURANCE ...The City has applied to several different companies for bond insurance and will consider the purchase of such insurance after an analysis of bids from such companies has been made. MATURITY SCHEDULE See Inside Cover Page LEGALITY...The Bonds are offered for delivery when,as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of McCall, Parkhurst &Horton, L.L.P., Bond Counsel, Austin, Texas (see APPENDIX C—"Form of Bond Counsel's Opinion"). Certain legal matters will be passed upon for the Underwriters by Andrews&Kurth L.L.P.,Houston,Texas,Counsel for the Underwriters. DELIVERY...It is expected that the Bonds will be available for delivery through The Depository Trust Company on June 19,2001. *Preliminary,subject to change. MATURITY SCHEDULE* Maturity Price or Amount (8/15) Rate Yield $ 455,000 2002 785,000 2003 830,000 2004 875,000 2005 925,000 2006 975,000 2007 1,030,000 2008 1,090,000 2009 1,150,000 2010 1,215,000 2011 1,285,000 2012 1,360,000 2013 1,435,000 2014 1,515,000 2015 1,600,000 2016 1,690,000 2017 1,790,000 2018 1,890,000 2019 1,995,000 2020 2,110,000 2021 (Accrued Interest from May 15,2001 to be added) *Preliminary,subject to change. OPTIONAL REDEMPTION...The Corporation reserves the right,at its option,to redeem Bonds having stated maturities on and after August 15,2012,in whole or in part in principal amounts of$5,000 or any integral multiple thereof,on August 15,2011,or any date thereafter,at the par value thereof plus accrued interest to the date of redemption(see"THE BONDS-Optional Redemption"). [The remainder of this page intentionally left blank] 2 For purposes of compliance with Rule I5c2-12 of the Securities and Exchange Commission, this document may be treated as an Official Statement of the Corporation with respect to the Bonds described herein deemed 'final"by the Corporation as of its date except for the omission of no more than the information permitted by Rule I5c2-12. This Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer,solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Official Statement,and,ifgiven or made,such other information or representations must not be relied upon. The information set forth herein has been obtained from the Corporation and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor. This Official Statement contains,in part,estimates and matters of opinion which are not intended as statements offact,and no representation is made as to the correctness of such estimates and opinions,or that they will be realized. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Corporation or other matters described. TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY 4 CORPORATION ADMINISTRATION 5 APPENDICES BOARD OF DIRECTORS 5 OFFICERS 5 GENERAL INFORMATION REGARDING THE CORPORATION A CONSULTANTS AND ADVISORS 5 EXCERPTS FROM THE ANNUAL FINANCIAL REPORT B INTRODUCTION 7 FORM OF BOND COUNSEL'S OPINION C THE BONDS 7 THE COVER PAGE HEREOF, THIS PAGE, THE DEBT INFORMATION 12 APPENDICES INCLUDED HEREIN AND ANYADDENDA, TABLE 1—PRO-FORMA DEBT SERVICE SUPPLEMENT OR AMENDMENT HERETO, ARE PART REQUIREMENTS 12 OF THE OFFICIAL STATEMENT. THE SALES TAX 13 TABLE 2 - HISTORICAL CITY RECEIPTS OF 1%SALES TAX 20 SELECTED PROVISIONS OF THE BOND RESOLUTION 21 INVESTMENTS 27 TABLE 3-CURRENT INVESTMENTS 28 TAX MATTERS 29 OTHER INFORMATION 31 RATINGS 31 LITIGATION 31 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE 31 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS 31 LEGAL OPINIONS AND NO-LITIGATION CERTIFICATE31 CONTINUING DISCLOSURE OF INFORMATION 32 ANNUAL REPORTS 32 MATERIAL EVENT NOTICES 32 AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID 32 LIMITATIONS AND AMENDMENTS 32 COMPLIANCE WITH PRIOR UNDERTAKINGS 33 FINANCIAL ADVISOR 33 UNDERWRITING 33 MISCELLANEOUS 33 3 OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and defmitions contained or incorporated in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire Official Statement. THE CORPORATION The Corporation is a non-profit industrial development corporation of the State, located in Williamson County,Texas(see"INTRODUCTION-Description of the Corporation"). THE BoNDs The Bonds are issued as$26,000,000*Sales Tax Revenue Bonds,Series 2001.The Bonds are issued as serial bonds maturing August 15,2002 through August 15,2021 (see"THE BONDS- Description of the Bonds"). PAYMENT OF INTEREST Interest on the Bonds accrues from May 15,2001,and is payable February 15,2002,and each August 15 and February 15 thereafter until maturity or prior redemption(see"THE BONDS- Description of the Bonds"and"THE BONDS-Optional Redemption"). AUTHORITY FOR ISSUANCE The Bonds are being issued by the Corporation pursuant to the Development Corporation Act of 1979,Article 5190.6,Tex.Rev.Civ.Stat.as amended,including Section 4B of the Act.The Bonds and their terms are governed by the provisions of the Resolution adopted by the Corporation. SECURITY FOR THE BONDS The Bonds are special obligations of the Corporation, payable from and secured by a lien on and pledge of certain Pledged Revenues which include the gross proceeds of a 1/2 of 1%sales and use tax levied within the City of Round Rock,Texas for the benefit of the Corporation(see "THE BONDS-Security and Source of Payment"). REDEMPTION The Corporation reserves the right, at its option,to redeem Bonds having stated maturities on and after August 15,2012,in whole or in part, in principal amounts of$5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption(see"THE BONDS-Optional Redemption"). INTEREST PAYMENTS In the opinion of Bond Counsel, interest on the Bonds will be subject to Federal income taxation and will be included in gross income for Federal income tax purposes under existing law. See"TAX MATTERS." USE OF PROCEEDS Proceeds from the sale of the Bonds will be used to finance transportation system improvements and paying the costs of issuance relating to the Bonds. RATINGS The Corporation has no outstanding obligations. The Bonds are the first series of obligations to be issued by the Corporation. Applications for contract ratings on this issue have been made to Moody's Investors Service,Inc.("Moody's"),Standard&Poor's Ratings Services,A Division of The McGraw-Hill Companies,Inc. ("S&P")and Fitch IBCA,Inc. ("Fitch"). The results of their determinations will be provided as soon as possible (see "OTHER INFORMATION - Ratings"). INSURANCE The City has applied to several different companies for bond insurance and will consider the purchase of such insurance after an analysis of bids from such companies has been made. BOOK-ENTRY-ONLY SYSTEM The definitive Bonds will be initially registered and delivered only to Cede&Co.,the nominee of DTC pursuant to the Book-Entry-Only System described herein.Beneficial ownership of the Bonds may be acquired in denominations of$5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of,premium,if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede&Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds(see"THE BONDS-Book-Entry- Only System"). PAYMENT RECORD The Corporation has never defaulted in payment of its bonds. *Preliminary,subject to change. 4 CORPORATION ADMINISTRATION AND CONSULTANTS BOARD OF DIRECTORS Robert Stluka President Ruth Koughan Vice President Larry Hathom Secretary Jimmy Joseph Director Earl Palmer Director Vacant Director CONSULTANTS AND ADVISORS Auditors Pena,Swayze&Company Round Rock,Texas Bond Counsel McCall,Parkhurst&Horton L.L.P. Austin,Texas Financial Advisor First Southwest Company Austin,Texas For additional information regarding the Corporation,please contact: David Kautz Garry Kimball Director of Finance First Southwest Company City of Round Rock or 98 San Jacinto Blvd.,Suite 370 221 East Main Street Austin,Texas 78701 Round Rock,Texas 78664 (512)481-2000 (512)218-5400 (512)481-2010 Fax 5 • • • • THIS PAGE INTENTIONALLY LEFT BLANK 6 PRELIMINARY OFFICIAL STATEMENT RELATING TO $26,000,000* THE ROUND ROCK TRANSPORTATION SYSTEM DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS,SERIES 2001 INTRODUCTION This Official Statement,which includes the Appendices hereto,provides certain information regarding the issuance of$26,000,000* Round Rock Transportation System Development Corporation Sales Tax Revenue Bonds, Series 2001 (the`Bonds"). Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Resolution(as hereinafter defined)to be adopted on the date of sale of the Bonds which will authorize the issuance of the Bonds, except as otherwise indicated herein(see "SELECTED PROVISIONS OF THE BOND RESOLUTION"). There follows in this Official Statement descriptions of the Bonds and certain information regarding the Corporation and its fmances. 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 Corporation's Financial Advisor,First Southwest Company,Austin and Dallas,Texas. DEscRIPTION OF THE CORPORATION...The Corporation is a non-profit corporation duly organized and operating under the laws of the State of Texas, particularly Section 4B of the Act. The Corporation was created following a successful election held by the City in January, 1998(the"Election")on the question of the levy of a 1/2 of 1%local sales and use tax in the City for the benefit of the Corporation. The Corporation was organized to promote and provide for the economic development within the City and the State of Texas in order to eliminate unemployment and underemployment,and to promote and encourage employment and the public welfare of, for,and on behalf of the City by developing, implementing,providing, and financing projects under the Act and as defined in Section 4B of the Act. The City Council of the City of Round Rock appoints the members of the Board of Directors of the Corporation to staggered three year terms and under the provisions of the Act and the Corporation by-laws is required to approve certain actions of the Corporation,including the issuance of the Bonds by the Corporation. THE BONDS DEsciurTioN OF THE BONDS ...The Bonds are dated May 15, 2001, and mature on August 15 in each of the years and in the amounts shown on the inside cover page hereof. Interest will be computed on the basis of a 360-day year of twelve 30-day months, and will be payable on February 15 and August 15, commencing February 15, 2002, until maturity or prior redemption. The definitive Bonds will be issued only in fully registered form in any integral multiple of$5,000 for any one maturity and will be initially registered and delivered only to Cede&Co.,the nominee of The Depository Trust Company("DTC")pursuant to the Book- Entry-Only System described herein. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See"Book-Entry-Only System"herein. AUTHORITY FOR ISSUANCE...The Bonds are being issued by the Corporation pursuant to the Development Corporation Act of 1979,Article 5190.6,Tex.Rev.Civ.Stat.as amended,including Section 4B of the Act.The Bonds and their terms are governed by the provisions of a resolution(the"Resolution")adopted by the Corporation. SECURITY AND SOURCE OF PAYMENT...The Bonds are special obligations of the Corporation, and are secured by a lien on and pledge of certain Pledged Revenues which include the Gross Sales Tax Revenues(as defined in the Resolution)received from the Sales Tax levied within the City,the levy for which was approved and authorized at an election held within the City in January,1998 for the benefit of the Corporation. The Bonds do not constitute a debt of the City,the State or any agency,political corporation or subdivision thereof. Neither the full faith and credit of the State,Williamson County,the City or any agency, political corporation or subdivision thereof,has been pledged for the payment of the Bonds,except as described herein. Section 4B of the Act contains no provisions which would allow the voters of the City to either reduce or repeal the Sales Tax. Should the Legislature ever enact such an amendment to Section 4B to allow for the reduction or repeal of the Sales Tax,an Attorney General's Opinion(Opinion No.DM-137)held with respect to an amendment to such section of the Act that a`reduction in the sales tax rate,or a limitation on the amount of time the tax may be collected,may not be applied to any bonds issued prior to the date of the rollback election". In so ruling,the Attorney General noted any"subsequent legislation which purports to permit the reduction or other limitation of that tax is ineffective to do so,because such alteration would impair the obligation of the contract between the city and such bondholders",and in effect be a violation of Article 1,Section 10 of the United States Constitution and Article I,Section 16 of the Texas Constitution. *Preliminary,subject to change. 7 Under current law,the principal amount of bonds and other obligations payable in whole or in part from the Sales Tax,together with — the amount of the costs of the projects,other than interest on the bonds and other obligations,for which payment is made in cash directly from the proceeds of the Sales Tax may not in the aggregate exceed$ .Additionally,the Sales Tax may not be collected after the last day of the first calendar quarter occurring after notification to the State Comptroller of Public Accounts by the Corporation that all bonds or other obligations of the Corporation that are payable in whole or in part from the proceeds of the Sales Tax, including any refunding bonds or other obligations, have been paid in full or the full amount of money necessary to defease such bonds and other obligations has been set aside in a trust account dedicated to their payment. PLEDGE UNDER RESOLUTION...The Corporation covenants and agrees that the Pledged Revenues,with the exception of those in excess of the amounts required for the payment and security of the Parity Obligations, are irrevocably pledged to the payment and security of the Bonds and Additional Bonds,if issued,including the establishment and maintenance of the special funds created and established in the Resolution and any Supplemental Resolution. The Resolution further provides that the Parity Obligations shall constitute a lien on the Pledged Revenues in accordance with the terms of the Resolution and any Supplemental Resolution,which lien shall be valid and binding without any further action by the Corporation and without any filing or recording with respect thereto except in the records of the Corporation. ADDITIONAL BONDS ...In the Resolution, the Corporation reserves the right to issue Additional Obligations payable from and equally and ratably secured by a parity lien on and pledge of the Pledged Revenues subject to satisfying certain terms and conditions including obtaining a certificate or opinion from a certified public accountant to the effect that,according to the books and records of the Corporation, the Gross Sales Tax Revenues received by the Corporation for the last completed Fiscal Year or for any twelve consecutive months out of the eighteen months next preceding the adoption of the resolution authorizing the issuance of the Additional Obligations were equal to not less than 1.25 times the Maximum Annual Debt Service for all Parity Obligations then outstanding after giving effect to the issuance of the Additional Obligations then being issued. THE FINANCING/USE AGREEMENT AND THE PLEDGED REVENUE FUND ...Under the terms of the Act and a Financing/Use Agreement(the"Agreement")by and between the City and the Corporation that will relate to the facilities and improvements to be financed from the proceeds of the sale of the Bonds,the Gross Sales Tax Revenues collected by the State Comptroller of Public Accounts and remitted periodically to the City for the benefit of the Corporation shall be deposited by the City as received to the credit of a fund or account of the Corporation to be known as the"Pledged Revenue Fund". As explained below under"Flow of Funds",the Gross Sales Tax Revenues held in the Pledged Revenue Fund are first to be used to make payments to the Bond Fund in amounts equal to one hundred percent(100%)of the interest on and principal of the Bonds then falling due and payable,and such deposits to pay principal and accrued interest on the Bonds shall be made in substantially equal monthly installments on or before the 10th day of each month,beginning either(i) on or before the 10th day of the month next following the delivery of the Bonds to the Underwriters or (ii) the first business day next following the date Gross Sales Tax Revenues are first received from the State Comptroller of Public