SAND CREEK METROPOLITAN DISTRICT (in the City of Aurora and City and County of Denver, Colorado)

Transcription

1 NEW ISSUE BOOK-ENTRY-ONLY BANK QUALIFIED RATING: Fitch A (See MISCELLANEOUS Rating ) In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the Bonds is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Also, with respect to the Series 2010B Bonds, interest thereon is not included in adjusted current earnings for purposes of the federal alternative minimum tax. Under existing State statutes, interest on the Bonds is exempt from State taxation, except inheritance, estate and transfer taxes. The District has designated the Bonds as qualified tax exempt obligations under Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. For a more complete description, see TAX MATTERS. SAND CREEK METROPOLITAN DISTRICT (in the City of Aurora and City and County of Denver, Colorado) $18,200,000 GENERAL OBLIGATION LIMITED TAX REFUNDING BONDS SERIES 2010A $10,845,000 GENERAL OBLIGATION LIMITED TAX REFUNDING BONDS SERIES 2010B Dated: Date of Delivery Due: December 1, as shown below The Bonds are limited tax general obligations of the District secured by the Pledged Revenue which includes revenue derived directly or indirectly by the District (including any interest income thereon) from the following sources, after deduction of any costs of collection: (a) the Limited Mill Levy, after deduction of any amounts due under certain inclusion agreements; (b) the Specific Ownership Taxes distributed to the District; and (c) any other legally available moneys credited to the Bond Account. The District has covenanted to levy an ad valorem mill levy upon all taxable property within identified taxing areas each year in amounts sufficient to pay the principal of and interest on the Bonds and any Parity Bonds as the same become due and payable, and to make up any deficiencies in the Reserve Account; however, such mill levies will not, pursuant to the Bond Resolution, exceed 42.5 mills in any calendar year. Capitalized terms used and not otherwise defined on this cover page are defined in the Introduction to this Official Statement. The taxable property which secures repayment of the Bonds, while substantially similar, is not the same for the Series 2010A Bonds and the Series 2010B Bonds due to the exclusion of certain properties which are not responsible for repayment of the Series 2010B Bonds. Both series of Bonds are additionally secured by the Reserve Account. U.S. Bank National Association, Denver, Colorado, will act as Paying Agent for the Bonds and The Depository Trust Company, New York, New York, will act as securities depository for the Bonds. The Bonds will be issued in book-entry-only form and purchasers of the Bonds will not receive certificates evidencing their ownership interests in the Bonds. Interest on the Bonds is payable semiannually on June 1 and December 1 of each year, commencing June 1, The Bonds mature, bear per annum interest and are priced as follows: Maturity Date (December 1) MATURITY SCHEDULE CUSIP NO , Series 2010A Principal Amount Interest Rate Yield CUSIP 1 Maturity Date (December 1) Principal Amount Interest Rate Yield CUSIP $ 360, % 2.180% BX $1,965, % 3.700% CD , BY ,030, CE , BZ ,110, CF , CA ,190, CG ,845, CB ,280, CH ,900, CC ,365, CJ1 Series 2010B Maturity Date Principal Interest Maturity Date Principal Interest (December 1) Amount Rate Yield CUSIP 1 (December 1) Amount Rate Yield CUSIP $515, % 4.350% CK $565, % 4.580% CM , CL6 $1,205, % Term Bond Due December 1, 2030 Price % CUSIP CP7 1 $3,540, % Term Bond Due December 1, 2035 Price % CUSIP CQ5 1 $4,480, % Term Bond Due December 1, 2040 Price % CUSIP CR3 1 Proceeds from the sale of the Bonds will be used to: (a) refund the District s Series 2000 Bonds and Series 2007 Bonds; (b) fund a payment due in connection with the termination of an interest rate exchange agreement; and (c) pay certain costs of issuance of the Bonds. The Bonds are subject to optional redemption and mandatory sinking fund redemption prior to maturity. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read this entire Official Statement to obtain information essential to the making of an informed investment decision and should give particular attention to the section entitled RISK FACTORS. The Bonds are offered when, as and if issued by the District, subject to prior sale, withdrawal or modification of the offer without notice and subject to the approval of legality by Kutak Rock LLP, Denver, Colorado, as Bond Counsel, and certain other conditions. Certain matters will be passed upon by Grimshaw & Harring P.C., Denver, Colorado as General Counsel to the District. Kutak Rock LLP, Denver, Colorado, has also acted as Special Counsel to the District for purposes of assisting the District with the preparation of this Official Statement. The Bonds are expected to be available for delivery through the facilities of DTC on or about September 23, This Official Statement is dated September 16, The District takes no responsibility for the accuracy of CUSIP numbers, which are included solely for the convenience of owners of the Bonds. Copyright 2010, American Bankers Association, Standard & Poor s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc.

2 SAND CREEK METROPOLITAN DISTRICT (in the City of Aurora and City and County of Denver, Colorado) GENERAL OBLIGATION LIMITED TAX REFUNDING BONDS SERIES 2010A AND SERIES 2010B Board of Directors Paul W. Powers, President Wayne A. Ross, Treasurer William B. Pauls, Director Bradley W. Pauls, Director Brian D. Pauls, Director District General Counsel Grimshaw & Harring, P.C. Denver, Colorado Underwriter RBC Capital Markets Corporation Denver, Colorado Paying Agent U.S. Bank National Association Denver, Colorado Bond and Special Counsel Kutak Rock LLP Denver, Colorado

3 No dealer, salesman, or other person has been authorized to give any information or to make any representation, other than the information contained in this Official Statement, in connection with the offering of the Bonds, and, if given or made, such information or representation must not be relied upon as having been authorized by the District or the Underwriter. The information in this Official Statement is subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement does not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized, or in which any person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. The information set forth herein has been furnished by the District and obtained from other sources which are believed to be reliable. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. TABLE OF CONTENTS INTRODUCTION...1 FORWARD-LOOKING STATEMENTS...5 RISK FACTORS...6 General...6 Limited Mill Levy...6 Maintenance of Tax Base and Continued Development Not Assured...6 Competition With Other Developments...7 Present Concentration of Taxpayers Within the District...7 Risk of Reductions in Assessed Value; Market Value of Land...7 Directors Private Interests...8 Legal Constraints on District Operations...8 Enforcement of Collection Remedies...8 Enforceability of Bondholders Remedies Upon Default...8 Future Changes in Laws...9 THE BONDS...9 Description...9 Sources of Bond Payment; Pledged Revenue...9 Prior Redemption of Bonds...10 Application of Bond Proceeds...11 Security for the Bonds...13 Accounts...15 Flow of Funds...16 Covenant To Levy the Limited Mill Levy...17 Additional Bonds...17 Additional Covenants of the District...17 Defeasance...18 Events of Default and Remedies...18 Amendments to Bond Resolution...19 Debt Service Requirements...20 THE DISTRICT...21 Organization and Description...21 District Powers...21 Governing Board...22 Administration...23 District Agreements...23 District Facilities and Services...27 Services Available to Residents and Property Owners Within the District...27 DEVELOPMENT WITHIN THE DISTRICT...27 General...28 The Developer...28 Existing Development...29 DISTRICT FINANCIAL INFORMATION Ad Valorem Property Taxes Ad Valorem Property Tax Data Overlapping Mill Levies Accounting Policies and Financial Statements Financial Statements Historical Financial Information Budget and Appropriation Procedure Budgeted Financial Information Management Discussion of Material Trends Deposit and Investment of District Funds Risk Management Constitutional Amendment Limiting Taxes and Spending DEBT STRUCTURE Required Elections Debt Restrictions General Obligation Debt Estimated Overlapping General Obligation Debt General Obligation Debt Ratios Revenue and Other Financial Obligations LEGAL MATTERS Sovereign Immunity Pending and Threatened Litigation Legal Representation TAX MATTERS MISCELLANEOUS Rating Registration of Bonds Interest of Certain Persons Named in This Official Statement Continuing Disclosure Undertaking Related Parties Underwriting Additional Information Official Statement Certification APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F Audited General Purpose Financial Statements of the District as of and for the Year Ended December 31, 2009 Form of Continuing Disclosure Undertaking Development and Ownership Within the Development Economic and Demographic Information Form of Opinion Of Bond Counsel Book-Entry-Only System Neither the Securities and Exchange Commission nor any securities regulatory authority of any state has approved or disapproved the Bonds or this Official Statement. Any representation to the contrary is unlawful. ii

4 INDEX OF TABLES TABLE Page I Debt Service Requirements II History of Assessed Valuation for the District and Excluded Property III History of Mill Levies for the District and the Exclusion Adjusted Taxing Area IV 2009 Valuation of Classes of Property in the District and the Exclusion Adjusted Taxing Area V History of Exclusion Adjusted Taxing Area s Property Tax Collections VI Largest Taxpayers Within the Exclusion Adjusted Taxing Area VII Sample Total 2009 Mill Levies VIII General Fund Statement of Revenues, Expenditures and Changes in Fund Balance IX Debt Service Fund Statement of Revenues, Expenditures and Changes in Fund Balance X Capital Projects Fund Statement of Revenues, Expenditures and Changes in Fund Balance XI General Fund Budget Summary and Comparison XII Debt Service Fund Budget Summary and Comparison XIII Capital Projects Fund Budget Summary and Comparison XIV Outstanding General Obligation Limited Tax Debt XV Estimated Overlapping General Obligation Debt XVI District Historical Debt Ratios iii

5 VICINITY MAP District Vicinity iv

6 (THIS PAGE INTENTIONALLY LEFT BLANK)

7 INTRODUCTION This Official Statement is furnished to prospective purchasers of $18,200,000 General Obligation Limited Tax Refunding Bonds, Series 2010A (the Series 2010A Bonds ), and $10,845,000 General Obligation Limited Tax Refunding Bonds, Series 2010B (the Series 2010B Bonds, and together with the Series 2010A Bonds, the Bonds ), dated the date of delivery, issued by Sand Creek Metropolitan District (the District ), in the City of Aurora ( Aurora ) and the City and County of Denver ( Denver ), Colorado (the State ). The offering of the Bonds is made only by way of this Official Statement, which supersedes any other information or materials used in connection with the offer or sale of the Bonds. This Official Statement speaks only as of its date, and the information contained herein is subject to change. The following introductory material is only a brief description of, and is qualified by, the more complete information contained throughout this Official Statement. A full review should be made of the entire Official Statement and the documents summarized or described herein. Issuer... Sand Creek Metropolitan District (originally organized in 1995 as Gateway Park Metropolitan District, with the name changed to Sand Creek Metropolitan District in 1996) was organized for the purposes of providing park and recreation, sanitary sewer, traffic and safety control, street, water, public transportation, television relay and translation, and mosquito control facilities for the benefit of the property within and without the District, generally consisting of the Gateway Park development (defined hereafter.) The District consists of approximately 1, acres located north and south of Interstate 70 in Aurora and Denver, approximately 12 miles east of downtown Denver, and approximately 10 miles southwest of Denver International Airport. Approximately two-thirds of the property within the District is developed. See THE DISTRICT and the preceding VICINITY MAP. The property currently within the boundaries of the District has a 2009 assessed valuation of $148,542,100. Approximately 212 acres have been excluded since the formation of the District in 1995 and, pursuant to State law, such excluded property is no longer responsible for property taxes levied for the purpose of paying District operating expenses or indebtedness issued after the date of such exclusion (unless the indebtedness is issued for the purpose of refunding indebtedness which was outstanding at the time of such exclusion). Of the total excluded property, (a) approximately 142 acres is no longer subject to any taxation by the District and (b) approximately 70 acres is developed residential property which remains subject to the imposition of property taxes levied for payment of debt service on certain of the District s limited tax general obligation bonds (the 70 acres being referred to herein as the Excluded Property ). The 2009 assessed valuation of the Excluded Property is $9,508,040. The Excluded Property secures repayment of the Series 2010A Bonds but does not secure repayment of the Series 2010B Bonds. The area comprising the Excluded Property and the property within the District (which comprise approximately 1,322 acres) are referred to herein as the Exclusion Adjusted Taxing Area and in 2009 represented an assessed valuation of $158,050,140 (with respect to the certified assessed value of an identified calendar year, the Exclusion

8 Adjusted Assessed Valuation ). INFORMATION. See DISTRICT FINANCIAL Developer and Development Within the District... Property within the District is located in the Gateway Park development ( Gateway Park ), a planned development project of Gateway Business Park, LLC, a Colorado limited liability company (including subsidiaries and related entities GBP or the Developer ). Approximately twothirds of the Exclusion Adjusted Taxing Area, measured by acreage, presently is developed or under development, and includes office space, hotels, retail, restaurants and warehouse distribution space. The property within the District is zoned for residential, commercial, retail, office, hotel, warehouse distribution, and light industrial uses. GBP, through its related entities, currently owns approximately 446 served and developed acres within the District, and continues to develop, sell and lease portions of the property within the District. See THE DISTRICT, DEVELOPMENT WITHIN THE DISTRICT and APPENDIX C. Since the development of property within the District began in 1995, the District has constructed approximately $62,135,000 of public improvements (which amount does not include approximately $3,300,000 in cash which the District has for additional public improvement construction). Sources of Payment... The Bonds are limited tax general obligations of the District secured by the Pledged Revenue which includes revenue derived directly or indirectly by the District (including any interest income thereon) from the following sources, after deduction of any costs of collection: (a) the Limited Mill Levy, after deduction of any amounts due under certain inclusion agreements described in THE DISTRICT District Agreements Rebate Agreements ; (b) the Specific Ownership Taxes distributed to the District; and (c) any other legally available moneys credited to the Bond Account. The Bonds are additionally secured by a Reserve Account in the amount of $500,000 (the Reserve Account ). See THE BONDS Security for the Bonds Reserve Account. Subject to stated conditions, the resolution authorizing the issuance of the Bonds (the Bond Resolution ) provides for the issuance of additional bonds which have a lien on the Pledged Revenue on a parity ( Parity Bonds ) with the lien of the Bonds and additional bonds which have a lien on the Pledged Revenue which is subordinate to the lien of the Bonds ( Subordinate Bonds ). See THE BONDS Additional Bonds for a description of such conditions. The lien of the Bonds on the Pledged Revenue is currently on a parity with the District s General Obligation Limited Tax Refunding Bonds, Series 2003 (the Series 2003 Bonds ), General Obligation Limited Tax Refunding Bonds, Series 2004 (the Series 2004 Bonds ) and General Obligation Limited Tax Refunding and Improvement Bonds, Series 2006 (the Series 2006 Bonds ) (collectively, the Series 2003 Bonds, Series 2004 Bonds and 2

9 Series 2006 Bonds are referred to herein as the Outstanding Bonds ); however, portions of the Series 2003 Bonds and the Series 2004 Bonds, as well as the Series 2010A Bonds, are additionally secured by the taxes generated from the Exclusion Adjusted Taxing Area. THE BONDS ARE SOLELY THE OBLIGATIONS OF THE DISTRICT. UNDER NO CIRCUMSTANCES SHALL ANY OF THE BONDS BE CONSIDERED OR HELD TO BE AN INDEBTEDNESS, OBLIGATION OR LIABILITY OF AURORA, DENVER, THE STATE OF COLORADO OR ANY POLITICAL SUBDIVISION THEREOF OTHER THAN THE DISTRICT. See THE BONDS Security for the Bonds. Purpose... Proceeds from the sale of the Series 2010A Bonds will be used to: (a) effect a current refunding of the District s Taxable/Tax Exempt General Obligation Limited Tax Refunding Bonds, Series 2000A (the Series 2000A Bonds ), General Obligation Limited Tax Refunding Bonds, Series 2000B (the Series 2000B Bonds ) and Taxable/Tax Exempt General Obligation Limited Tax Refunding Bonds, Series 2000C (the Series 2000C Bonds ); (b) fund a payment due in connection with the termination of an interest rate exchange agreement; and (c) pay certain costs of issuance of the Series 2010A Bonds. Collectively, the Series 2000A Bonds, the Series 2000B Bonds and the Series 2000C Bonds are defined herein as the Series 2000 Bonds. Proceeds from the sale of the Series 2010B Bonds will be used to: (a) effect a current refunding of the District s Subordinate Limited Tax General Obligation Bonds, Series 2007 (the Series 2007 Bonds ), and (b) pay certain costs of issuance of the Series 2010B Bonds. See THE BONDS Application of Bond Proceeds. Payment Provisions... Book-Entry-Only Registration... Interest on the Bonds shall be payable semi annually at the rate set forth on the cover page hereof, on June 1 and December 1 each year, commencing June 1, The Bonds will be issued in fully registered form and will be registered initially in the name of Cede & Co. as nominee for The Depository Trust Company, New York, New York ( DTC ), a securities depository. Beneficial ownership interests in the Bonds may be acquired in denominations of $5,000 in principal amount or integral multiples of $5,000 in excess thereof through brokers and dealers who are, or who act through, participants in the DTC system (the Participants ). Such beneficial ownership interests will be recorded on the records of the Participants. Persons for whom Participants acquire interests in the Bonds (the Beneficial Owners ) will not receive certificates evidencing their interests in the Bonds so long as DTC or a successor securities depository acts as the securities depository with respect to the Bonds. So long as DTC or its nominee is the registered owner of the Bonds, payments of principal and interest on the Bonds, as well as notices and other communications made by or on behalf of the District pursuant to 3