Accounts,whichever date is later. The State Comptroller of Public Accounts has notified the City that the Sales Tax voted in January, 19989 was levied within the City beginning March 1, 1998 and traditionally the City has received its sales tax receipts from the State monthly on or before the 10"of each month. OPTIONAL REDEMPTION...The Corporation reserves the right,at its option,to redeem Bonds having stated maturities on and after August 15,2012, in whole or in part,in principal amounts of$5,000 or any integral multiple thereof,on August 15,2011,or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Bonds are to be redeemed,the Corporation may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed,the Paying Agent/Registrar(or DTC while the Bonds are in Book-Entry-Only form)shall determine by lot the Bonds,or portions thereof,within such maturity to be redeemed. If a Bond(or any portion of the principal sum thereof)shall have been called for redemption and notice of such redemption shall have been given, such Bond(or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE OF REDEMPTION...Not less than 30 days prior to a redemption date for the Bonds,the Corporation shall cause a notice of redemption to be sent by United States mail,first class,postage prepaid,to the registered owners of the Bonds to be redeemed,in whole or in part,at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. FLOW OF FUNDS...The Resolution provides for the establishment and maintenance of certain funds and accounts for the application of the proceeds of the Bonds and for the Pledged Revenues with all revenues flowing first to the Pledged Revenue Fund. See "SELECTED PROVISIONS OF THE BOND RESOLUTION." Pursuant to the Resolution,monies in the Pledged Revenue Fund will be disbursed as follows: 8 • PLEDGED REVENUE FUND PRIORITY FUND(') First Priority Bond Fund for the payment of Debt Service on the Parity Obligations Second Priority Reserve Fund to establish and maintain a Required Reserve Third Priority Any other fund required by any resolution authorizing issuance of Parity Obligations Fourth Priority Any other fundor account held at any place or places, or to any payee, required by any other resolution of the Board which authorized the issuance of obligations or the creation of debt of the Corporation having a lien on the Pledged Revenues subordinate to the lien created herein on behalf of the Parity Obligations. Finally Any Pledged Revenues remaining in the Pledged Revenue Fund after satisfying the foregoing payments, or making adequate and sufficient provision for the payment thereof, may be appropriated and used for any other lawful purpose now or hereafter permitted by law. (1)All funds are held by the Corporation's approved Depository. See"SELECTED PROVISIONS OF THE BOND RESOLUTION"herein for additional information relating to the flow of funds. RESERVE FUND REQUIREMENT...In the Resolution,the Corporation covenants and agrees with the Holders of the Bonds that it will provide for the accumulation of, and when accumulated, will thereafter continuously maintain in the Reserve Fund an amount equal to not less than the average annual principal and interest requirements of the Parity Revenue Obligations (calculated on a fiscal year basis as of the date the last series of Parity Revenue Obligations were authorized). Immediately following the delivery of the Bonds, the appropriate Corporation officials shall calculate and determine the average annual principal and interest requirements for the Parity Revenue Obligations then outstanding. After deducting the amount then on deposit in the Reserve Fund from such calculation,the amount of the difference,if any,shall be deposited in the Reserve Fund in sixty(60)substantially equal monthly payments on or before the 10th day of each month;the initial monthly deposit to be made on or before the 10th day of the month next following the month the Bonds are delivered. After the total amount required to be on deposit in the Reserve Fund has been accumulated, monthly payments to the Reserve Fund may be terminated; provided, however, should the amount on deposit therein be reduced below the sum required to be maintained in the Reserve Fund after the same has been accumulated, payments to the Reserve Fund in an amount equal to the deficiency shall be resumed and continued to be made on or before the 10th day of each month until the total amount then required to be on deposit in the Reserve Fund has been fully restored. In the event money in the Reserve Fund is used for an authorized purpose while monthly payments are being made to the Reserve Fund,the amount required to restore the sum then required to be on deposit therein shall be added to the payments then being made in the following month or months until the total amount then required to be on deposit in the Reserve Fund has been fully restored. Notwithstanding the requirements of the requirements of the Resolution described above,the Corporation may provide a Surety Policy or Policies issued in amounts equal to all or part(as may be specified in the resolution authorizing any series of Parity Revenue Obligations) of the average annual principal and interest requirements of the Parity Revenue Obligations, in lieu of depositing cash into the Reserve Fund; provided, however, that no such Surety Policy may be so substituted unless (i) the substitution of the Surety Policy will not cause any ratings then assigned to the Bonds by either Moody's Investors Service or Standard&Poor's Ratings Service to be lowered and(ii)the resolution authorizing the substitution of the Surety Policy for all or part of the average annual principal and interest requirements of the Parity Revenue Obligations contains(A) a finding that such substitution is cost effective and(B) a provision that the interest due on any repayment obligation of the Corporation by reason of payments made under such policy does not exceed the highest lawful rate of interest which may be paid by the Corporation at the time of the delivery of the Surety Policy. The Corporation reserves the right to apply the proceeds of the Pledged Revenue Fund to payment of the subrogation obligation incurred by the Corporation(including interest)to the issuer of the Surety Policy,the payment of which will result in the reinstatement of such Surety Policy,prior to making payments required to be made to the Reserve Fund pursuant to the provisions of the Resolution to restore the balance in such fund to the average annual principal and interest requirements of the Parity Revenue Obligations. In the event a Surety Policy issued to satisfy all or part of the Corporation's obligation with respect to the Reserve Fund causes the amount then on deposit in the Reserve Fund to exceed the average annual principal and interest requirements of all Parity Revenue Obligations,the Corporation,may transfer such excess amount to any fund or funds established for the payment of or security for the Parity Revenue Bonds(including any escrow established for the final payment of any such obligations pursuant to Chapter 1207,Texas Government Code)or use such excess amount for any lawful purpose now or hereafter provided by law. 9 BOOK-ENTRY-ONLY SYSTEM...This section describes how ownership of the Bonds are to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by DTC while the bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to . DTC or its nominee(as the registered owner of the Bonds),or redemption or other notices,to the Beneficial Owners,or that they will do so on a timely basis,or(3)DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission,and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company("DTC"),New York,New York,will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede&Co.(DTC's partnership nominee). One fully-registered certificate will be issued for each maturity of the Bonds in the aggregate principal amount of each such maturity and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law,a member of the Federal Reserve System,a"clearing corporation"within the meaning of the New York Uniform Commercial Code,and a"clearing agency"registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants("Direct Participants")deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers,banks, trust companies, clearing corporations,and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange,Inc.,the American Stock Exchange,Inc.,and the National Association of Securities Dealers,Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Bonds under the DTC system must be made by or through DTC Participants,which will receive a credit for such purchases on DTC's records. The ownership interest of each actual purchaser of each Bond("Beneficial Owner")is in turn to be recorded on the Direct or Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase,but Beneficial Owners are expected to receive written confirmations providing details of the transaction,as well as periodic statements of their holdings,from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds,except in the event that use of the book-entry system described herein is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede&Co. The deposit of Bonds with DTC and their registration in the name of Cede&Co.effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited,which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants,by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them,subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede&Co. If less than all of the Bonds within an issue are being redeemed,DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the Record Date(hereinafter defined). The Omnibus Proxy assigns Cede& Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to DTC. DTC's practice is to credit Direct Participants'accounts on each payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on such payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices,as is the case with securities held for the accounts of customers in bearer form or registered 10 in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent/Registrar or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the City, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC(or a successor securities depository). In that event,Bonds will be printed and delivered. Use of Certain Terms in Other Sections of this Official Statement. In reading this Official Statement it should be understood that while the Certificates are in the Book-Entry Only System,references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Certificates,but(i)all rights of ownership must be exercised through DTC and the Book-Entry Only System,and(ii)except as described above,notices that are to be given to registered owners under the Resolution will be given only to DTC. Information concerning DTC and the Book-Entry Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by,and is not to be construed as a representation by the City. Effect of Termination of Book-Entry Only System. In the event that the Book-Entry Only System is discontinued by DTC or the use of the Book-Entry Only System is discontinued by the City,the following provisions will be applicable to the Bonds. The Bonds may be exchanged for an equal aggregate principal amount of the Bonds in authorized denominations and of the same maturity upon surrender thereof at the principal office for payment of the Paying Agent/Registrar. The transfer of any Bond may be registered on the books maintained by the Paying Agent/Registrar for such purpose only upon the surrender of such Bond to the Paying Agent/Registrar with a duly executed assignment in form satisfactory to the Paying Agent/Registrar. For every exchange or transfer of registration of Bonds,the Paying Agent/Registrar and the City may make a charge sufficient to reimburse them for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer. The City shall pay the fee, if any, charged by the Paying Agent/Registrar for the transfer or exchange. The Paying Agent/Registrar will not be required to transfer or exchange any Bond after its selection for redemption. The City and the Paying Agent/Registrar may treat the person in whose name a Bond is registered as the absolute owner thereof for all purposes, whether such Bond is overdue or not, including for the purpose of receiving payment of, or on account of, the principal of, premium,if any,and interest on,such Bond. PAYING AGENT/REGISTRAR ...The initial Paying Agent/Registrar is The Chase Bank, Houston, Texas. In the Resolution, the Corporation retains the right to replace the Paying Agent/Registrar. The Corporation covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the State of Texas or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying Agent/Registrar for the Bonds,the Corporation agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail,first class,postage prepaid,which notice shall also give the address of the new Paying Agent/Registrar. TRANSFER,EXCHANGE AND REGISTRATION...In the event the Book-Entry-Only System should be discontinued,the Bonds may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner,except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar,in lieu of the Bonds being transferred or exchanged,at the designated office of the Paying Agent/Registrar, or sent by United States mail,first class,postage prepaid,to the new registered owner or his designee.To the extent possible,new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be canceled,and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of$5,000 for any one maturity and for a like aggregate principal amount as the Bonds surrendered for exchange or transfer. See"Book-Entry-Only System"herein for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds. Neither the Corporation nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for redemption,in whole or in part,within 45 days of the date fixed for redemption;provided, however,such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Bond. RECORD DATE FOR INTEREST PAYMENT...The record date("Record Date")for the interest payable on the Bonds on any interest payment date means the close of business on the last business day of the preceding month. 11 In the event of a non-payment of interest on a scheduled payment date,and for 30 days thereafter,a new record date for such interest payment(a"Special Record Date")will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the Corporation. Notice of the Special Record Date and of the scheduled payment date of the past due interest("Special Payment Date",which shall be 15 days after the Special Record Date)shall be sent at least five business days prior to the Special Record Date by United States mail,first class postage prepaid,to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. BONDHOLDERS'REMEDIES... The Resolution does not establish specific events of default with respect to the Bonds. Under State law there is no right to the acceleration of maturity of the Bonds upon the failure of the Corporation to observe any covenant under the Resolution. Although a registered owner of Bonds could presumably obtain a judgment against the Corporation if a default occurred in the payment of the principal of or interest on any such Bonds,such judgment could not be satisfied by execution against any property of the Corporation other than the Pledged Revenues. Such registered owner's only practical remedy,if a default occurs, is a mandamus or mandatory injunction proceeding to compel the Corporation to observe or perform any of its obligation under the Resolution. 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.The Resolution does not provide for the appointment of a trustee to represent the interests of the bondholders upon any failure of the Corporation to perform in accordance with the terms of the Resolution,or upon any other condition. Furthermore,the Corporation is eligible to seek relief from its creditors under the U.S.Bankruptcy Code. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Resolution and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. DEBT INFORMATION TABLE 1- PRO-FORMA DEBT SERVICE REQUIREMENTS Fiscal Year Ending The Bonds(1) 9/30 Principal Interest(2) Total 2001 $ - $ - $ - 2002 455,000 1,770,961 2,225,961 2003 785,000 1,433,293 2,218,293 2004 830,000 1,398,940 2,228,940 2005 875,000 1,352,045 2,227,045 2006 925,000 1,302,608 2,227,608 2007 975,000 1,250,345 2,225,345 2008 1,030,000 1,195,258 2,225,258 2009 1,090,000 1,137,063 2,227,063 2010 1,150,000 1,075,478 2,225,478 2011 1,215,000 1,010,503 2,225,503 2012 1,285,000 941,855 2,226,855 2013 1,360,000 869,253 2,229,253 2014 1,435,000 792,413 2,227,413 2015 1,515,000 711,335 2,226,335 2016 1,600,000 625,738 2,225,738 2017 1,690,000 535,338 2,225,338 2018 1,790,000 439,853 2,229,853 2019 1,890,000 338,718 2,228,718 2020 1,995,000 231,933 2,226,933 2021 2,110,000 119,215 2,229,215 $ 26,000,000 $ 18,532,139 $ 44,532,139 (I)The Bonds represent the first issue of Bonds by the Corporation. (2)Interest calculated at a NIC of 5.65%for purposes of illustration. • 12 THE SALES TAX SOURCE AND AUTHORIZATION...The Sales Tax is a 1/2 of 1%limited sales and use tax imposed on all taxable transactions within the City as approved at the Election..The Sales Tax is authorized to be levied and collected against the receipts from the sale at retail of taxable items within the City. The Sales Tax also is an excise tax on the use, storage or other consumption of taxable tangible personal property purchased,leased or rented from a retailer within the City. The City currently levies another sales and use tax for City purposes totaling 1% in accordance with State law and is restricted by current law. The imposition, computation, administration,governance, abolition and use of the Sales Tax is governed by the Texas Limited Sales,Excise, and Use Tax Act except to the extent that there is conflict with the Act,in which case the provisions of the Act control as to the Bonds, and by the Municipal Sales and Use Tax Act,and reference is made thereto for a more complete description of the Sales Tax. In general,as applied to the Sales Tax,a taxable item includes any tangible personal property and certain taxable services. "Taxable services" include certain amusement services, cable television services, motor vehicle parking and storage services, the repair, maintenance and restoration of most tangible personal property,certain telecommunication services, credit reporting services,debt collection services,insurance services,information services,real property services,data processing services,real property repair and remodeling and security services. Certain items are exempted by State law from sales and use taxes,including items purchased for resale, food products (except food products which are sold for immediate consumption, e.g. by restaurants, lunch counters, etc.), health care supplies(including medicines,corrective lenses and various therapeutic appliances and devices),agricultural items(if the item is to be used exclusively on a farm or ranch or in the production of agricultural products), gas and electricity purchased for residential use (unless a city has taken steps to repeal the exemption), certain telecommunications services, newspapers and magazines. In addition,items which are taxed under other State laws are generally exempted from sales taxes. These items include certain natural resources,cement,motor vehicles and insurance premiums. Alcohol and tobacco products are taxed under both State alcohol and tobacco taxes as well as through the sales taxes. In addition,purchases made by various exempt organizations are not subject to the sales and use taxes. Such organizations include the federal and state governments,political subdivisions,Indian tribes, religious institutions and certain charitable organizations and non-profit corporations. Also, State law provides an exemption from sales taxes on items purchased under a contract in effect when the legislation authorizing such tax(or the increase in the rate thereof) is enacted,up to a maximum of three years. In general, a sale of a taxable item is deemed to occur within the municipality, county or special district in which the sale is consummated. The tax levied on the use,storage or consumption of tangible personal property is considered to be consummated at the location where the item is first stored,used or consumed. Thus,the use is considered to be consummated in a municipality,and the tax is levied there if the item is shipped from outside the state to a point within the municipality. In addition to the local sales and use taxes levied,as described above,the State levies and collects a 6-1/4%sales and use tax against essentially the same taxable items and transactions as the Sales Tax is levied. Under current State law,the maximum aggregate sales and use tax which may be levied within a given area by an authorized political subdivision within such area,including the State,is 8.25%. The current aggregate sales and use tax levied in the City is 8.25%of which 6.25%is levied by the State, 1%is levied by the City,1/2 of 1%is levied as the 4B Sales Tax and 1/2 of 1%is levied to reduce the City's ad valorem property tax rate. The Comptroller administers and enforces all sales tax laws and collects all sales and use taxes levied by the State, and levying counties,municipalities and other special districts having sales tax powers. Certain limited items are taxed for the benefit of the State under nonsales tax statutes,such as certain natural resources and other items described above,and are not subject to the sales tax base available to municipalities and counties, including the tax base against which the Sales Tax is levied. Municipalities may by local option determine to tax certain telecommunication services on the same basis as the State taxes such services (some aspects of telecommunication services,such as interstate telephone calls and broadcasts regulated by the FCC are not subject to either State or local taxation). The City has opted to repeal the local telecommunication services exemption. With respect to the taxation of the residential use of gas and electricity,the State is not authorized to collect a sales tax,while municipalities, on a local option basis, may tax such use. The City has opted to tax the residential use of gas and electricity. In recent years,several changes in the State sales tax laws have contributed to the growth of local sales tax revenues.These changes have added additional goods and services to the list of taxable items. Other items have been subjected to sales tax on an interim basis or have been taxed pursuant to legislation which includes planned phase-outs of the tax.The State Tax Code currently provides for a phase-out of the tax for tangible personal property used in manufacturing,processing or fabrication operations with a useful life of at least six months,beginning with a 25%reduction in the tax in 1990, 1991 and 1992,a 50%reduction in 1993,a 75%reduction in 1994 and a total exemption for such property purchased on or after January 1,1995. With certain exceptions,sales and use taxes in the State are collected at the point of sale and are remitted to the Comptroller by the "taxpayer"who is,generally speaking,the business that collects the tax resulting from a taxable transaction. Taxpayers owing$500 or more sales and use tax dollars in a calendar month submit their tax collections to the Comptroller on a monthly basis;taxpayers owing less than $500 sales and use tax dollars in a calendar month but $1,500 or more in a calendar quarter submit their tax collections quarterly;and taxpayers owing less than$1,500 in a calendar quarter submit their tax collections annually. Taxpayers are required to report and remit to the Comptroller by the 20th day of the month following the end of the reporting period. The reporting period for yearly filers ends each December 31;for quarterly filers,the reporting period ends at the end of each calendar quarter;and monthly filers report and remit by the 20th of each month for the previous month.The Comptroller is required by law to distribute funds to the receiving political subdivisions periodically and as promptly as feasible but not less frequently than twice during each fiscal year of the State. Historically,and at the present time,the Comptroller distributes the funds monthly with the largest payments being made quarterly in February,May,August and November. In 1989,the Comptroller initiated a direct deposit program using electronic funds transfers to expedite the distribution of monthly allocation checks. If a political subdivision desires to participate in 13 the electronic funds transfers, it may make application to the Comptroller. The City participates in this program. Otherwise,the Comptroller mails the monthly allocation check,which is typically received by the middle of the month following the month in which the taxpayer reports and remits payment on the tax. The Comptroller is responsible for enforcing the collection of sales and use taxes in the State. Under State law, the Comptroller utilizes sales tax permits,sales tax bonds and audits to encourage timely payment of sales and use taxes.Each entity selling,renting, leasing or otherwise providing taxable goods or services is required to have a sales tax permit. Permits are required for each individual location of a taxpayer and are valid for only one year,requiring an annual renewal. As a general rule,every person who applies for a sales tax permit for the first time,or who becomes delinquent in paying the sales or use tax,is required to post a bond in an amount sufficient to protect against the failure to pay taxes. The Comptroller's audit procedures include auditing the largest 2%of the sales and use tax taxpayers(who report about 65%of all sales and use tax in the State annually), each every three or four years. Other taxpayers are selected at random or upon some other basis for audits. The Comptroller also engages in taxpayer education programs and mails a report to each taxpayer before the last day of the month,quarter or year that it covers. Once a taxpayer becomes delinquent in the payment of a sales or use tax,the Comptroller may collect the delinquent tax by using one or more of the following methods; (i) collection by an automated collection center or local field office, (ii) estimating the taxpayers'liability based on the highest amount due in the previous 12 months and billing them for it,(iii)filing liens and requiring a new or increased payment bond, (iv)utilizing forced collection procedures such as seizing assets of the taxpayer(e.g., a checking account)or freezing assets of the taxpayer that are in the custody of third parties,(v)removing a taxpayer's sales and use tax permit, and(vi)certifying the account to the Attorney General's Office to file suit for collection. A municipality may not sue for delinquent taxes unless it joins the Attorney General as a plaintiff or unless it first receives the permission of the Attorney General and the Comptroller. The Comptroller retains 2%of the tax receipts for collection of the tax; additionally,under State law, a taxpayer may deduct and withhold 1/2%of the amount of taxes due on a timely return as reimbursement for the cost of collecting the sales and use taxes. In addition,a taxpayer who prepays its tax liability on the basis of a reasonable estimate of the tax liability for a month or quarter in which a prepayment is made,may deduct and withhold 1 1/4%of the amount of the prepayment in addition of the 1/2%allowed for the cost of collecting the sales and use tax. RECENT CHANGES TO SALES TAX BASE Effective Date Change October 1,2001 Timber Items—The current exemption for the first$50,000 of the purchase price of each unit of certain machinery or equipment used exclusively in a commercial timber operation to prepare the site, plant, cultivate or harvest timber will be repealed effective October 1, 2001. Gas and electricity used by a person engaged in timber operations, including gas and electricity used in pumping for irrigation of timberland, are exempt from sales tax effective October 1, 2001. Seedlings,certain chemicals and machinery and equipment used in the production of timber will be exempt from sales tax effective January 1,2008. April 1,2000 Over-The-Counter Drugs - Over-the-counter drugs that are labeled with a national drug code issued by the federal Food and Drug Administration, as well as blood glucose monitoring test strips,will be exempt from sales tax effective April 1,2000. October 1, 1999 Tax-Free Sales or Auctions— (1) organizations created for religious, educational, or charitable purposes, organizations qualifying for an exemption from federal income taxes under Section 501(c)(3), (4), (8), (10), or (19) of the Internal Revenue Code, and each chapter of these organizations may hold two one-day tax-free sales during a calendar year, and (2) qualified student organizations may hold one one-day tax-free sale each month. The exemption does not apply to items sold for more that$5,000 unless the items are manufactured by or donated to the qualified organization and are not sold to the donor. Amusement services — The exemption for amusement services provided by educational organizations now extends to public,as well as private,institutions of higher education. Audio and Video Tapes of Exempt Periodicals and Writings—No sales tax is due on audio tape, videotape or computer disks of periodicals and writings published and distributed by religious, philanthropic,charitable,historical and similar nonprofit organizations. Exemptions for Manufacturers and for Motion PictureNideo/Audio Producers—These existing exemptions were clarified in sections 151.318 and 151.3185,Texas Tax Code,respectively. Restoration in a Disaster Area—The existing exemption for labor to restore property damaged in an area that is declared to be a disaster area by the governor or President was clarified in section 151.350,Texas Tax Code. 14 Effective Date Change Managed Property—Services performed by employees of a property management company or its affiliate are exempt if(1) the employee is permanently assigned to one rental property by the property management company;(2)the property management company is reimbursed on a dollar- for-dollar basis for the services provided;and(3)the employee remains assigned to that property while employed by successive owners or management companies. The property management company must(1)be contractually obligated to the property owner to exercise control over the activities of the employee providing the service and(2)manage and direct the employee's day-to- day activities. The property management company or the affiliate must pay tax on taxable items purchased and provided to employees providing services on managed property. • Bad Debt Deductions—A person who extends credit to a purchaser under a retailer's private label credit agreement,or an assignee or an affiliate of the creditor or retailer,may take credit for Texas sales or use tax remitted to the Comptroller on accounts that have been written off as bed debts for federal income tax purposes. Exclusion of Surveying—If surveying services are purchases by the owner of real property as a part of the improvement of the real property with a new structure to be used as a residence or other improvement immediately adjacent to the new structure and used in the residential occupancy of the structure,the surveying is excluded from taxable real property services. Internet Access—The first$25 of the monthly charge for Internet access service is exempt from tax regardless of the billing period used by the service provider or whether the Internet access service is bundled with another service. The$25 exemption applies to the total sales price for the Internet access service without regard to whether the service provider charges one lump-sum amount or separately bills the purchaser for each user. Information and Data Processing Services—Twenty percent of the value of information services and data processing services sold on or after October 1, 1999 is exempt from sales tax. September 1, 1999 Transmission or Distribution of Electricity—Transmission or distribution of electricity to an end- user is a taxable service if the sale of the electricity is taxable. If the sale is exempt, the transmission or distribution service is also exempt. July 1, 1999 Adjustable Eating Utensil — The purchase of an adjustable utensil that facilitates independent eating is exempt from sales tax. It must be purchased for use by an individual who does not have full use or control of his or her hands or arms, for example, because the person is elderly or physically disabled,has had a stroke,or is a burn victim. Animals Sold By Nonprofit Animal Shelters—The sale, including the acceptance of a fee for adoption,of an animal by a nonprofit animal shelter is exempt. Coin-Operated