10 the Bond Resolution will be made to DTC or its nominee only. Disbursement of such payments, notices, and other communications by DTC to Participants, and by Participants to the Beneficial Owners, is the responsibility of DTC and the Participants pursuant to rules and procedures established by such entities. See APPENDIX F Book- Entry-Only System for a discussion of the operating procedures of the DTC system with respect to payments, registration, transfers, notices, and other matters. Except as otherwise provided herein, the term Owner shall refer to the registered owner of any Bond, as shown by the registration books maintained by the Bond Registrar. Prior Redemption... Exchange and Transfer... Tax Status... Authority for Issuance... Delivery Information... The Bonds are subject to optional redemption and mandatory sinking fund redemption prior to maturity as described in THE BONDS Prior Redemption of Bonds. While the Bonds remain in book-entry only form, transfer of ownership by Beneficial Owners (as defined by the rules of DTC) may be made as described in under the caption APPENDIX F Book-Entry-Only System. In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the Bonds is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Also, with respect to the Series 2010B Bonds, interest thereon is not included in adjusted current earnings for purposes of the federal alternative minimum tax. Under existing State statutes, interest on the Bonds is exempt from State taxation, except inheritance, estate and transfer taxes. The District has designated the Bonds as qualified tax exempt obligations under Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. For a more complete description, see TAX MATTERS. The Bonds are issued in full conformity with the constitution and laws of the State of Colorado, including Part 2 of Article 57 of Title 11, Colorado Revised Statutes, as amended, Article 1 of Title 32, Colorado Revised Statutes, as amended (the Special District Act ), and Article 56 of Title 11, Colorado Revised Statues, as amended, and pursuant to the authorizing Bond Resolution adopted by the District s Board of Directors (the Board ) and the District s authorizing election held on November 7, 2000 (the 2000 Election ). The Bonds are offered when, as, and if issued by the District and accepted by RBC Capital Markets Corporation (the Underwriter ), subject to prior sale, and subject to the delivery of an approving opinion of Bond Counsel regarding the tax-exempt status of the Bonds and the satisfaction of certain other conditions. It is expected that the Bonds will be available for delivery through the facilities of DTC on or about September 23,

11 Financial Statements... Debt Ratios... Appended hereto are the audited general purpose financial statements of the District as of and for the year ended December 31, 2009, being the most recent audited financial statements available for the District. The following are selected District debt ratios upon issuance and delivery of the Bonds. Exclusion Adjusted District Taxing Area 2009 Certified Assessed Valuation 1, 2, 3... $148,542,100 $158,050, Statutory Actual Valuation 1, 2... $512,805,489 $630,412,364 District General Obligation Debt Outstanding Upon Issuance of the Bonds 1... $66,330,000 $66,330,000 4 Debt as a Ratio of: 2009 Assessed Valuation % Statutory Actual Valuation % - - Estimated Overlapping General Obligation Debt 1... $27,115,728 $27,115,728 Sum of District and Overlapping Debt... $93,445,728 $93,445,728 District and Overlapping Debt as a Ratio of: 2009 Assessed Valuation % Statutory Actual Valuation % For definitions of and descriptions of the methodology used in computing assessed valuation, statutory actual value, estimated population, general obligation debt outstanding, and estimated overlapping general obligation debt, see THE BONDS Security for the Bonds, DISTRICT FINANCIAL INFORMATION and DEBT STRUCTURE. 2 Portions of the Series 2003 Bonds and Series 2004 Bonds, and all of the Series 2010A Bonds, are additionally secured by property taxes generated from the Exclusion Adjusted Taxing Area for the purpose of paying the debt service on such bonds. See DISTRICT FINANCIAL INFORMATION Ad Valorem Property Tax Data. 3 According to the Adams County and the City and County of Denver Assessors offices, as of the August 25, 2010 preliminary certification date, the preliminary 2010 assessed valuation for the District is $143,632,910, and for the Exclusion Adjusted Taxing Area is $153,432,590. Historically, such preliminary valuations have been subject to adjustments and are therefore the ratios based on such preliminary valuations are not presented herein. 4 With respect to the Excluded Property which is not responsible for all of the District s Outstanding Bonds, one parcel with a 2009 certified assessed value of $3,205,207 is responsible for the payment of $24,720,000 in principal amount of the Outstanding Bonds and four parcels with an aggregate 2009 certified assessed value of $6,302,833 are responsible for the payment of $29,900,000 in principal amount of the Outstanding Bonds. Sources: Adams County and City and County of Denver Assessor s Offices, the District and individual overlapping entities ALL OF THE SUMMARIES OF THE STATUTES, RESOLUTIONS, OPINIONS, CONTRACTS, AND AGREEMENTS DESCRIBED IN THIS OFFICIAL STATEMENT ARE SUBJECT TO THE ACTUAL PROVISIONS OF SUCH DOCUMENTS. The summaries do not purport to be complete statements of such provisions and reference is made to such documents, copies of which are either publicly available or available upon request and the payment of a reasonable copying, mailing, and handling charge from: Sand Creek Metropolitan District, Suite 300, 270 St. Paul Street, Denver, Colorado 80239, Telephone: (303) ; or RBC Capital Markets Corporation, th Street, Suite 2150, Denver, Colorado 80202, Telephone (303) FORWARD-LOOKING STATEMENTS This Official Statement, and particularly the information contained under the headings entitled INTRODUCTION, RISK FACTORS, THE DISTRICT and DEVELOPMENT WITHIN THE DISTRICT, contain statements relating to future results that are forward-looking statements as defined in the Private Securities Litigation Reform Act of When used in this Official Statement, the words estimate, forecast, intend, expect, projected and similar expressions identify forward-looking 5

12 statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any projection is subject to such uncertainties. Inevitably, some assumptions used to develop the projections will not be realized and unanticipated events and circumstances will occur. Therefore, it can be expected that there will be differences between projections and actual results, and those differences may be material. For a discussion of certain of such risks and possible variations in results, see RISK FACTORS. RISK FACTORS PROSPECTIVE INVESTORS IN THE BONDS SHOULD READ THIS ENTIRE OFFICIAL STATEMENT AND SHOULD GIVE PARTICULAR CONSIDERATION TO THE FOLLOWING RISK FACTORS IN CONNECTION WITH THE PURCHASE OF THE BONDS. General The purchase of the Bonds involves certain investment risks which are discussed throughout this Official Statement, and each prospective investor should make an independent evaluation of all information presented in this Official Statement in order to make an informed investment decision. The Bonds should only be purchased by investors who can bear the continuing risk of an investment in the Bonds. Particular attention should be given to the factors described below which, among others, could affect the payment of debt service on the Bonds. Limited Mill Levy The primary source of the District s revenues pledged for debt service will be property tax revenues generated from ad valorem taxes assessed against all taxable property within the District in an amount necessary to pay the principal of and interest on the Bonds, subject to the limitations of the Limited Mill Levy. Bondholders cannot require the District to raise the mill levy above the maximum mill levy of 42.5 mills for the payment of debt service on the Bonds. The District s ability to retire the indebtedness created by the issuance of the Bonds and the Outstanding Bonds is dependent upon maintenance of its current tax base or increases in its 2009 debt service mill level of 22 mills up to the Limited Mill Levy of 42.5 mills. The debt service on the Bonds and the Outstanding Bonds will range from $4,015,000 to $4,685,000 for the next fifteen years. Based upon the District s current assessed value of $148,542,100 and Exclusion Adjusted Assessed Value of $158,050,140, assuming no increase in the District s assessed valuation over said period and Specific Ownership Taxes of approximately $215,000 (which is the average amount generated over the past five years), a maximum annual debt service mill levy of approximately 28.5 mills would be sufficient to pay the maximum annual debt service on the Bonds and the Outstanding Bonds during said period. See THE BONDS Debt Service Requirements herein for the actual annual debt service on the Bonds and the Outstanding Bonds. Maintenance of Tax Base and Continued Development Not Assured The District s ability to collect property tax revenues and Specific Ownership Tax revenues for timely payment of the Bonds depends, among other things, upon maintenance of its current tax base (or if values decline within such existing tax base, development within the District) and an increase in the District s current debt service mill levy of 22 mills as described in the preceding paragraph. Approximately two-thirds of the Exclusion Adjusted Taxing Area, measured by acreage, presently is developed or under development, and includes office space, hotels, retail, restaurants and warehouse distribution facilities. The property within the District is zoned for residential, commercial, retail, office, hotel, warehouse distribution, and light industrial uses. GBP, through its related entities, currently owns approximately 446 acres of served but undeveloped within the District, and continues to develop, sell and 6