Vending Machines—If sold through a coin-operated bulk vending machine for 50 cents or less, (1) toys designed primarily for children; (2)food (but not beverages); (3) candy;and(4)chewing gum are exempt from sales tax. Previous law required sale for 25 cents or less. June 3,1999 Three-Day Tax-Free Clothing Holiday—Each year, on the first Friday, Saturday and Sunday of August, purchases of certain clothing and footwear will be exempt from sales tax. In tax year 2000 and thereafter,cities,counties and other local taxing entities have the option to participate in the holiday or to continue to impose the tax. October 1,1997 Sales Tax Exemptions for Manufacturers—Manufacturers of intraplant transportation equipment, including pipes or conveyors, used to move a product of raw material in connection with manufacturing process (unless the pipe is a component part of a single piece of exempt manufacturing or pollution control equipment) and equipment or supplies used to maintain or store tangible personal property are not excluded from sales tax under the manufacturing exemption. The manufacturing exemption from sales tax does include actuators,steam production equipment and its fuel, in-process flow-through tanks, cooling towers, generators, heat exchangers, electronic control-room equipment, computerized— control units, compressors and hydraulic units, that are used to power, supply, support or control exempt equipment that manufactures a product for sale or that generates electricity,chilled water or steam for sale. Also exempted from sales tax are machinery, equipment and replacement parts or accessories used or consumed in manufacturing a product for sale if their use is necessary and essential to a pollution- 15 Effective Date Change control process. Ticket Resellers—Ticket resellers get a credit for the sales tax paid on their original purchase of a ticket. September 1,1997 Totalisator service added to the definition of data processing services(which are taxable services). Telephone—Prepaid Calling Cards—Taxed as tangible personal property,not telecommunications services and retailers are responsible for collecting and remitting sales and use tax when the cards are sold(unless the buyer claims a resale exemption). Transcribing Medical Dictation—Taxable data processing services do not include the transcription of medical dictation. Repair and Remodeling Services to Factories Producing New Products — Improvement to a manufacturing or processing production unit in a petrochemical refinery or a chemical plant that produces a new production(i.e.,not a product derived from activities of straining or purifying an existing product or from cosmetic changes,such as adding or removing color or odor)or increases the amount of units produced at the plant per hour or per year are excluded from the defmition of taxable services. Contractors and Real Property Services—Real property services such as landscaping,lawn or yard maintenance, waste removal, grounds cleaning, janitorial services, structural pest control and surveying are not taxable if purchased by a speculative builder or developer in connection with construction of a new home. Services provided by Staff leasing Companies—Services provided by assigned employees of a staff leasing company for a client under a written contract that provides for shared employment responsibilities are not taxable. Out-of-State-Benefit Exemption—Purchaser may claim out-of-state-benefit exemption only when services purchased are services that became taxable on or after September 1,1987. Court Reporting Services—Court reporting services are not taxable if performed by a licensed court reporter or a notary public. Exemption from sales tax also includes a video tape or film of a deposition, testimony, discovery document, or statement of fact prepared for use in a suit by a video photographer. Trade-Ins—The taxable sales price of an item includes any personal property taken in trade when the property is not the type of property regularly sold by the seller. A retailer is liable for tax on an item that he originally purchased tax free for resale but later used as a trade-in that reduced the amount of tax due on a new item. Computer Software Manufacturing Exemption — For purposes of the sales tax exemption for manufacturing, computer software manufacturing begins with the design and writing of the program and includes testing or demonstration. Gas and Electricity—Companies working with or on behalf of the United States government or a foreign government are exempt for sales tax on gas or electricity used in providing defense or national security-related electronics,classified intelligence data processing and handling systems, or defense-related platform modifications or upgrades. One-Day Tax Free Sales—A qualifying religious, educational or charitable organization or an organization exempted from federal income taxes under Section 501(C)(3),(4),(8),(10)or(19)of the Internal Revenue Code may hold two one-day tax-free fundraisers each year and any item sold for$5,000 or less is sales tax-free. Sales by University Student Organizations — A student organization that is affiliated with an accredited Texas college or university may have a one-day tax-free fundraising sale each month and any item sold for$5,000 or less is sales tax-free. July 1, 1997 Water Conservation Equipment—Manufacturers may claim a sales tax exemption on the purchase of water conservation equipment installed to:reduce water use and wastewater flow volumes from the manufacturing operation; revise with recycle wastewater streams generated within the manufacturing operation; or treat wastewater from another industrial or municipal source to 16 Effective Date Change replace existing freshwater sources in the manufacturing operation. October 1,1995 Court reporting services are not taxable; however tax is due on copies of transcripts audio or video. Rolling Stock Repair—Electricity and other fuels used or consumed predominately in the repair, maintenance or restoration of rolling stock are not taxable. Hot Checks—A person collecting an insufficient funds check may collect sales or use tax from either the payor or the payee of the check. • New Residential Structures — When building a new residential structure, a contractor may purchase tax free landscaping,lawn care,pest control, surveying,building and grounds cleaning and waste removal services. Original Producer of an Agricultural Product—An original producer of an agricultural product may claim an exemption from sales or use tax on machinery and equipment used to process, package or market its products. • Poultry Cages—Poultry cages used exclusively as containers to transport poultry from a poultry farm to the processing,packaging or marketing location are exempt. Home Gas or Electricity—Consumers don't owe tax on natural gas or electricity used in a home or other residence. Jet Turbine Engine Repairs—A taxpayer may claim a sales or use tax exemption on electricity or natural gas used in the off-wing processing,overhaul or repair of a jet turbine engine. Clean Rooms—"Clean rooms"used in the production of semiconductor components are exempt as manufacturing equipment. Disaster Clean—Up — Disaster victims may claim a tax exemption on dry cleaning, laundry services,carpet cleaning and labor to repair,restore or remodel real or tangible personal property damaged in a"disaster area." Inmates to Pay Tax on Candy and Soft Drinks-Sales tax is due on meals,soft drinks,and candy sold to inmates of correctional facilities. Fund Raising—A qualifying college and university student organization may hold one, one-day tax-free fund-raising sale each month. July 1, 1995 Lawn Care and Landscaping—No tax is due on lawn care or landscaping services provided by a person who is self-employed if the service provider earned no more than a total of$5,000 during the previous four calendar quarters. Stevedoring Supplies—A stevedoring company will be able to claim an exemption from sales and use tax on materials and supplies it purchases and loads onto a ship or vessel that is operating exclusively in foreign or interstate coastal commerce. Flight Training — A person with a sales tax permit may claim a sales tax exemption on the purchase of aircraft used in flight instruction approved by the Federal Aviation Administration. Repair of Aircraft Used by a Licensed and Certificated Carrier—Supplies used exclusively in the repair,remodeling or maintenance of aircraft,aircraft engines or component parts for a certificated or licensed carrier are exempt from tax. Child Support Collection and Sales Tax — Collecting court-ordered child-support payments or medical child-support payments will no longer be taxable debt-collection services. Enterprise Projects—An enterprise project (designated by the Texas Department of Commerce under Chapter 2303, Government Code) is eligible for refunds of sales and use taxes on equipment or machinery. October 1,1993 Labor to repair real or tangible personal property within a disaster area exempt from tax. Sale of tangible personal property to a common carrier shipped out of state exempt from tax. 17 Effective Date Change July 1,1990 State sales and use tax rate increased to 6'/<percent. October 1, 1989 Computer program services subject to tax. Lawn services performed by a person 65 years of age or older exempt from tax. Items costing 25 cents or less and sold from vending machines are exempt from tax. Temporary employment services are exempt from tax. Use and storage of personal property, or the processing thereof, for transport out of state for exclusive use out of state is exempt from tax. September 1, 1989 Remodeling and maintenance of aircraft and tools used exclusively in that industry are exempt from tax. August 28,1989 Five year phase-out of tax on personal property used in manufacturing, beginning with 1990 calendar year. State and municipalities are authorized to rebate sales and use taxes collected from a qualifying project located in an enterprise zone. Periodicals and writings published by philanthropic,religious,etc.organizations are exempt from tax. Sales of$1,000 or more of metal bullion and numismatic coins are exempt from the tax. June 14, 1989 Comptroller is authorized to provide regulations for the exemption of purchases of personal property by Maquiladora industries for immediate export out of the country. Certain cities are authorized to levy tax for the benefit of industrial development corporations. January 1, 1988 Data processing services are subject to the tax. Nonresidential real property repair and remodeling services are subject to the tax. October 1, 1987 Credit reporting services are subject to the tax. Debt collection services are subject to the tax. Certain information services, such as computer-access data and news services, are subject to the tax. Insurance services are subject to the tax. Real property services are subject to the tax. Security services are subject to the tax. Amusements are expanded to include private club memberships. Certain telecommunication services are subject to the tax. January 1,1987 Most counties are allowed to impose a sales tax to reduce property taxes,at a rate of 1/2 percent,or 1 percent if there is not an incorporated city in the county. Most cities are allowed to impose an additional%percent sales tax to reduce property taxes. Cities which do not impose a property tax are authorized to adopt the additional 1/2 percent tax. Qualifying cities are allowed to impose an additional '/ percent or 1/2 percent sales tax to fund a metropolitan transit department. 18 INVESTOR CONSIDERATIONS...The primary source of security for the Bonds will be certain receipts of the Sales Tax received by the City for the benefit of the Corporation. The amount of revenues from the Sales Tax is closely related to the amount of economic activity in the City. Sales and use tax receipts, unlike other taxes levied by municipalities, immediately reflect changes in the economic conditions of a municipality. Historically, the Comptroller has remitted sales and use tax allocation checks to municipalities on a monthly basis,but State law currently requires that such allocation be made at least twice annually and such procedures could change in the future. Additionally, the taxable items and services subject to State and local sales and use taxes are subject to legislative action,and have been changed in recent years by the State Legislature. State law provides that the Sales Tax can not be levied against any taxable item or service unless such item or service is also subject to the State sales and use tax. In recent years the State Legislature has enacted laws permitting the State,together with its political subdivisions,to levy sales and use taxes of up to 8 1/4%,which is among the highest sales tax rates in the nation(although the State has no personal or corporate income tax),and the current total sales and use tax rate within the City's boundaries is 8 1/4%(including State and City taxes as well as the Sales Tax). The rate of the sales and use taxes authorized in the State could be further increased by the State Legislature and the Corporation has no way of predicting any such increase or the effect that would have on the Sales Tax which secures the Bonds. State leaders have appointed committees to study methods of achieving greater tax equity within the State's tax system. Any changes which may be enacted by the State Legislature could effect the tax base against which the Sales Tax is levied; and the City(and hence the Corporation as the beneficiary of the City's action),except in certain limited instances described below,has no control over the components of the tax base. Neither the City nor the Corporation currently has statutory authority to increase or decrease the maximum authorized rate of the Sales Tax. Tax receipts received by the Corporation are expected to be subject to seasonal variations and to variations caused by the State laws and administrative practices governing the remittance of sales and use tax receipts which authorize different taxpayers to remit the tax receipts at different times throughout the year. The Sales Tax is collected by the Comptroller and remitted to the City along with other City sales and use tax receipts. The City allocates a portion of the receipts to the Corporation which represents the 1/2 of 1%tax rate of the Sales Tax.Generally,sales and use taxes in the State are collected at the point of a taxable transaction and remitted by the taxpayer to the Comptroller. The Comptroller has the primary responsibility for enforcing sales and use tax laws and collecting delinquent taxes. The collection efforts of the Comptroller are subject to applicable federal bankruptcy code provisions with respect to the protection of debtors. Changes in the tax base against which a sales and use tax is assessed, as well as changes in the rate of such taxes, make projections of future tax revenue collections very difficult. No independent projections have been made with respect to the revenues available to pay debt service on the Bonds. [The remainder of this page intentionally left blank] 19 TABLE 2 - HISTORICAL CITY RECEIPTS OF 1%SALES TAX Following is a listing of the Corporations'receipts of its''/:%sales tax since inception. Month 1997-98 1998-99 1999-00 2000-01 October $ - $ 416,225.24 $ 537,467.94 $' 702,617.93 November - 505,044.83 643,479.62 934,165.97 December - 527,278.43 690,180.98 933,302.40 January - 439,117.53 574,778.89 735,439.26 February - 670,521.10 845,303.70 1,190,990.07 March 418,668.92 707,350.34 699,950.67 881,273.55 April 326,007.91 450,795.16 585,915.37 753,557.71 May 426,638.27 587,126.32 708,508.20 - June 442,010.17 602,145.99 854,444.34 - July 411,100.62 473,863.48 613,350.22 - August 523,641.42 636,519.44 763,024.83 - September 442,252.34 706,258.95 864,340.74 - TOTAL $ 2,990,319.65 $ 6,722,246.81 $ 8,380,745.50 $ 6,131,346.89 The following listing of the City's receipts of the 11/2% limited sales and use tax since Fiscal Year 1990 are for informational purposes only. Fiscal %Increase Over Year Sales Tax Prior Year 1990-91 $ 2,851,860.61 N/A 1991-92 3,231,220.05 13.30% 1992-93 4,159,852.05 28.74% 1993-94 5,069,126.54 21.86% 1994-95 7,144,296.47 40.94% 1995-96 8,974,449.63 25.62% 1996-97 11,689,671.35 30.26% 1997-98 15,038,239.12 28.65% 1998-99 20,166,740.39 34.10% 1999-00 25,142,236.41 24.67% 2000-01 18,394,040.62 (') N/A (1) Represents 7 month's of collections,through April 30,2001. [The remainder of this page intentionally left blank] 20 SELECTED PROVISIONS OF THE BOND RESOLUTION The following are certain provisions of the Resolution. These provisions are not to be considered a full statement of terms of the Resolution. Accordingly,these selected provisions are qualified in their entirety by reference to the Resolution and are subject to the full text thereof. Capitalized terms used in these provisions have the respective meaning set forth in definitions of terms contained elsewhere in the Official Statement. SECTION 10. Definitions. For all purposes of this Resolution and in particular for clarity with respect to the issuance of the Bonds herein authorized and the pledge and appropriation of revenues to the payment of the Bonds, the following definitions are provided: "Act"-The Development Corporation Act of 1979, Article 5190.6, TEX. REV. Civ. STAT. ANN., as amended at any time. "Additional Obligations"-Bonds,notes or other evidences of indebtedness which the Corporation reserves the right to issue or enter into,as the case may be,in the future in accordance with the terms and conditions provided in Section 18 hereof and which,together with the Bonds, are equally and ratably secured by a parity pledge of and claim on the Pledged Revenues under the terms of this Resolution and a Supplemental Resolution. "Average Annual Debt Service" - That amount which, at the time of computation, is derived by dividing the total amount of Debt Service to be paid over a period of years as the same is scheduled to become due and payable by the number of years taken into account in determining the total Debt Service. Capitalized interest payments provided from proceeds or borrowings of the Corporation shall be excluded in making the aforementioned computation. "Board"-The Board of Directors of the Corporation. "Bonds" - "The Round Rock Transportation System Development Corporation Sales Tax Revenue Bonds, Series 2001",dated May 15,2001,authorized by this Resolution. "City"-The City of Round Rock,Texas. "Corporation" - The Round Rock Transportation System Development Corporation, a non-profit industrial development corporation organized and existing under and pursuant to the laws of the State of Texas, including Section 4B of the Act and on behalf of the City of Round Rock,Texas. "Debt Service" - As of any particular date of computation, with respect to any obligations and with respect to any period,the aggregate of the amounts to be paid or set aside by the Corporation as of such date or in such period for the payment of the principal of, premium, if any, and interest (to the extent not capitalized) on such obligations; assuming, in the case of obligations without a fixed numerical rate, that such obligations bear, or would have borne, interest at the maximum legal per annum rate applicable to such obligations,and further assuming in the case of obligations required to be redeemed or prepaid as to principal prior to maturity,the principal amounts thereof will be redeemed prior to maturity in accordance with the mandatory redemption provisions applicable thereto. "Depository" - A commercial bank or other qualified financial institution eligible and qualified to serve as the custodian of the Corporation's monetary accounts and funds. "Fiscal Year"-The twelve month financial accounting period used by the Corporation ending September 30 in each year,or such other twelve consecutive month period established by the Corporation. "Government Obligations"-Direct obligations of the United States of America,including obligations the principal of and interest on which are fully and unconditionally guaranteed by the United States of America. "Gross Sales Tax Revenues"-All of the revenues or receipts due or owing to,or collected or received by or on behalf of the Corporation by the City or otherwise from the Sales Tax, less any amounts due and owed to the Comptroller of Public Accounts of the State of Texas as charges for the collection of the Sales Tax or retention by said Comptroller for refunds and to redeem dishonored checks and drafts,to the extent such charges and retention are authorized or required by law. "Outstanding" - When used in this Resolution with respect to the Bonds or Parity Obligations, as the case may be, means, as of the date of determination, all Bonds and Parity Obligations theretofore sold, issued and delivered by the Corporation,except: 21 (1) those Bonds or Parity Obligations canceled or delivered to the transfer agent or registrar for cancellation in connection with the exchange or transfer of such obligations; (2) those Bonds or Parity Obligations paid or deemed to be paid in accordance with the provisions of Section 24 hereof or similar provisions of any Supplemental Resolution authorizing the issuance of Additional Obligations. (3) those Bonds or Parity Obligations that have been mutilated, destroyed, lost, or stolen and replacement obligations have been registered and delivered in lieu thereof. "Parity Obligations"-Collectively,the Bonds and Additional Obligations. "Pledged Revenues"-Collectively(i)Gross Sales Tax Revenues from time to time deposited or owing to the Pledged Revenue Fund and(ii)such other money,income,revenue,receipts or other property as may be specifically dedicated,pledged or otherwise encumbered in a Supplemental Resolution for the payment and security of Parity Obligations. "Required Reserve" - The amount required to be accumulated and maintained in the Reserve Fund under the provisions of Section 14 hereof. "Sales Tax" - The local sales and use tax authorized under Section 4B of the Act, approved at an election held on January, 1998,and the effective date for the imposition and application of such Sales Tax within the corporate limits of the City by the Comptroller of Public Accounts of the State of Texas being March 1, 1998, together with any increases in the rate of such Sales Tax authorized and provided by law. "Supplemental Resolution"-Any resolution of the Board supplementing this Resolution for the purpose of authorizing and providing the terms and provisions of the Bonds or Additional Obligations, or supplementing or amending this Resolution for any other authorized purpose permitted in Section 18 or 25 hereof, including resolutions authorizing the issuance of Additional Obligations or pledging and encumbering income, revenues, receipts or property other than the Gross Sales Tax Revenues to the payment and security of the Parity Obligations. "Surety Policy"means a surety bond,insurance policy,letter of credit or other agreement or instrument,including any related reimbursement or financial guaranty agreement, by which the Corporation is obligated to provide funds up to and including the maximum amount and under the conditions specified in such agreement or instrument provided that the Corporation and Surety Policy shall be rated, at the time of issuance of such Surety Policy, in the highest rating category by A.M.Best Company,Standard&Poor's Ratings Group,or Moody's Investors Service. SECTION 11. Pledge. The Corporation hereby covenants and agrees that the Pledged Revenues,with the exception of those in excess of the amounts required for the payment and security of the Parity Obligations,are hereby irrevocably pledged to the payment and security of the Bonds and Additional Obligations,if issued,including the establishment and maintenance of the special funds created and established in this Resolution and any Supplemental Resolution, all as hereinafter provided. The Corporation hereby resolves the Parity Obligations shall constitute a lien on the Pledged Revenues in accordance with the terms of this Resolution and any Supplemental Resolution, which lien shall be valid and binding without any further action by the Corporation and without any filing or recording with respect thereto except in the records of the Corporation. SECTION 12. Pledged Revenue Fund. The Corporation hereby agrees and covenants to establish and maintain a fund or account at a Depository for the deposit of the Pledged Revenues as received by the Corporation,which fund or account shall be known on the books and records of the Corporation as the"Pledged Revenue Fund". All Pledged Revenues deposited to the credit of such Fund shall be accounted for separate and apart from all other revenues,receipts and income of the Corporation and,with respect to the Gross Sales Tax Revenues,the Corporation shall further account for such funds separate and apart from the other Pledged Revenues deposited to the credit of the Pledged Revenue Fund. All Pledged Revenues deposited to the credit of the Pledged Revenue Fund shall be appropriated and expended to the extent required by this Resolution and any Supplemental Resolution for the following uses and in the order of priority shown: First: To the payment of the amounts required to be deposited in the Bond Fund for the payment of Debt Service on the Parity Obligations as the same becomes due and payable; Second: To the payment of the amounts required to be deposited in the Reserve Fund to establish and maintain the Required Reserve in accordance with the provisions of this Resolution and any Supplemental Resolution; Third: To the payment of amounts required to be deposited in any other fund or account required by any Supplemental Resolution authorizing the issuance of Parity Obligations;and 22 Fourth: To any fund or account held at any place or places, or to any payee,required by any other resolution of the Board which authorized the issuance of obligations or the creation of debt of the Corporation having a lien on the Pledged Revenues subordinate to the lien created herein on behalf of the Parity Obligations. Any Pledged Revenues remaining in the Pledged Revenue Fund after satisfying the foregoing payments, or making adequate and sufficient provision for the payment thereof,may be appropriated and used for any other lawful purpose now or hereafter permitted by law. SECTION 13. Bond Fund. For the purpose of providing funds to pay the principal of and interest on Parity Obligations,the Corporation agrees and covenants to maintain a separate and special account or fund on the books and records of the Corporation known as "The Round Rock Transportation System Development Corporation Debt Service Account" (the "Bond Fund"),and all monies deposited to the credit of such Fund shall be held in a special banking fund or account maintained at a Depository of the Corporation. The Corporation covenants that there shall be deposited into the Bond Fund prior to each principal and interest payment date from the Pledged Revenues an amount equal to one hundred per centum (100%) of the interest on and the principal of the Bonds then falling due and payable,and such deposits to pay principal and accrued interest on the Bonds shall be made in substantially equal monthly installments on or before the 20th day of each month,beginning on or before the 20th day of the month next following the delivery of the Bonds to the initial purchasers. • The required deposits to the Bond Fund for the payment of principal of and interest on the Bonds shall continue to be made as hereinabove provided until(i)the total amount on deposit in the Bond Fund and Reserve Fund is equal to the amount required to fully pay and discharge all Parity Obligations(principal and interest)then Outstanding or(ii)the Bonds are no longer Outstanding. SECTION 14. Reserve Fund. (a) The Corporation agrees and covenants to maintain on the books and records of the Corporation a separate and special fund or account to be known as the"Reserve Account"(the"Reserve Fund"),which fund or account shall be a special banking fund maintained at a Depository. All Pledged Revenues deposited to the credit of such fund or account shall be used solely for the payment of the principal of and interest on the Parity Obligations when (whether at maturity,upon a redemption date or any interest payment date)other funds available for such purposes are insufficient,and, in addition,may be used to the extent not required to maintain the"Required Reserve",to pay,or provide for the payment of,the final principal amount of a series of Parity Obligations so that such series of Parity Obligations is no longer deemed to be "Outstanding"as such term is defined herein. • The total amount to be accumulated and maintained in the Reserve Fund by reason of the issuance of the Bonds shall be $ (the "Required Reserve"), and immediately following the delivery of the Bonds to the initial purchasers, there shall be deposited to the credit of the Reserve Fund the total Required Reserve and no further monthly deposits shall be required to be made to the Reserve Fund. As and when Additional Obligations are delivered or incurred,the Required Reserve shall be increased,if required,to an amount equal to the lesser of either (i) the Average Annual Debt Service (calculated on a Fiscal Year basis) for all Parity Obligations then Outstanding(after giving effect to the issuance of the Additional Obligations), as determined on the date each series of Additional Obligations are delivered or incurred,as the case may be,or(ii)the maximum amount that can be invested without restriction as to yield in a reasonably required reserve fund pursuant to Subsection (d) of Section 148 of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder. Any additional amount required to be accumulated and maintained in the Reserve Fund shall be accumulated by the deposit to the credit of the Reserve Fund of all or any part in cash immediately after the delivery of the then proposed Additional Obligations,or,at the option of the Corporation, by the deposit of monthly installments,made on or before the 20th day of each month following the month of delivery of the then proposed Additional Obligations,of not less than 1/36th of the additional amount to be maintained in said Fund by reason of the issuance of the Additional Obligations then being issued(or 1/36th of the balance of the additional amount not deposited immediately in cash). While the cash and investments in the Reserve Fund total not less than the Required Reserve, no deposits need be made to the credit of the Reserve Fund;but,if and when the Reserve Fund at any time contains less than the Required Reserve, the Corporation covenants and agrees to cure the deficiency in the Required Reserve by resuming monthly deposits to said Fund from the Pledged Revenues; such monthly deposits to be in amounts equal to not less than 1/36th of the then total Required Reserve to be maintained in said Fund and to be made on or before the 10th day of each month until the total Required Reserve then required to be maintained in said Fund has been fully restored. The Corporation further covenants and agrees that the Pledged Revenues shall be applied and appropriated and used to establish and maintain the Required Reserve and to cure any deficiency in such amounts as required by the terms of this Resolution and any Supplemental Resolution. During such time as the Reserve Fund contains the total Required Reserve, the Corporation may, at its option, withdraw all surplus in the Reserve Fund in excess of the Required Reserve and deposit such surplus in the Pledged Revenue Fund. 23 (a) Notwithstanding the requirements of subsection(a) above, the Corporation may provide a Surety Policy or Policies issued in amounts equal to all or part(as may be specified in the resolution authorizing any series of Parity Obligations) of the average annual principal and interest requirements of the Parity Obligations, in lieu of depositing cash into the Reserve Fund;provided,however,that no such Surety Policy may be so substituted unless(i)the substitution of the Surety Policy will not cause any ratings then assigned to the Bonds by either Moody's Investors Service or Standard&Poor's Ratings Group to be lowered and(ii)the resolution authorizing the substitution of the Surety Policy for all or part of the average annual principal and interest requirements of the Parity Obligations contains(A)a finding that such substitution is cost effective and(B)a provision that the interest due on any repayment obligation of the Corporation by reason of payments made under such policy does not exceed the highest lawful rate of interest which may be paid by the Corporation at the time of the delivery of the Surety Policy. The Corporation reserves the right to apply the proceeds of the Pledged Revenue Fund to payment