13 lease portions of the property within the District. WITHIN THE DISTRICT. See THE DISTRICT and DEVELOPMENT Since the development of property within the District began in 1995, the District has constructed approximately $62,135,000 of public improvements (which amount does not include approximately $3,300,000 in cash which the District has for additional public improvement construction). All development projections, including, without limitation, the ultimate number of units and square feet to be constructed in the Development, are dependent upon market activity, governmental regulations, general economic conditions, and other factors over which the District and GBP have no control. All land uses, including the permitted density of the Development, and public infrastructure are subject to review and approval by either Aurora or Denver as applicable. See DEVELOPMENT WITHIN THE DISTRICT. Many unpredictable factors could influence the actual rate of development within the District, including prevailing interest rates, availability of development funding, market and economic conditions generally, supply of residential housing in the area, construction costs, labor conditions and unemployment rates, access to building supplies, availability of water and water taps, availability and costs of fuel, and transportation costs, among other things. There can be no assurance that Pledged Revenues from all sources will be sufficient to fully repay the Bonds and the Outstanding Bonds. See Enforcement of Collection Remedies below. Competition With Other Developments The Developer will be competing with other developments in the area, some of which are in close proximity to the District, and also will be competing generally with suburban developments throughout the entire Denver metropolitan area. Such competition may adversely affect the rate of development within the District. Present Concentration of Taxpayers Within the District As of the date of this Official Statement, GBP, through related entities, currently owns 18 warehouse distribution buildings; two office buildings; three retail facilities and approximately 446 acres of served but undeveloped land within the District having an aggregate 2009 assessed valuation of $33,295,776 representing approximately 21% of the District s total Exclusion Adjusted Assessed Valuation and 22.4% of the District s assessed valuation (less than 5% of which represents the assessed value of raw land). The majority of the $33,295,776 generally consists of developed revenue producing property leased to over 56 third parties. See APPENDIX C. Until such time as this concentration changes, the District will be dependent upon timely collection of taxes from GBP tenants and subsequent payment of property taxes by GBP and its related entities for payment of a material share of tax revenue necessary for payment of the debt service on the Bonds. See DISTRICT FINANCIAL INFORMATION Ad Valorem Property Tax Data and DEVELOPMENT WITHIN THE DISTRICT. Risk of Reductions in Assessed Value; Market Value of Land The assessed value of property within the District for ad valorem property tax purposes is determined according to a procedure described under DISTRICT FINANCIAL INFORMATION Ad Valorem Property Taxes. The owners of the Bonds are dependent upon a maintenance of and/or growth of the District s current tax base from which ad valorem tax revenues are collected for the payment of debt service on the Bonds or an increase within the District s mill levy up to the Limited Mill Levy. See THE BONDS Security for the Bonds. Assessed valuations may be affected by a number of factors beyond the control of the District. 7

14 Under certain circumstances, Colorado statutes permit the owners of vacant residential property to apply to the county assessor for discounted valuation of such property for ad valorem property tax purposes. Property owners are also entitled to challenge the valuations of their property each year, and no assurance can be given that owners of property within the District will not seek to do so. The values of finished lots and homes may be reduced if market prices decline due to economic factors. In certain circumstances, multi-family projects can qualify for an exemption from property taxation, although no projects of that type are currently planned within the District. Should the actions of property owners result in lower assessed valuations of property within the District or in an exemption from property taxation, there can be no assurance that property tax revenue from the Limited Mill Levy would be sufficient to pay debt service on the Bonds. In either case, the security for the Bonds would be diminished, increasing the risk of nonpayment. Regardless of the level at which property is assessed for tax purposes, the District s ability to enforce and collect property taxes is dependent upon the property within the District having sufficient fair market value to support the taxes which are imposed. No assurance can be given as to the future market values of property within the District. Directors Private Interests Pursuant to state law, the District s directors are required to disclose to the Colorado Secretary of State and the Board potential conflicts of interest or personal or private interests which are proposed or pending before the Board. According to statements filed by each conflicted director prior to taking any official action relating to the Bonds all of the directors may have potential or existing personal or private interests relating to the issuance or delivery of the Bonds or the expenditure of the proceeds thereof. Legal Constraints on District Operations Various State laws and constitutional provisions govern the assessment and collection of ad valorem property taxes and the issuance of bonds; impose limitations on revenues and spending of the State and local governments, including the District; and limit rates, fees and charges imposed by such entities. State laws, constitutional provisions and federal laws and regulations apply to the obligations created by the issuance of the Bonds. There can be no assurance that there will not be changes in interpretation of, or additions to, the applicable laws and provisions which would have a material adverse effect, directly or indirectly, on the affairs of the District. Enforcement of Collection Remedies The duty to pay property taxes does not constitute a personal obligation of the property owners within the District. Instead, the obligation to pay property taxes is tied to the properties taxed, and if timely payment is not made, the obligation constitutes a lien against the specific properties. To enforce the liens for delinquent (but not future) property taxes, the respective County Treasurer has the power to foreclose on and cause the sale of the property that is subject to the delinquent taxes or fees, as provided by law. To enforce the lien of a delinquent fee that is a fee imposed by the District, the District may proceed to foreclose on and cause the sale of the property from which the delinquent fee is due, as provided by law. Foreclosure may result in a time-consuming and expensive process. Enforceability of Bondholders Remedies Upon Default The remedies available to the owners of the Bonds upon a default are in many respects dependent upon judicial action, which is often subject to discretion and delay under existing constitutional law, statutory law, and judicial decisions, including specifically the federal Bankruptcy Code. The legal 8

15 opinions to be delivered concurrently with delivery of the Bonds will be qualified as to enforceability of the various legal instruments by limitations imposed by bankruptcy, reorganization, and insolvency or other similar laws affecting the rights of creditors generally, now or hereafter in effect; to usual equity principles which may limit the specific enforcement under State law of certain remedies; to the exercise by the United States of America of the powers delegated to it by the federal constitution; and to the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies, in the interest of serving an important public purpose. Future Changes in Laws Various federal, State and local laws apply to the operation of, and liability relating to, the District. Various State and federal laws and regulations also apply to the revenue obligations created by the issuance of the Bonds. There can be no assurance that there will not be changes in interpretation of, or additions to, the applicable laws and regulations which would have a material adverse effect, directly or indirectly, on the operation of, or on the general affairs of the District. Three ballot initiatives have been placed on the November, 2010 statewide general election ballot which among other things, if approved, would likely have a negative impact on the District s finances. See DISTRICT FINANCIAL INFORMATION Constitutional Amendment Limiting Taxes and Spending Proposed Amendments - November 2010 Election for a description of the three ballot initiatives. Description THE BONDS The Bonds will be issued in the principal amount, will be dated and will mature as indicated on the cover page of this Official Statement. For a complete statement of the details and conditions of the Bond issue, reference is made to the Bond Resolution, copies of which are available from the Underwriter prior to delivery of the Bonds. See INTRODUCTION Additional Information. Sources of Bond Payment; Pledged Revenue The Bonds are limited tax general obligations of the District secured by the Pledged Revenue which includes revenue derived directly or indirectly by the District (including any interest income thereon) from the following sources, after deduction of any costs of collection: (a) the Limited Mill Levy, after deduction of any amounts due under certain inclusion agreements described in THE DISTRICT District Agreements Rebate Agreements ; (b) the Specific Ownership Taxes distributed to the District; and (c) any other legally available moneys credited to the Bond Account. The Bonds are payable from the Pledged Revenue. The Bonds are not secured by property lying within the District, but rather by the District s obligation to annually determine, fix and certify a rate of levy, not to exceed the Limited Mill Levy, for ad valorem property taxes to the Board of County Commissioners of Adams County and the Denver City Council to pay, along with other legally available revenues, the principal of, premium, if any, and interest on the Bonds. The Bond Resolution provides that in the event any ad valorem taxes are not paid when due, the District shall cooperate with the county treasurers diligently to enforce the lien of such unpaid taxes against the property for which the taxes are owed. 9

16 Prior Redemption of Bonds Optional Redemption of the Bonds. The Bonds maturing on and before December 1, 2020 are not subject to redemption prior to their respective maturity dates. The Bonds maturing on and after December 1, 2021 are subject to redemption prior to maturity at the option of the District, in whole or in part in integral multiples of $5,000, on December 1, 2020 or on any date thereafter, at a redemption price equal to the par amount thereof (with no redemption premium) plus accrued interest to the redemption date. Mandatory Redemption of the Series 2010B Bonds. The Series 2010B Bonds maturing on December 1, 2030 are subject to mandatory sinking fund redemption, prior to maturity, in part, by lot in such manner as the Bond Registrar shall determine, on December 1 of each year set forth below, upon payment of par and accrued interest, without redemption premium, in the amounts set forth below: Year of Redemption Redemption Amount 2029 $590, ,000 1 Final maturity, not a sinking fund redemption. The Series 2010B Bonds maturing on December 1, 2035 are subject to mandatory sinking fund redemption, prior to maturity, in part, by lot in such manner as the Bond Registrar shall determine, on December 1 of each year set forth below, upon payment of par and accrued interest, without redemption premium, in the amounts set forth below: Year of Redemption Redemption Amount 2031 $645, , , , ,000 1 Final maturity, not a sinking fund redemption. The Series 2010B Bonds maturing on December 1, 2040 are subject to mandatory sinking fund redemption, prior to maturity, in part, by lot in such manner as the Bond Registrar shall determine, on December 1 of each year set forth below, upon payment of par and accrued interest, without redemption premium, in the amounts set forth below: Year of Redemption Redemption Amount 2036 $810, , , , ,000 1 Final maturity, not a sinking fund redemption. 10