of the subrogation obligation incurred by the Corporation (including interest) to the issuer of the Surety Policy, the payment of which will result in the reinstatement of such Surety Policy, prior to making payments required to be made to the Reserve Fund pursuant to the provisions of this Section to restore the balance in such Fund to the average annual principal and interest requirements of the Parity Obligations. (b) In the event a Surety Policy issued to satisfy all or part of the Corporation's obligation with respect to the Reserve Fund causes the amount then on deposit in the Reserve Fund to exceed the average annual principal and interest requirements of all Parity Obligations,the Corporation,may transfer such excess amount to any fund or funds established for the payment of or security for the Parity Obligations(including any escrow established for the final payment of any such obligations pursuant to Chapter 1207,Texas Government Code). SECTION 15. Deficiencies. If on any occasion there shall not be sufficient Pledged Revenues to make the required deposits into the Bond Fund or Reserve Fund,such deficiency shall be cured as soon as possible from the next available Pledged Revenues,or from any other sources available for such purpose. SECTION 16. Payment of Bonds. While any of the Bonds are Outstanding,the Treasurer of the Corporation(or other designated financial officer of the Corporation) shall cause to be transferred to the Paying Agent/Registrar, from funds on deposit in the Bond Fund,and,if necessary,in the Reserve Fund,amounts sufficient to fully pay and discharge promptly as each installment of interest and principal of the Bonds accrues or matures; such transfer of funds to be made in such manner as will cause immediately available funds to be deposited with the Paying Agent/Registrar for the Bonds at the close of the business day next preceding the date of payment for the Bonds. SECTION 17. Investments - Security of Funds. Money in any Fund required to be maintained pursuant to this Resolution may, at the option of the Corporation,be invested in obligations and in the manner prescribed by the Public Funds Investment Act(V.T.C.A.,Government Code,Chapter 2256), including investments held in book-entry form;provided that all such deposits and investments shall be made in such a manner that the money required to be expended from any Fund will be available at the proper time or times and provided further the maximum stated maturity for any investment acquired with money deposited to the credit of the Reserve Fund shall be limited to five(5) years from the date of the investment of such money. Such investments shall be valued in terms of current market value within 45 days of the close of each Fiscal Year and, with respect to investments held for the account of the Reserve Fund, within 45 days of the date of passage of each authorizing document of the Board pertaining to the issuance of Additional Obligations. All interest and income derived from deposits and investments in the Bond Fund immediately shall be credited to, and any losses debited to,the appropriate account of the Bond Fund. All interest and interest income derived from deposits in and investments of the Reserve Fund shall, subject to the limitations provided in Section 14 hereof,be credited to and deposited in the Pledged Revenue Fund. All such investments shall be sold promptly when necessary to prevent any default in connection with the Parity Obligations. (a) That money deposited to the credit of the Pledged Revenue Fund, Bond Fund and Reserve Fund, to the extent not invested and not otherwise insured by the Federal Deposit Insurance Corporation or similar agency, shall be secured by a pledge of direct obligations of the United States of America,or obligations unconditionally guaranteed by the United States of America. SECTION 18. Issuance of Additional Parity Obligations. Subject to the provisions hereinafter appearing as to conditions precedent which must be satisfied,the Corporation reserves the right to issue,from time to time as needed,Additional Obligations for any lawful purpose. Such Additional Obligations may be issued in such form and manner as the Corporation shall determine,provided,however,prior to issuing or incurring such Additional Obligations,the following conditions precedent for the authorization and issuance of the same are satisfied,to wit: (1) The Treasurer of the Corporation(or other officer of the Corporation then having the primary responsibility for the financial affairs of the Corporation)shall have executed a certificate stating that,to the best of his or her knowledge and belief, the Corporation is not then in default as to any covenant, obligation or agreement contained in the Resolution or a Supplemental Resolution. 24 (2) The Corporation has secured from a certified public accountant a certificate or opinion to the effect that, according to the books and records of the Corporation,the Gross Sales Tax Revenues received by the Corporation for either(i) the last completed Fiscal Year next preceding the adoption of the Supplemental Resolution authorizing the issuance of the proposed Additional Obligations or (ii) any twelve (12) consecutive months out of the previous eighteen (18) months next preceding the adoption of the Supplemental Resolution authorizing the Additional Obligations were equal to not less than 1.25 times the maximum annual Debt Service for all Parity Obligations then Outstanding after giving effect to the issuance of the Additional Obligations then being issued. (3) The Required Reserve to be accumulated and maintained in the Reserve Fund is increased to the extent required by Section 14. SECTION 19. Refunding Bonds. The Corporation reserves the right to issue refunding bonds to refund all or any part of the Parity Obligations(pursuant to any law then available)upon such terms and conditions as the Board may deem to be in the best interest of the Corporation, and if less than all such Parity Obligations then Outstanding are refunded, the conditions precedent prescribed(for the issuance of Additional Obligations)set forth in Section 18 hereof shall be satisfied,and shall give effect to the refunding. SECTION 20. Right to Create Subordinate Debt. Except as may be limited by a Supplemental Resolution, the Corporation shall have the right to issue or create any debt payable from or secured by a lien on all or any part of the Pledged Revenues for any lawful purpose without complying with the provisions of Section 18 or 19 hereof,provided the pledge and the lien securing such debt is subordinate to the pledge and lien established,made and created in Section 11 of this Resolution with respect to the Pledged Revenues to the payment and security of the Parity Obligations. SECTION 21. Confirmation and Levy of Sales Tax. (a)The Board hereby represents the City has duly complied with the provisions of the Act for the levy of the Sales Tax at the rate voted at the election held by and within the City in January, 1998,and such Sales Tax is being imposed within the corporate limits of the City and the receipts of such Sales Tax are being remitted to the City by the Comptroller of Public Accounts on a monthly basis. (b) While any Bonds are Outstanding, the Corporation covenants, agrees and warrants to take and pursue all action permissible to cause the Sales Tax, at said rate or at a higher rate if legally permitted, to be levied and collected continuously,in the manner and to the maximum extent permitted by law,and to cause no reduction,abatement or exemption in the Sales Tax or rate of tax below the rate stated, confirmed and ordered in subsection (a) of this Section to be ordered or permitted while any Bonds shall remain Outstanding. (c) If hereafter authorized by law to apply, impose and levy the Sales Tax on any taxable items or transactions that are not subject to the Sales Tax on the date of the adoption hereof,to the extent it legally may do so,the Corporation agrees to use its best efforts to cause the City to take such action as may be required to subject such taxable items or transactions to the Sales Tax. (d) The Corporation agrees to take and pursue all action legally permissible to cause the Sales Tax to be collected and remitted and deposited as herein required and as required by Section 4B of the Act, at the earliest and most frequent times permitted by law. (e) The Corporation agrees to use its best efforts to cause the City to comply with Section 4B of the Act and shall cause the Gross Sales Tax Revenues to be deposited to the credit of the Pledged Revenue Fund in their entirety immediately upon receipt by the City. In the alternative and if legally authorized,the Corporation shall,by appropriate notice, direction,request or other legal method,use its good-faith efforts to cause the Comptroller of Public Accounts of the State of Texas(the"Comptroller")to pay all Gross Sales Tax Revenues directly to the Corporation for deposit to the Pledged Revenue Fund. SECTION 22. Records and Accounts. The Corporation hereby covenants and agrees that while any of the Bonds are Outstanding, it will keep and maintain complete records and accounts in accordance with generally accepted accounting principles, and following the close of each Fiscal Year, it will cause an audit of such books and accounts to be made by an independent firm of certified public accountants. Each such audit,in addition to whatever other matters may be thought proper by the accountant shall particularly include the following: (1) A statement in reasonable detail regarding the receipt and disbursement of the Pledged Revenues for such Fiscal Year,and (2) A balance sheet for the Corporation as of the end of such Fiscal Year. 25 Such annual audit of the records and accounts of the Corporation shall be in the form of a report and be accompanied by an opinion of the accountant to the effect that such examination was made in accordance with generally accepted auditing standards and contain a statement to the effect that in the course of making the examination necessary for the report and opinion, the accountant obtained no knowledge of any default of the Corporation on the Bonds or in the fulfillment of any of the terms, covenants or provisions of this Resolution,or under any other evidence of indebtedness, or of any event which,with notice or lapse of time,or both,would constitute a failure of the Corporation to comply with the provisions of this Resolution or if,in the opinion of the accountants, any such failure to comply with a covenant or agreement hereof, a statement as to the nature and status thereof shall be included. Copies of each annual audit report shall be furnished upon written request,to any Holders of any of said Bonds. The audits herein required shall be made within 120 days following the close of each Fiscal Year insofar as is possible. The Holders of any Bonds or any duly authorized agent or agents of such Holders shall have the right to inspect such records,accounts and data of the Corporation during regular business hours. SECTION 23. Representations as to Security for the Bonds. (a)The Corporation represents and warrants that,except for the Parity Obligations, the Pledged Revenues are and will be and remain free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or of equal rank with,the pledge and lien created in or authorized by this Resolution except as expressly provided herein. (a) The Bonds and the provisions of this Resolution are and will be the valid and legally enforceable obligations of the Corporation in accordance with their terms and the terms of this Resolution,subject only to any applicable bankruptcy or insolvency laws or to any laws affecting creditors rights generally. (b) The Corporation shall at all times,to the extent permitted by law,defend,preserve and protect the pledge of the Pledged Revenues and all the rights of the Holders against all claims and demands of all persons whomsoever. (c) The Corporation will take, and use its best efforts to cause the City to take, all steps reasonably necessary and appropriate to collect all delinquencies in the collection of the Sales Tax to the fullest extent permitted by the Act. (d) The provisions, covenants, pledge and lien on and against the Pledged Revenues, as herein set forth, are established and shall be for the equal benefit,protection and security of the Owners and Holders of Parity Obligations without distinction as to priority and rights under this Resolution. (e) The Parity Obligations shall constitute special obligations of the Corporation, payable solely from, and equally and ratably secured by a parity pledge of and lien on,the Pledged Revenues,and not from any other revenues,properties or income of the Corporation. The Bonds may not be paid in whole or in part from any property taxes raised or to be raised by the City and shall not constitute debts or obligations of the State or of the City, and the Holders, shall never have the right to demand payment out of any funds raised or to be raised by any system of ad valorem taxation. [The remainder of this page intentionally left blank] 26 INVESTMENTS The Round Rock Transportation System Development Corporation is a nonprofit corporation acting on behalf of the City and is subject to the provisions of the Public Funds Investment Act(V.T.C.A.,Government Code,(Ch.2256)with respect to the investment of its funds. The Corporation invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the Board of Directors of the Corporation. Both state law and the Corporation's investment policies are subject to change. LEGAL INVESTMENTS...Under Texas law,the Corporation is authorized to invest in the following: (1)Obligations of the United States or its agencies and instrumentalities; (2) Direct obligations of the State of Texas or its agencies and instrumentalities; (3) Collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) Other obligations, the principal of and interest on which are unconditionally guaranteed or insured by,or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities;(5)Obligations of states,agencies,counties,cities,and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than "A"or its equivalent;(6)Bonds issued,assumed,or guaranteed by the State of Israel;(7)Certificates of Deposit issued by a state or national bank domiciled in the State of Texas,a savings bank domiciled in the State of Texas,or a state or federal credit union domiciled in the State of Texas that are(i)guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National Credit Union Share Insurance Fund or its successor; or(ii)secured by obligations that are described in items 1-6 above,including mortgage backed securities directly issued by a federal agency or instrumentality that have a market value of not less than the principal amount of the certificates; or(iii) in any other manner and amount provided by law for deposits of the Corporation; (8) Fully Collateralized Repurchase Agreements having a defined termination date, secured by obligations of the United States or its agencies and instrumentalities,pledged to the Corporation,held in the Corporation's name, and deposited with the Corporation or with a third party selected or approved by the Corporation,and placed through a primary government securities dealer,as defined by the Federal Reserve, or a financial institution doing business in the state of Texas; (10) Bankers' Acceptances having a stated maturity of 270 days or less that will be, according to its terms, liquidated in full at maturity, that is eligible for collateral for borrowing from a Federal Reserve Bank,and that is accepted by a bank organized and existing under the laws of the United States or any state, if the short-term obligations of the bank,or of a bank holding company of which the bank is the largest subsidiary, are rated not less than A-1 or P-1 or any equivalent rating by at least one nationally recognized credit rating agency; (11)Commercial Paper with a stated maturity of 270 days or less from the date of its issuance that is rated not less than A-1 or P-1,or the equivalent, by(i)two nationally recognized credit rating agencies,or(ii)one nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued by a bank organized and existing under the laws of the United States or any State; (12) SEC Registered No-Load Money Market Mutual Funds with a dollar-weighted average stated maturity of 90 days or less whose investment objectives include the maintenance of a stable net asset value of$1 per share; (13) SEC Registered No-Load Mutual Funds with an average weighted maturity of less than two years that are invested exclusively in obligations described in this paragraph and that are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent; and (14) guaranteed investment contracts that have a defined termination date, are secured by obligations of the Untied States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under the contract,and are pledged to the Corporation and deposited with the Corporation or with a third party selected and approved by the Corporation. The Corporation may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAA-m or an equivalent by at least one nationally recognized rating service. The Corporation is specifically prohibited from investing in: (1)obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. INVESTMENT POLICIES...Under Texas law,the Corporation is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management;and that include a list of authorized investments for Corporation funds,maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All Corporation funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type,(2)preservation and safety of principal,(3)liquidity,(4)marketability of each investment,(5)diversification of the portfolio,and(6)yield. Under Texas law,Corporation investments must be made"with judgment and care,under prevailing circumstances,that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the Corporation shall submit an investment report detailing: (1)the investment position of the Corporation, (2)that all 27 investment officers jointly prepared and signed the report,(3)the beginning market value,any additions and changes to market value and the ending value of each pooled fund group,(4)the book value and market value of each separately listed asset at the beginning and end of the reporting period,(5)the maturity date of each separately invested asset,(6)the account or fund or pooled fund group for which each individual investment was acquired, and(7)the compliance of the investment portfolio as it relates to: (a)adopted investment strategy statements and(b)state law. No person may invest Corporation funds without express written authority from the Board of Directors. ADDITIONAL PROVISIONS...Under Texas law the Corporation is additionally required to: (1)annually review its adopted policies and strategies; (2) require any investment officers' with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the Board of Directors; (3)require the registered principal of firms seeking to sell securities to the Corporation to: (a)receive and review the Corporation's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) perform an annual audit of the management controls on investments and adherence to the Corporation's investment policy;(5)provide specific investment training for the Treasurer,Chief Financial Officer and investment officers;(6)restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement;(7) restrict the investment in mutual funds in the aggregate to no more than 15%of the Corporation's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service and further restrict the investment in non-money market no-load mutual funds(a)to exclude any portion of bond proceeds,reserves and funds held for debt service and(b)to not more than 15%of the entity's monthly average fund balance,excluding bond proceeds and reserves and other funds held for debt service;and (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. TABLE 3-CURRENT INVESTMENTS As of March 31,2001,the Corporation had$16,217,599 of investable funds,100%of which was invested in Texpool. All monies of the Corporation shall be deposited, secured, and/or invested in the manner provided for the deposit, security, and/or investment of the public funds of the City,as authorized by the City Investment Policy. TexPool is a local government investment pool under the control of the Texas Comptroller of Public Accounts. The Comptroller has engaged Chase Bank of Texas, and its affiliates, to provide investment management and fund accounting services for TexPool. First Southwest Asset Management, Inc., an affiliate of First Southwest Company, provides customer service and marketing for the pool. TexPool currently maintains a AAAm rating from Standard&Poor's. The pool's investment objectives include achieving a stable net asset value of$1.00 per share. Daily investment or redemption of funds is allowed by the participants. TABLE 4—OTHER OBLIGATIONS The Corporation has a $16,000,000 loan from the Texas Department of Transportation's State Infrastructure Bank which was entered into in August of 2000. The loan is secured by a subordinate lien on the Corporation's %2 sales tax and carries annual payments of$1,500,081.15 per year through 2015. [The remainder of this page intentionally left blank] 28 TAX MATTERS OPINION...On the date of initial delivery of the Bonds,McCall,Parkhurst&Horton L.L.P.,Austin,Texas,Bond Counsel,will render their opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof,(1)interest on the Bonds will be excludable from the"gross income"of the holders thereof and(2)the Bonds will not be treated as"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. See APPENDIX D-"FORM OF BOND COUNSEL'S OPINION". In rendering their opinion,Bond Counsel will rely upon(a)certain information and representations of the Corporation including information and representations contained in the Corporation's federal tax certificate and (b) covenants of the Corporation contained in the Bond documents relating to certain matters including arbitrage,the use of the proceeds of the Bonds and the property to be financed therewith. Although it is expected that the Bonds will qualify as tax-exempt obligations for federal income tax purposes as of the date of issuance,the tax-exempt status of the Bonds could be affected by future events. However, future events beyond the control of the Corporation, as well as the failure to observe the aforementioned representations or covenants,could cause the interest on the Bonds to become taxable retroactively to the date of issuance. • Bond Counsel's opinion represents its legal judgment based upon its review of the Existing Law and the reliance on the aforementioned information, representations, and covenants. Bond Counsel's opinion is not a guarantee of a result. The Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. 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. Bond Counsel's opinion represents its legal judgement based upon its review of Existing Law and the representations of the Corporation that it deems relevant to render such opinion and is not a guarantee of a result. No assurances can be given as to whether or not the Internal Revenue Service will commence an audit of the Bonds,or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an audit is commenced, under current procedures the Internal Revenue Service is likely to treat the Corporation as the taxpayer and the Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. • 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(the"Original Issue Discount Bonds")is less than the principal amount thereof. The difference between(i)the amount payable at the maturity of each Original Issue Discount Bond,and(ii)the initial offering price to the public of such Original Issue Discount Bond would constitute original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Bonds. Under Existing Law,such initial owner is entitled to exclude from gross income(as defined in section 61 of the Code)an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned by such owner. For a discussion of certain collateral federal tax consequences,see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to,stated maturity, however,the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner)is includable in gross income. Under Existing Law,the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period)and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption,sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to(a)the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity(determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period)less(b)the amounts payable as current interest during such accrual period on such Bond. The federal income tax consequences of the purchase, ownership,redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state,local and foreign tax consequences of the purchase,ownership,redemption,sale or other disposition of such Original Issue Discount Bonds. 29 COLLATERAL FEDERAL INCOME 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. This discussion is based on existing statutes, regulations, published rulings and court decisions, all 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,owners of an interest in FASIT,individuals allowed an earned income credit,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 PROVISION 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 BONDS BEFORE DETERMINING WHETHER TO PURCHASE THE BONDS. Interest on the Bonds is includable in the "alternative minimum taxable income" of a corporation (other than a regulated investment company or a real estate investment trust)for purposes of determining the environmental tax(if re-enacted)imposed by section 59A of the Code. Section 59A of the Code imposes on a corporation an environmental tax,in addition to any other income tax imposes by the Code, equal to 0.12 percent of the excess of the modified alternative minimum taxable income of such corporation for the taxable year over$2,000,000. Interest on the Bonds may be subject to the "branch profits tax" imposed by Section 884 of the Code on the 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, 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 tax-exempt obligation,such as the Bonds,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 treatment applies to "market discount tax exempt bonds"to the extent such gain does not exceed the accrued market discount of such tax exempt 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 at maturity or,in the case of an obligation 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 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. [The remainder of this page intentionally left blank] 30 OTHER INFORMATION RATINGS ...The Corporation has no outstanding obligations. The Bonds are the first series of obligations to be issued by the Corporation. Applications for contract ratings on this issue have been made to Moody's, S&P and Fitch. An explanation of the significance of such rating(s)may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations and the Corporation makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings,or either of them,may have an adverse effect on the market price of the Bonds. LITIGATION ...It is the opinion of the City Staff that there is no pending litigation against the Corporation that would have a material adverse financial impact upon the Corporation or its operations. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE...The sale of the Bonds has not been registered under the Federal Securities Act of 1933,as amended,in reliance upon the exemption provided thereunder by Section 3(a)(2);and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein;nor have the Bonds been qualified under the securities acts of any jurisdiction. The Corporation assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned,pledged,hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS ...Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are negotiable instruments governed by Chapter 8,Texas Business and Commerce Code,and are legal and authorized investments for insurance companies,fiduciaries, and trustees,and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act,Chapter 2256,Texas Government Code,requires that the Bonds be assigned a rating of"A"or its equivalent as to investment quality by a national rating agency. See "OTHER INFORMATION - Ratings" herein. In addition,various provisions of the Texas Finance Code provide that,subject to a prudent investor standard,the Bonds are legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions,and are legal security for those deposits to the extent of their market value. No review by the Corporation has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. LEGAL OPINIONS AND NO-LITIGATION CERTIFICATE...The Corporation will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Bonds,including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Bond and to the effect that the Bonds are valid and legally binding special obligations of the Corporation, and based upon examination of such transcript of proceedings,the approving legal opinion of Bond Counsel,to like effect. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Bonds,or which would affect the provision made for their payment or security,or in any manner questioning the validity of said Bonds will also be furnished. Bond Counsel was not requested to participate,and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein,except that,in its capacity as Bond Counsel,such firm has reviewed the information in the Official Statement under the captions "THE BONDS" (other than the information under the subcaption"-Book-Entry-Only System"),"THE SALES TAX,"and"TAX MATTERS"and under the subcaptions"-Registration and Qualification of Bonds for Sale,""-Legal Investments and Eligibility to Secure Public Funds in Texas,""-Legal Opinions and No-Litigation Certificate" and "- Continuing Disclosure of Information" (other than the information under the subcaption "- Compliance with Prior Undertakings")under the caption"OTHER INFORMATION"and in APPENDIX C,and such firm is of the opinion that the information relating to the Bonds contained under such captions and subcaptions is a fair and accurate summary of the information purported to be shown and is correct as to matters of law. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the Bonds in the event of the discontinuance of the Book-Entry- Only System. CONTINUING DISCLOSURE OF INFORMATION...In the Resolution,the Corporation has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The Corporation is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement,the Corporation will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL REPORTS...The Corporation will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to 31 the Corporation of the general type included in this Official Statement under Tables numbered 1 through 3 and in APPENDIX B. The Corporation will update and provide this information within six months after the end of each fiscal year ending in or after 2000. The Corporation 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 Corporation 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 Corporation commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time,the Corporation will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in APPENDIX B or such other accounting principles as the Corporation may be required to employ from time to time pursuant to state law or regulation. The Corporation's current fiscal year end is September 30. Accordingly, it must provide updated information by April 1 in each year,unless the Corporation changes its fiscal year. If the Corporation changes its fiscal year,it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street,P.O. Box 2177,Austin,Texas 78768-2177, and its telephone number is 512/476-6947. MATERIAL EVENT NOTICES...The Corporation will also provide timely notices of certain events to certain information vendors. The Corporation will provide notice of any of the following events with respect to the Bonds,if such event is material to a decision to purchase or sell Bonds: (1)principal and interest payment delinquencies;(2)non-payment related defaults;(3)unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting fmancial difficulties;(5)substitution of credit or liquidity providers,or their failure to perform;(6)adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7)modifications to rights of holders of the Bonds; (8)Bond calls; (9)defeasances; (10)release, substitution,or sale of property securing repayment of the Bonds;and(11)rating changes. In addition,the Corporation will provide timely notice of any failure by the Corporation to provide information,data,or financial statements in accordance with its agreement described above under"Annual Reports." The Corporation will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board("MSRB"). AVAILABILITY OF INFORMATION FROM NRMSIRs AND SID...The Corporation has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. LIMITATIONS AND AMENDMENTS...The Corporation has agreed to update information and to provide notices of material events only as described above. The Corporation has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations,condition,or prospects or agreed to update any information that is provided,except as described above. The Corporation makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The Corporation disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement,although holders of Bonds may seek a writ of mandamus to compel the Corporation to comply with its agreement. The Corporation may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements,a change in law,or a change in the identity,nature,status,or type of operations of the Corporation,if (i)the agreement,as amended,would have permitted an Underwriters to purchase or sell Bonds in the offering described herein in compliance with the Rule,taking into account any amendments or interpretations of the Rule to the date of such amendment,as well as such changed circumstances,and(ii)either(a)the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the Corporation (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The Corporation may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 are invalid,but only if and to the extent that the provisions of this sentence would not prevent an Underwriters from lawfully purchasing or selling Bonds in the primary offering of the Bonds. If the Corporation so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports"an explanation,in narrative form,of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS ...The Corporation has not previously made a continuing disclosure agreement in accordance with SEC Rule 15c2-12. 