17 With respect to each maturity of the Bonds subject to mandatory sinking fund redemption, if any, on or before 45 days prior to each sinking fund installment date for such maturity as set forth above, the Bond Registrar shall select for redemption, by lot in such manner as the Bond Registrar may determine, from the outstanding Bonds of that maturity, a principal amount of such Bonds equal to the applicable sinking fund installment. The amount of the applicable sinking fund installment for any particular date and maturity may be reduced by the principal amount of any Bonds of that maturity which prior to said date have been redeemed (otherwise than through the operation of the sinking fund) and cancelled and not theretofore applied as a credit against a sinking fund installment. Such reductions, if any, shall be applied in such year or years as may be determined by the District. General Redemption Provisions. If less than all of the Bonds within a maturity are to be redeemed on any prior redemption date, the Bonds to be redeemed shall be selected by lot prior to the date fixed for redemption, in such manner as the Bond Registrar shall determine. The Bonds shall be redeemed only in integral multiples of $5,000. In the event a Bond is of a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in the principal amount of $5,000 or any integral multiple thereof. Such Bond shall be treated for the purpose of redemption as that number of Bonds which results from dividing the principal amount of such Bond by $5,000. In the event a portion of any Bond is redeemed, the Bond Registrar shall, without charge to the Owner of such Bond, authenticate and deliver a replacement Bond or Bonds for the unredeemed portion thereof. Notice and Effect of Redemption. In the event any of the Bonds or portions thereof are called for redemption as aforesaid, notice thereof identifying the Bonds or portions thereof to be redeemed will be given by the Bond Registrar by mailing a copy of the redemption notice by first class mail (postage prepaid), not less than 30 days prior to the date fixed for redemption, to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books maintained by or on behalf of the District by the Bond Registrar. The redemption of the Bonds may be contingent or subject to such conditions as may be specified in the notice. Failure to give such notice by mailing to any Owner, or any defect therein, shall not affect the validity of any proceeding for the redemption of other Bonds as to which no such failure or defect exists. All Bonds so called for redemption will cease to bear interest after the specified redemption date, provided funds for their redemption are on deposit at the place of payment at that time. Application of Bond Proceeds The Refunding Plan. The net proceeds of the Series 2010A Bonds will be used by the District to refund its Series 2000A Bonds issued in the aggregate principal amount of $3,770,000, all of which is currently outstanding and bearing interest at a rate of 7.00% per annum; its Series 2000B Bonds issued in the aggregate principal amount of $10,000,000, all of which is currently outstanding and bearing interest at a rate of 6.90% per annum; its Series 2000C Bonds issued in the aggregate principal amount of $1,050,000, currently outstanding in the aggregate principal amount of $1,010,000 and bearing interest at a rate of 6.75% per annum. The net proceeds of the Series 2010B Bonds will be used by the District to refund its Series 2007 Bonds which advances have been duly made in the aggregate principal amount of $10,000,000, all of which is currently outstanding and bearing interest at a rate of 6.75% per annum. The Series 2000 Bonds and the Series 2007 Bonds are collectively defined as the Refunded Bonds. Pursuant to the Bond Resolution, the Refunded Bonds are to be called for redemption on December 1, 2010, provided, however, that $3,000,000 of the Series 2007 Bonds will be called for redemption on September 27, 2010 or on any date thereafter. As provided in the Bond Resolution, the District is refinancing the Refunded Bonds at a lower interest rate, and, therefore, advance voter approval is not required pursuant to Section 20 of Article X of the Colorado Constitution. 11

18 Upon issuance of the Bonds, the net proceeds of the Bonds, together with legally available moneys of the District, if any, will be deposited into the Escrow Account (the Escrow Account ) created pursuant to an Escrow Agreement (the Escrow Agreement ) between the District and U.S. Bank National Association, Denver, Colorado, as Escrow Agent. The moneys in the Escrow Account will be used by the Escrow Agent to acquire direct, noncallable obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America ( U.S. Government Obligations ), the maturing principal of and interest on which when due, together with cash held in the Escrow Account, will be sufficient to pay the accrued interest, maturing principal, if any, and redemption price on the Refunded Bonds on December 1, The accuracy of the computations confirming the sufficiency of the amounts deposited in the Escrow Fund to redeem the Refunded Bonds will be calculated by the Underwriter and verified by a certified public accountant. The Termination Payment. On March 16, 2007, to establish a hedge against increases in taxexempt market interest rates prior to the date on which the Series 2000 Bonds could be refunded on a current basis, the District entered into a cash settled swap with the Royal Bank of Canada (the 2007 Rate Exchange Provider ) which is to terminate and cash settle on December 1, 2010, unless terminated on an earlier date by the District. The Royal Bank of Canada is the parent company of RBC Capital Markets Corporation, the Underwriter of the Bonds being sold by the District (See MISCELLANEOUS Underwriting ). The interest rate hedge was effected on March 16, 2007, pursuant to an Interest Rate Exchange Agreement between the District and the 2007 Rate Exchange Provider (which agreement included an ISDA Master Agreement and Schedule, as well as a related swap confirmation) and was computed on the basis of an assumed District payment at a fixed rate of 4.12% on a notional amount of $15,510,000 amortized with estimated principal repayments from December 1, 2010 through December 1, 2025 in exchange for receipt from the 2007 Rate Exchange Provider of a BMA Municipal Swap Index floating rate of interest on said notional amount and estimated amortization. Due to the general decline in municipal tax-exempt interest rates since March of 2007, the District owes the 2007 Rate Exchange Provider $2,645,000 upon termination of the cash settled swap. The pricing of the termination payment occurred on September 14, With the exception of the above cash settled swap, the District has no other swaps outstanding as of the date of this Official Statement. 12

19 Application of Bond Proceeds. The estimated source and use of the proceeds of the Bonds is as follows: SERIES 2010A SOURCES: Series 2010A Bond Proceeds 1... $18,014, Other District Funds , Total... $18,522, SERIES 2010A USES: Deposit to Escrow Account... $15,282, Payment of Termination Amount ,645, Deposit to Reserve Account , Costs of issuance, including professional fees, printing costs, contingency, and underwriters discount , Total... $18,522, Includes net original issue discount on sale of certain of the Bonds. 2 Represents the amount currently on deposit in the reserve account for the Series 2000 Bonds. 3 Represents the amount which is due on the Royal Bank of Canada upon termination of a cash settled swap. See The Termination Payment above. 5 See MISCELLANEOUS Underwriting. SERIES 2010B SOURCES: Series 2010B Bond Proceeds 1... $10,601, SERIES 2010B USES: Deposit to Escrow Account... $ 7,234, Refunding Series 2007 Bonds... 3,009, Deposit to Reserve Account , Costs of issuance, including professional fees, printing costs, contingency, and underwriters discount , Total... $10,601, Includes net original issue discount on sale of certain of the Bonds. 2 See MISCELLANEOUS Underwriting. Security for the Bonds As described hereafter, Pledged Revenue the revenue derived directly or indirectly by the District (including any interest income thereon) from the following sources, after deduction of any costs of collection: (a) the Limited Mill Levy, after deduction of any amounts due under the ADC Inclusion Agreement, the Becknell Inclusion Agreement, the Manheim Inclusion Agreement, and the Wal-Mart Agreement; (b) the Specific Ownership Taxes distributed to the District; and (c) any other legally available moneys credited to the Bond Account. Limited Tax General Obligations. The Bonds constitute limited tax obligations of the District; the debt service on the Bonds is payable solely from and to the extent of the Pledged Revenue, and the Pledged Revenue is pledged to the payment of the Bonds pursuant to the Bond Resolution. The Bonds constitute an irrevocable first lien upon the Pledged Revenue, but not necessarily an exclusive such lien. See Additional Bonds hereafter. Contemporaneously with the issuance of the Bonds, Bond Counsel will deliver its opinion that the Bonds are valid and legally binding limited tax general obligations of the District, and that all taxable property within the boundaries of the District is subject to the Limited Mill Levy, to pay the principal of 13

20 and interest on the Bonds as the same become due. A form of the opinion of Bond Counsel is appended hereto. For the purpose of paying the principal of and interest on the Bonds, the Outstanding Bonds and any Parity Bonds when due, respectively, the Board is to annually determine and certify to the Board of County Commissioners of Adams County and City Council of Denver a rate of levy for general ad valorem taxes on all of the taxable property which is within the District or otherwise responsible for the payment of the Bonds, the Outstanding Bonds, and any Parity Bonds sufficient to pay the principal of and interest on the Bonds, Outstanding Bonds and any Parity Bonds when due, respectively, whether at maturity or upon earlier redemption; provided however, said rate of levy cannot exceed the Limited Mill Levy and nothing in the Bond Resolution requires the District to levy an ad valorem property tax for payment of the Bonds in excess of the Limited Mill Levy. Further, in determining said levy the Board is to take into consideration the amount of other legally available funds deposited to the Bond Account at the time of certification of the Limited Mill Levy. In order to account for moneys available for the payment of limited tax bonds secured by the assessed value of the Excluded Property, the District may create subaccounts within the Bond Account for each series of bonds, or portions of a series. Limited Mill Levy. Limited Mill Levy is defined in the Bond Resolution an ad valorem mill levy (a mill being equal to 1/10 of $0.01) imposed upon all taxable property of the District each year in an amount, when combined with other legally available funds in the Bond Account, is sufficient to pay the principal of, premium if any, and interest on the Bonds and any Parity Bonds as the same become due and payable, and to make up any deficiencies in the Reserve Account, but not in excess of 42.5 mills; provided however, that notwithstanding the foregoing reference to 42.5 mills, the mill levy required to be imposed for Parity Bonds shall be limited as provided in the documents authorizing the issuance thereof, which documents may provide for different mill levy limitations for such Parity Bonds. Rebate Agreements. Four parcels of property are subject to property tax rebate agreements: (a) a acre parcel of property within the District is subject to a covenant running with the land created pursuant to the ADC Inclusion Agreement; (b) a 5.14 acre parcel of property within the District is subject to a similar covenant created pursuant to the Becknell Inclusion Agreement; (c) a acre parcel of property is subject to a similar covenant created pursuant to the Manheim Inclusion Agreement; and (d) a 27.3 acre parcel of property is subject to a similar covenant created pursuant to the Wal-Mart Rebate Agreement. These agreements generally provide that the District will rebate certain property tax revenues received from the owner of such property in accordance with the procedures set forth in the agreements. See THE DISTRICT District Agreements Rebate Agreements. Specific Ownership Tax. The Specific Ownership Tax is a State-imposed tax upon motor vehicles which is shared among all local governments, including the District. Revenues from this tax are distributed by the State to each county, which then distributes the revenues to each local government in the county which levies an ad valorem property tax, in proportion to the amount of ad valorem property taxes levied by that local government. Bond Account. Pledged Revenue which, when combined with other legally available moneys therein, will be sufficient to pay the principal of, premium if any, and interest on the Bonds, the Outstanding Bonds and any Parity Bonds when due. Moneys credited to the Bond Account shall be used solely to pay the principal of, premium if any, and interest on the Bonds, Outstanding Bonds and any Parity Bonds. If necessary, the interest to become due on the Bonds on the first Interest Payment Date shall be advanced from any revenues or funds of the District lawfully available for such purpose. An amount sufficient to pay the principal and interest coming due on any Interest Payment Date shall be transferred by the District to the Paying Agent in time to make such payment. 14