32 FINANCIAL ADVISOR...First Southwest Company is employed as Financial Advisor to the Corporation in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. First Southwest Company, in its capacity as Financial Advisor,has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present,pending or future actions taken by any legislative or judicial bodies. In the normal course of business.the Financial Advisor may from time to time sell investment securities to the Corporation for the investment of bond proceeds or other funds of the Corporation upon the request of the Corporation. The Financial Advisor to the City has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with,and as part of,its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. UNDERWRITING...The Underwriters has agreed,subject to certain conditions,to purchase the Bonds from the Corporation, at an underwriting discount of$ . The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers(including the Underwriters and other dealers depositing Bonds into investment trusts) at prices lower than the public offering prices of such Bonds, and such public offering prices may be changed,from time to time,by the Underwriters. MISCELLANEOUS...The financial data and other information contained herein have been obtained from the Corporation's records, audited fmancial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes,documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes,documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. The Resolution authorizing the issuance of the Bonds will approve the form and content of this Official Statement,and any addenda, supplement or amendment thereto,and authorize its further use in the reoffering of the Bonds by the Underwriters. President The Round Rock Transportation System Development Corporation A 11'bST: Secretary The Round Rock Transportation System Development Corporation 33 APPENDIX A GENERAL INFORMATION REGARDING THE CITY OF ROUND ROCK The following information with respect to the City of Round Rock,Texas, has been included in the APPENDIX solely to provide a general description of the community. The Bonds are special obligations of the Corporation payable solely from the receipts of a 1/2 of 1%local sales and use tax and does not constitute an indebtedness to which the taxing power of the City will be pledged. CITY ADMINISTRATION Length of Term City Council Service Expires Occupation Robert A.Stluka,Jr. 10 Years* May 2002 Independent Consultant Mayor Tom Nielson 2 Years May 2002 Attorney Councilman,Place 1 Earl M.Hairston 3 Years May 2001 Trade Association Councilman,Place 2 Carrie Pitt 1 Year May 2003 Homebuilder Councilwoman,Place 3 Earl Palmer 11 Years May 2002 Retired Businessman Councilman,Place 4 Isabel Callahan 1 Year May 2003 Economic Strategic Planner Councilwoman,Place 5 Jimmy Joseph 12 Years May 2001 Self-Employed Councilman,Place 6 • *1 Year as Mayor. APPOINTED OFFICIALS • Length of Name Position Service Robert L.Bennett,Jr. City Manager 23 Years Joanne Land Assistant City Manager/City Secretary 31 Years David Kautz Director of Finance 24 Years Stephan L.Sheets City Attorney 22 Years • A- 1 GENERAL FUND REVENUES AND EXPENDITURE HISTORY Fiscal Year Ending September 30, 2000 1999 1998 1997 1996 Revenues Taxes $33,500,847 $27,441,853 $21,846,438 $17,355,288 $13,926,639 Licenses and Permits 970,656 743,791 669,622 515,852 539,241 Charges for Services 2,268,857 1,609,133 1,611,370 1,318,516 1,210,486 Fine and Forfeitures 717,376 868,335 831,157 648,388 637,471 Miscellaneous 2,307.154 1,584,712 1,336,070 1,379,563 883,538 Total Revenues $39,764,890 $32,247,824 $26,294,657 $21,217,607 $17,197,375 Expenditures General Government $11,346,735 $ 8,602,010 $ 6,348,280 $ 5,577,920 $3,925,058 Public Safety 12,698,746 10,946,547 9,572,095 8,047,235 6,803,488 Public Works 5,234,245 4,035,009 3,122,374 2,981,616 2,543,184 Culture and Recreation 4,921,629 3,550,139 3,035,760 2,971,467 2,466,848 Total Expenditures $34,201,355 $27,133,705 $22,078,509 $19,578,238 $15,738,578 Excess(Deficiency)of Revenues over Expenditures $ 5,563,535 $ 5,114,119 $ 4,216,148 $ 1,639,369 $1,458,797 Budgeted Transfers In 1,685,000 1,660,000 1,410,000 1,449,075 1,300,000 Budgeted Transfers Out (4,390,318) (3,446,918) (2,661,536) (788,228.) (1,057,805) Total Transfers $ (2,705,318) $ (1,786,918) $ (1,251,536) $ 660,847 $ 242,195 Net Increase(Decrease) $ $ $ 2,964,612 $ 2,300,216 $1,700,992 2,858,217 3,327,201 Other Miscellaneous Adjustments 0 0 0 0 0 Beginning Balance $17,022,971 $13,695,770 $10,731,158 $ 8,430,942 $6,729,950 Ending Fund Balance $19,881,188 $17,022,971 $13,695,770 $10,731,158 $8,430,942 Source: The City of Round Rock. THE CITY. . .The City of Round Rock is located in Williamson and Travis Counties, Texas, 8 miles north of Austin and 85 miles south of Waco on Interstate Highway 35. The City is also situated on U.S.Highway 79,which runs east and west. Both U.S.Highway 79 and Interstate Highway 35 are main arteries of traffic in the State. ECONOMIC DEVELOPMENT...Round Rock has earned accolades both for its economic development efforts and its pro-business stance. The City has attracted a number of companies including Dell Computer, Sears TeleServ, Trend Technologies and Cypress Semiconductor. Dell Computer,the largest employer in Round Rock and the largest private employer in the Austin Area, has 18,000 employees in the region. Approximately half of Dell's regional workforce is located in the Round Rock facilities. Round Rock has become a magnet for business and industries,in large part because it has one of the most pro-business attitudes of any community in Central Texas. The City prides itself on a smooth development process and a pragmatic political leadership that extends a warm welcome to new employers. The City of Round Rock continues to be a major center of expansion and business activity in Williamson County and the Central Texas area. This is reflected in the approval of the La Frontera project-a 2 million sq.ft.mixed use development located at the intersection of IH 35 and future State Highway 45. The first retail businesses within the 328 acre development opened in July 2000. Major improvements for this project have been an east-west collector,a TXU fiber optic system that provides high-speed A-2 telecommunications networking capabilities to all businesses,and higher standard building and landscaping design requirements for the entire project. As part of this project,a site plan for an upscale 411 unit apartment development was recently approved which will enhance the area with a whole new urban style. A 300-room Marriott Hotel has also located in La Frontera,making it one of the few new full-service hotels planned in the state. The eight-story hotel will includes 46,000 square feet of meeting and ballroom space and opened in January 2001. Other economic developments include the voter authorization of the use of Hotel Occupancy Tax to fund construction of a convention center complex which will also accommodate a minor league baseball stadium recently named the Dell Diamond. This complex,which opened in April 2000, is already having a positive impact on tourism, local hotels,restaurants and other retailers. Another indication of Round Rock's economic growth is the increase household incomes. According to the 1990 Census, median family income was$36,730. The reported median income in January 1999 was$55,400. Round Rock has a young population with a median age of 30.9. According to the 1990 U.S. Census,26 percent of Round Rock residents hold professional positions,while 38 percent work in administrative or sales jobs. MAJOR INDUSTRY...Industries located within the City's corporate limits and in the City's immediate surrounding area produce office products, food products, computer systems and communications equipment. Various other industries and major employers such as the school district are located in the Round Rock area. The following is a partial list of major employers and the number of people they employ as of calendar 2000. Company Employees Dell Computer Corporation 9,500 Sears TeleServe 900 Farmers Insurance Group 765 Trend Technologies 550 Michael Angelo Gourmet Foods,Inc. 525 Tellabs Texas,Inc. 470 Wayne-Dresser Industries,Inc. 450 Westinghouse Motor Co./TECO 450 Tyco Packaging&Carroll Touch Systems 400 Sysco Food Services,Inc. 387 LABOR MARKET PROFILE City of Round Rock,Texas February 2001 February 2000 Total Civilian Labor Force 36,256 36,145 Total Employment 35,592 35,563 Total Unemployment 664 582 Percent Unemployment 1.8% 1.6% Williamson County February 2001 February 2000 Total Civilian Labor Force 158,183 157,405 Total Employment 155,465 154,928 Total Unemployment 2,718 2,477 Percent Unemployment 1.7 1.6% State of Texas February 2001 February 2000 Total Civilian Labor Force 10,400,900 10,162,100 Total Employment 10,004,100 9,694,800 Total Unemployment 396,800 467,300 Percent Unemployment 3.8% 4.6% COMMUNITY DEVELOPMENT. . . In June 1999, the Round Rock City Council approved the Round Rock General Plan 2000. A-3 Round Rock's growth and development pressures demanded that the City and its residents give considerable thought to numerous issues, such as the relationship between the City's physical form and its quality of life. The result was the General Plan 2000 which is a tool to guide development and to address major quality of life issues. One of the first items of implementation of the General Plan will be the enactment of special development regulations for the Palm Valley area-the location of the City's new convention center and stadium along Hwy 79. Design workshops to involve the community in creating a vision of this new community centered around the City's Old Settlers Park and the new stadium took place in the spring and summer of 2000. The Transportation Master Plan,which is part of the City's General Plan,lays out a road network that will efficiently and safely move traffic as Round Rock continues to grow. The planned roads will be phased in over the next 20-plus years,and ultimately will serve a population of 236,000. The City engaged its citizens in an unprecedented way in developing the plan,holding six formal meetings and a dozen informal meetings. More than 400 residents turned out to review the plan and provide comments. The Parks,Recreation and Open Space Master Plan was completed in May of 2000.This plan addresses future needs for playing fields,neighborhood and community parks, green belts,hike and bike trails, swimming pools and cultural opportunities. The plan sets priorities, develop implementation strategies and identify development costs. As with the aforementioned plans, community input and involvement were integral elements in the creation of this plan. CITY GOVERNMENT AND COMMUNITY SERVICE. . . The City is governed by a Council/Manager form of government with a mayor and six council members. The City has 1,173 acres of parks, which include 11 tennis courts, 29 baseball fields, 12 soccer fields and 4 swimming pools. The City will soon open the Clay Madsen Recreation Center which boasts 55,000 square feet of recreational facilities including a 6 lane lap pool,4 racquetball courts,2 full gymnasiums,weight and cardio rooms and several multi-purpose rooms. The City also has a public daily fee golf course and a recently expanded public library with 95,000 volumes and internet access. These are just a few of the many community services offered to the citizens of the City. Round Rock Hospital which is part of the Columbia St.David's network,is located along RM 620 on the west side of Interstate Highway 35. The hospital is a full-service facility which expanded this past fall,adding a complete care women's center as well as cardiac and rehabilitation facilities. Scott&White,a regional health care provider,plans to build a major medical facility at Chandler Road and Interstate Highway 35 that will provide clinic and full hospital services to the east side of the City. TRANSPORTATION . . . The City is easily accessible from the Austin-Bergstrom International Airport. Additionally, major railroads,motor freight lines and bus lines serve the City. EDUCATION FACILITIES. ..The City is located entirely within one of the fastest growing school districts in the state,the Round Rock Independent School District. The District is comprised of 110 square miles with a current 2000 Net Taxable Assessed Valuation of$10,113,197,542. Eight colleges and universities are within 60 miles of Round Rock, including the University of Texas at Austin and Southwestern University located in Georgetown. RECREATION...Located on the edge of the Texas Hill Country and the Highland Lakes,a chain of lakes created by seven dams along the Colorado River,Round Rock is situated in an area providing numerous recreational opportunities. Hunting, fishing, hiking,biking and boating are just a few of the recreational pastimes available to the community. Just south of Round Rock, Austin offers many arts and cultural experiences including symphony,ballet,museums and live music. The region's temperate climate and scenic rolling hills also provide perfect golfing opportunities on the area's 26 golf courses designed by some of the game's top professionals. Round Rock hosts numerous community and civic events and festivals throughout the year. The Round Rock Express,Round Rock's new double-A minor league baseball team, will play its inaugural season in 2000 at the new Dell Diamond. Average attendance is expected to be between 5,500 and 6,000 per game. UTILITIES. . .Major providers of utilities in Round Rock include Southwestern Bell Telephone Company,Time Warner Cable and TXU for both electric and gas service. I A-4 APPENDIX B EXCERPTS FROM THE CITY OF ROUND ROCK,TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30,2000 . The information contained in this APPENDIX consists of excerpts from the City of Round Rock,Texas Annual Financial Report for the Year Ended September 30, 2000, and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete Report for further information. (Few if any EDC's are having outside audits prepared Most cities are including the EDC as a component unit in the City's audit Unless the auditor for the City will allow reflection of the EDC's financials separately from the total audit, this means that the entire audited general purpose financial report including notes should be provided in APPENDIX B and annually on behalf of the EDC for continuing disclosure purposes.) APPENDIX C FORM OF BOND COUNSEL'S OPINION