21 Accounts In the Bond Resolution, the District will create and establish the Bond Account and the Reserve Account, each of which will be maintained by the District in accordance with the provisions of the Bond Resolution. In the Bond Resolution, the District will also create and establish the Escrow Account, to be established and maintained at U.S. Bank National Association, Denver, Colorado, for the purpose of paying the principal of, premium, if any, and interest on the Refunded Bonds. The Escrow Account will be maintained in accordance with the provisions of the Bond Resolution and of the Escrow Agreement. Bond Account. There shall be credited to the Bond Account an amount of Pledged Revenue which, when combined with other legally available moneys in the Bond Account, will be sufficient to pay the principal of, premium if any, and interest on the Bonds and any Parity Bonds when due. Moneys in the Bond Account shall be used by the District solely to pay the principal of, premium if any, and interest on the Bonds and any Parity Bonds, in the following order; provided that to the extent the moneys pledged to the payment of the Bonds and any Parity Bonds differs, either as a result of different definitions of Pledged Revenue, the application of reserve moneys, or otherwise, the Bond Account shall be segregated accordingly so as to maintain such differences: FIRST, to the payment of interest due in connection with the Bonds and any Parity Bonds (including without limitation current interest, accrued but unpaid interest, and interest due as a result of compounding, if any); and SECOND, to the extent any moneys are remaining in the Bond Account after the payment of such interest, to the payment of the principal of and premium, if any, on the Bonds and any Parity Bonds, whether due at maturity or upon prior redemption. In the event that available moneys in the Bond Account are insufficient for the payment of the principal of, premium if any, and interest due on the Bonds and any Parity Bonds on any due date, the District shall on the due date pay such amounts as are available, proportionally in accordance with the amount of interest, principal, and premium, if any, due on each Bond or Parity Bond, as partial payment of the amounts due, but in accordance with the priority set forth above. Any partial payments of principal shall be in the amount of $5,000 or integral multiples thereof, and the Bonds or Parity Bonds or portions thereof to be redeemed pursuant to such partial payment shall be selected by lot. Moneys credited to the Bond Account may be invested or deposited in Permitted Investments only and in accordance with the laws of the State. The investment of moneys credited to the Bond Account shall, however, be subject to the covenants and provisions of the section of the Bond Resolution entitled Disposition and Investment of Proceeds; Tax Covenants. All interest income from the investment or reinvestment of moneys credited to the Bond Account shall remain in and become part of the Bond Account. Pursuant to the Bond Resolution, the District is to deposit with the Paying Agent an amount sufficient to provide for the payment of the principal of and interest due on the Bonds and any Parity Lien Bonds at least five (5) days prior to the Principal Payment Date and Interest Payment Date on which such amounts are due. Reserve Account. The Bond Resolution establishes a reserve account for the Bonds which is to be held by the District. Moneys in the Reserve Account are to be used, if necessary, solely for the purpose of paying the principal of or interest on the Bonds when due. In the event that, four (4) days prior to any Bond Principal Payment Date or Interest Payment Date there are insufficient moneys on deposit in the Bond Account to make such payment on the Bonds when due, the District shall 15

22 immediately deposit with the Paying Agent moneys from the Reserve Account in an amount sufficient to pay such principal and interest when due. Moneys credited to the Reserve Account may be invested or deposited in Permitted Investments only and in accordance with the laws of the State of Colorado. The balance of moneys in the Reserve Account shall (i) be maintained in the amount of the reserve account requirement, which amount is equal to $500,000 (the Reserve Account Requirement ), (ii) be valued and marked-to-market on an annual basis and (iii) to the extent less than the Reserve Account Requirement, be replenished from Pledged Revenues, but in no event less than twelve months from the date of any deficiency. If at any time the amount of the Reserve Account is more than the Reserve Account Requirement, the District is to transfer to the Bond Account such amount which is in excess of the Reserve Account Requirement for the payment of the interest on the Bonds when due. The Reserve Account is to be maintained by the District until such time as the ratio of the principal amount of the outstanding debt of the District (including the Bonds and all Parity Lien Bonds) is less than one-third of the certified assessed valuation of the District. At such time as an independent Certified Public Account certifies that the foregoing test has been met, notice shall be given in accordance with the Continuing Disclosure Undertaking and the obligation of the District to maintain the Reserve Account shall terminate. In the event that the obligation of the District to maintain the Reserve Account terminates pursuant to the preceding paragraph, the balance of moneys in the Reserve Account is to, at the option of the District, be used (i) for the payment of debt service on the Bonds or (ii) for the construction, improvement or acquisition of capital improvements of the District to the extent that nationally recognized bond counsel opines to the District that such use will not impact the exclusion from gross income of the interest on the Bonds for federal and state income tax purposes. Flow of Funds The following is a description of certain provisions of the Bond Resolution providing for deposits and other matters, and is subject in all respects to the more specific provisions of the Bond Resolution. The Bond Resolution provides that, upon the issuance of the Bonds, all Pledged Revenue shall be applied by the District in the following order of priority: FIRST, to the credit of the Bond Account, the amounts required by the section of the Bond Resolution entitled Bond Account ; SECOND, to the credit of the Reserve Account, the amounts required by the section of the Bond Resolution entitled Reserve Account, and to the credit of any sinking fund, reserve fund, or similar fund or account established in connection with any Parity Bonds, the amounts required by the resolution or other enactment authorizing issuance of the Parity Bonds; THIRD, to the credit of any other fund or account hereafter established for the payment of the principal of, premium if any, and interest on Subordinate Bonds, including any sinking fund, reserve fund, or similar fund or account established therefor, the amounts required by the resolution or other enactment authorizing issuance of the Subordinate Bonds; and FOURTH, to the credit of any other fund or account as may be designated by the District, to be used for any lawful purpose, any Pledged Revenue remaining after the payments and accumulations set forth in clauses FIRST through THIRD above. 16

23 Covenant To Levy the Limited Mill Levy For the purpose of paying the principal of, premium if any, and interest on the Bonds and any Parity Bonds, and if necessary, funding the Reserve Account, there shall be levied by the Board of County Commissioners of Adams County and by the City and County of Denver, Colorado, on all of the taxable property of the District, in addition to all other taxes, direct annual taxes in the amount of the Limited Mill Levy. Nothing herein shall be construed to require the District to levy an ad valorem property tax for payment of the Bonds or the funding of the Reserve Account in excess of the Limited Mill Levy. The foregoing provisions of the Bond Resolution are hereby declared to be the certificate of the Board to the Board of County Commissioners of Adams County and the City and County of Denver, Colorado, showing the aggregate amount of taxes to be levied from time to time, as required by law, for the purpose of paying the principal of, premium if any, and the interest on the Bonds and any Parity Bonds, and funding the Reserve Account. The amounts necessary to pay all costs and expenses incidental to the issuance of the Bonds and to pay the principal of, premium if any, and interest on the Bonds and any Parity Bonds when due are hereby appropriated for said purposes, and such amounts as appropriate for each year shall also be included in the annual budget and the appropriation bills to be adopted and passed by the Board in each year, respectively, until the Bonds and any Parity Bonds have been fully paid, satisfied and discharged. It shall be the duty of the Board, annually, at the time and in the manner provided by law for levying other District taxes, to ratify and carry out the provisions hereof with reference to the levying and collection of taxes; and the Board shall levy, certify and collect said taxes in the manner provided by law for the purpose of paying the principal of, premium if any, and interest on the Bonds and any Parity Bonds, and funding the Reserve Account. Additional Bonds The Bond Resolution provides that (a) the District shall not incur any additional debt or other financial obligation having a lien upon the Pledged Revenue or the general ad valorem tax revenues of the District superior to the lien thereon of the Bonds; and (b) so long as no Event of Default shall have occurred and be continuing, nothing in the Bond Resolution shall prevent the District from issuing Parity Bonds, or obligations payable from sources other than the Pledged Revenue, or obligations which are specifically made subordinate to the Bonds. See DEBT STRUCTURE Debt Restrictions. Additional Covenants of the District For so long as any Bond is outstanding, the District covenants in the Bond Resolution as follows: (a) The District will continue to operate and manage the District in an efficient and economical manner in accordance with all applicable laws, rules and regulations, and keep and maintain separate accounts of the receipts and expenses thereof in such manner that the Pledged Revenue may at all times be readily and accurately determined. (b) At least once a year in the time and manner provided by law, the District will cause an audit to be performed of the records relating to District revenues and expenditures. In addition, at least once a year in the time and manner provided by law, the District will cause a budget to be prepared and adopted. Copies of the budget and the audit will be filed and recorded in the places, time and manner provided by law. 17

24 Defeasance (c) The District will carry fire and extended coverage, workers compensation to the extent required by law, public liability, and such other forms of insurance on insurable District property as would ordinarily be carried by entities having similar properties of equal value. (d) Each District official or other person having custody of any Pledged Revenue, or responsible for the handling of such funds, shall be fully bonded or insured against theft or defalcation at all times, in the amount required by law, which bond or insurance shall be conditioned upon the proper application of said funds. (e) In the event the Pledged Revenue is insufficient or is anticipated to be insufficient to pay the principal of, premium if any, and interest on the Bonds when due, the District shall use its best efforts to refinance, refund, or otherwise restructure the Bonds so as to avoid such a default. The Bond Resolution provides that when all principal, interest, and premiums, if any, in connection with any Bond have been duly paid, the pledge and lien and all obligations of the District hereunder with respect to such Bond shall thereby be discharged and such Bond shall no longer be deemed to be outstanding within the meaning of the Bond Resolution. There shall be deemed to be such due payment when the District has placed in escrow and in trust with a commercial bank located within or without the State, and exercising trust powers, an amount sufficient (including the known minimum yield from Federal Securities in which such amount may be initially invested) to meet all requirements of principal, interest, and premiums, if any, on such Bond or Bonds, as the same become due to their final maturities or upon designated prior redemption dates. The Federal Securities shall become due at or prior to the respective times on which the proceeds thereof shall be needed, in accordance with a schedule established and agreed upon between the District and such bank at the time of the creation of the escrow, or the Federal Securities shall be subject to redemption at the option of the holders thereof to assure such availability as so needed to meet such schedule. The sufficiency of the escrow shall be determined by a Certified Public Accountant. Events of Default and Remedies The Bond Resolution provides that the occurrence or existence of any one or more of the following events shall be an event of default thereunder: (a) failure by the District to impose the Limited Mill Levy or to apply the proceeds thereof as required by the terms of the Bond Resolution; (b) the District defaults in the performance of any other of its covenants in the Bond Resolution, and such default continues for 30 days after written notice specifying such default and requiring the same to be remedied is given to the District by the Owners of 25% in aggregate principal amount of the Bonds then outstanding; or (c) the District files a petition under the federal bankruptcy laws or other applicable bankruptcy laws seeking to adjust the debt represented by the Bonds. Upon the occurrence and continuance of an Event of Default, the Owner of any Bond may proceed to protect and enforce the rights of any Owner under the Bond Resolution by mandamus or such other suit, action, or special proceedings in equity or at law, in any court of competent jurisdiction. All such proceedings shall be instituted, had, and maintained for the equal benefit of all Owners of the Bonds then outstanding. Notwithstanding any other provision to the contrary, the Bonds shall not be subject to acceleration upon an Event of Default. 18

25 Amendments to Bond Resolution The District may, without the consent of or notice to the Owners, adopt amendments or supplements to the Bond Resolution, which amendments or supplements shall thereafter form a part hereof, for any one or more of the following purposes: (a) to cure any ambiguity, to cure, correct or supplement any formal defect or omission or inconsistent provision contained in the Bond Resolution, to make any provision necessary or desirable due to a change in law, to make any provisions with respect to matters arising under the Bond Resolution, or to make any provisions for any other purpose, if such provisions are necessary or desirable and do not materially adversely affect the interests of the Owners of the Bonds; (b) to subject to the Bond Resolution or pledge to the payment of the Bonds additional revenues, properties or collateral; and (c) to grant or confer upon the Owners any additional rights, remedies, powers or authority that may be lawfully granted to or conferred upon the Owners. Except for the foregoing, the Owners of not less than two thirds in aggregate principal amount of the Bonds then outstanding shall have the right, from time to time, to consent to and approve the adoption by the District of such resolutions amendatory or supplemental hereto as shall be deemed necessary or desirable by the District for the purpose of modifying, altering, amending, adding to, or rescinding, in any particular, any of the terms or provisions contained in the Bond Resolution; provided however, that without the consent of the Owners of all the Bonds affected thereby, nothing herein contained shall permit, or be construed as permitting: (i) a change in the terms of the maturity of any Bond, in the principal amount of any Bond or the rate of interest thereon, or in the terms of prior redemption of any Bond; (ii) an impairment of the right of the Owners to institute suit for the enforcement of any payment of the principal of, premium if any, or interest on the Bonds when due;(iii) a privilege or priority of any Bond or any premium or interest payment over any other Bond or premium or interest payment; or (iv) a reduction in the percentage in principal amount of the Bonds the consent of whose Owners is required for any such amendatory or supplemental resolution. [Remainder of Page Intentionally Left Blank] 19

26 Debt Service Requirements Set forth in the following table are the debt service requirements for the Bonds and the District s other outstanding general obligation debt, upon issuance of the Bonds. See DEBT STRUCTURE General Obligation Debt. TABLE I Debt Service Requirements 1 Series 2010A Bonds Series 2010B Bonds Other Outstanding Annual Year Principal Interest Principal Interest Obligations 2 Total 2010 $ -- $ -- $ -- $ -- $ 1,940,700 3 $ 1,940, , ,027 2,829,105 4,241, , ,312 2,825,835 4,013, , ,312 3,130,960 4,319, , , ,312 3,130,890 4,678, , , ,312 3,127,125 4,679, , , ,312 3,129,750 4,680, , , ,312 3,132,650 4,682, ,845, , ,312 1,691,063 4,678, ,900, , ,313 1,692,337 4,679, ,965, , ,313 1,687,725 4,675, ,030, , ,313 1,696,475 4,680, ,110, , ,313 1,693,825 4,682, ,190, , ,313 1,695,275 4,684, ,280, , ,313 1,700,575 4,686, ,365,000 97, ,313 1,704,500 4,684, , ,313 4,157,025 5,189, , ,425 4,157,700 5,193, , ,800 4,155,075 5,191, , ,375 4,160,331 5,196, , ,825 4,157,350 5,192, , ,150 5,006,138 6,043, , , ,036, , , ,034, , , ,035, , , ,035, , , ,034, , , ,033, , , ,036, ,000 96, ,036, ,000 49, ,034,250 Total $18,200,000 $7,823,072 $10,845,000 $12,542,027 $62,602,409 $112,012,508 1 Figures have been rounded. Assumes that mandatory sinking fund redemption payments are made, but assumes that no optional redemptions prior to maturity are made. 2 Includes principal and interest thereon for the Series 2003 Bonds, the Series 2004 Bonds and Series 2006 Bonds. 3 This figure does not include the June 1, 2010 payment of $885,700 on the Series 2003 Bonds, the Series 2004 Bonds and Series 2006 Bonds. Source: The Underwriter 20

27 THE DISTRICT Organization and Description The District is a quasi-municipal corporation and a political subdivision of the State created in 1995 pursuant to the Special District Act for the purpose of providing park and recreation, sanitary sewer, traffic and safety control, street, water, public transportation, television relay and translation, and mosquito control facilities for the benefit of the property within and without the District. Formation of the District was preceded by the approval by the City of Aurora in 1995 approval of the District s service plan (the Service Plan, as most recently amended in 2005), which describes the purposes of the District and outlines its proposed activities, debt limitations and financial plan. The District encompasses approximately 1,252 acres in the northeastern portion of the Denver metropolitan area near Denver International Airport. In addition, the developments that comprise the Excluded Property remain subject to taxation for purposes of paying the debt service on the Series 2010A Bonds, and a portion of the Series 2003 Bonds, and the Series 2004 Bonds. However, pursuant to State law, such properties are not subject to taxation for purposes of paying debt service on the Series 2010B Bonds. For a description of development within the District and the Developer, see DEVELOPMENT WITHIN THE DISTRICT. Since the development of property within the District began in 1995, the District has constructed approximately $62,135,000 of public improvements (which amount does not include approximately $3,300,000 in cash which the District has for additional public improvement construction). District Powers The rights, powers, privileges, authorities, functions and duties of the District are established by the laws of the State of Colorado, particularly Title 32, Article 1, C.R.S., which provides that the District has the power: to enter into contracts and agreements; to sue and be sued; to fix and from time to time increase or decrease fees, rates, tolls, or charges for services, programs or facilities furnished by or available from the District, and to pledge such revenue for the payment of any indebtedness of the District; to acquire, dispose of, and encumber real and personal property, and any interest therein, including leases and easements; and to have the management, control, and supervision of all the business affairs of the District, and the construction, installation, operation and maintenance of the District improvements therein. Inclusion of Property. The Special District Act provides that the boundaries of a special district may be altered by the inclusion of additional real property if 100% of the property owners petition the Board for inclusion. Inclusions are not allowed if the property is in a municipality or county which is capable of providing the same services as are provided by the special district (except under certain limited circumstances) if the municipality or county objects to provision of such services by the special district. The District is also contractually obligated to obtain the approval of the City of Aurora prior to including any property within its boundaries. See District Agreements Intergovernmental Agreements below. Approximately 448 acres have been included since the formation of the District in The District is not presently considering any additional inclusions. Exclusion of Property. The Special District Act provides that the boundaries of a special district also may be altered by the exclusion of real property from the District under certain circumstances. After its exclusion, the excluded property is no longer subject to the special district s operating mill levy, and is not subject to any debt service mill levy for new debt issued by the special district. The excluded property, however, remains subject to the special district s debt service mill levy for that proportion of the special district s outstanding indebtedness and the interest thereon existing immediately prior to the 21

28 effective date of the exclusion order. The District is also contractually obligated to obtain the approval of the City of Aurora prior to excluding any property from its boundaries. See District Agreements Intergovernmental Agreements below. Approximately 212 acres have been excluded since the formation of the District in 1995, of which approximately 70 acres are a part of the Exclusion Adjusted Taxing Area. As described in the Service Plan, these exclusions occurred either when the excluded property was sold for development for residential uses or represent the bulk sale of property to other developers desiring to have such property included within, and served by, other special districts. Due to the timing of these exclusions in relationship to the timing of the issuance of the District s various series of bonds, the properties that comprise the Excluded Property remain subject to taxation for purposes of paying the debt service on the Series 2010A Bonds, and a portion of the Series 2003 Bonds, and the Series 2004 Bonds. However, pursuant to State law, such properties are not subject to taxation for purposes of paying debt service on the Series 2010B Bonds. As set forth in the Service Plan, additional property may be excluded in the future as it is sold for residential use. As the Outstanding Bonds and the Bonds mature, are redeemed, or are otherwise defeased, certain parcels of the Excluded Property may no longer be subject to the District s debt service mill levy, or may be subject to a debt service mill levy which is lower than the debt service mill levy imposed upon property within the District s boundaries at that time. Each year, the Board reviews the taxation of the parcels which comprise the Excluded Property and determines the amount of tax to impose on such property for the payment of debt service on bonds for which that property is liable. Governing Board The District is governed by the Board, which consists of five members. The members must be electors of the District as defined by State law and are elected to alternating four-year terms of office at successive biennial elections. Vacancies on the Board are filled by appointment of the remaining directors, the appointee to serve until the next regular election, at which time the vacancy is filled by election for any remaining unexpired portion of the term. Pursuant to statute, with certain exceptions, no nonjudicial elected official of any political subdivision of the State can serve more than two consecutive terms in office. The term limitation was eliminated pursuant to voter approval. The Board holds regular meetings and special meetings as needed. Each director is entitled to one vote on all questions before the Board when a quorum is present. Although current Board members may receive a maximum compensation of $1,600 per year, not to exceed $100 per meeting attended, currently, the District s Board does not receive compensation for meeting attendance. With the exception of this compensation, Board members may not receive compensation from the District as employees of the District. The present directors, their positions on the Board, principal occupations, and lengths of service to the District, are as follows. Mike Serra III, the District s Manager, also serves as Secretary to the Board. Name Office Principal Occupation Years of Service Term Expires (May) Paul W. Powers President Land Development/Investor Wayne A. Ross Treasurer Chief Financial Officer/Oil & Gas William B. Pauls Director Investor Bradley W. Pauls Director Land Development/Investor Brian D. Pauls Director Land Development/Investor

29 Pursuant to State law, directors are required to disclose to the Colorado Secretary of State and the Board potential conflicts of interest or personal or private interests which are proposed or pending before the Board. Additionally, no contract for work or material including a contract for services, regardless of the amount, shall be entered into between the District and a member of the Board, or between the District and the owner of 25% or more of the territory within the District, unless a notice has been published for bids and such member of the Board or owner submits the lowest responsible and responsive bid. According to conflict of interest disclosures filed with the Secretary of State and the District by Board members prior to taking any official action relating to the Bonds, all of the directors may have potential or existing personal or private interests relating to the issuance or delivery of the Bonds or the expenditure of the proceeds thereof. Administration The Board is responsible for the overall management and administration of the affairs of the District. The District has no employees and the day to day administration, operation and maintenance of the District is accomplished pursuant to a management agreement (the Management Agreement ) with Pauls Real Estate Investments, LLC, a Colorado limited liability company which is a related entity of the Developer (the Management Company ) to manage the day to day operations of the District. Pursuant to the Management Agreement, the Management Company is responsible for all management, administrative, accounting and clerical services for the District. The individual primarily responsible for these activities is the District s Management Company, Mike Serra III, who also serves as Secretary to the Board and is employed by the Developer. The Management Company is compensated based upon its direct costs incurred in providing management services to the District. Prior to his employment with the Developer in 1995, Mike Serra III served as Facilities Management Director for Mesa County, Colorado, since Prior to that time, Mr. Serra was employed in several positions in both the public and private sector, most of which involved real estate development and working with governmental entities. From 1985 to 1989, he worked for the Powderhorn Resort Corporation, including service as its Executive Vice President. From 1977 to 1980, he was employed by the City of Montrose, Colorado, including serving as the City Planner. In addition, the District retains Grimshaw & Harring, P.C., Denver, Colorado as its general counsel; and Bondi & Co., Certified Public Accountants and Management Consultants, Englewood, Colorado, as its auditor. District Agreements As contemplated within the District s Service Plan, the District is authorized to cooperate or contract with other public entities to provide any function, service or facility lawfully authorized to each, including among others, the sharing of costs, so long as such cooperation or contract is authorized by the body having the power to so approve, certain of which agreements are described below. Rebate Agreements. The District is a party to four agreements pursuant to which it has agreed to rebate certain property tax revenue to property owners. Each agreement (collectively, the Rebate Agreements ) is described below. Wal-Mart Rebate Agreement. In a Rebate Agreement dated February 13, 2004 (the Wal-Mart Rebate Agreement ), between the District and Wal-Mart Stores, Inc. ( Wal-Mart ), the District agreed that it would rebate certain taxes to Wal-Mart. A 27.3 acre parcel of property which is subject to this agreement comprises approximately 2.18% of the currently developed 23

30 Exclusion Adjusted Taxing Area (measured by acreage) and 3.5% of the District s taxable property based upon its 2009 assessed value of $5,001,260. In the Wal-Mart Rebate Agreement, the District covenanted that it would levy its ad valorem property tax upon the property owned by Wal-Mart, but would also calculate an Effective Mill Levy and rebate to Wal-Mart the difference, if any, between the amount of property taxes paid by Wal-Mart to the District, and the amount of the Effective Mill Levy (plus county fees and costs). The Effective Mill Levy is 20 mills. In the opinion of the District s general counsel, the Wal-Mart Rebate Agreement does not impair the District s ability to levy the Limited Mill Levy upon all property within the District or the Exclusion Adjusted Taxing Area, including the property owned by Wal-Mart which is subject to the Effective Mill Levy. The Wal-Mart Rebate Agreement provides that the District s obligation to rebate funds to Wal-Mart is subordinate to the District s obligation to pay the amounts that are due and owing, or become due and owing, pursuant to its various general obligation refunding and improvement bonds; however, to the extent that the District s obligations under such bonds require that the District pay to the holders thereof all or any part of such rebate, then the rebate amount shall, until paid in full, remain due and payable to Wal-Mart, and the District shall appropriate and pay to Wal-Mart the rebate amount or the remainder thereof from its general funds, as and when the same become available. Pursuant to the Bond Resolution, moneys owed to Wal-Mart under the terms of the Wal-Mart Rebate Agreement are deducted from District revenues generated by the Limited Mill Levy. See SECURITY FOR THE BONDS and RISK FACTORS Risk of Reductions in Assessed Value; Market Value of Land. Becknell Inclusion Agreement. In an Inclusion Agreement dated May 15, 1996 (the Becknell Inclusion Agreement ), between the District and Becknell Corporation ( Becknell ), the District agreed to include 5.14 acres of property owned by Becknell into the District. The property which is subject to this agreement currently comprises approximately 0.41% of the District by acreage and 0.57% of the currently developed Exclusion Adjusted Taxing Area, measured by its 2009 assessed valuation of approximately $900,140. In the Becknell Inclusion Agreement, the District covenanted that it would levy its ad valorem property tax upon the property owned by Becknell, but would also calculate an Effective Mill Levy and rebate to Becknell the difference, if any, between the amount of property taxes paid by Becknell to the District, and the amount of the Effective Mill Levy. For the year 2002 and thereafter, the Effective Mill Levy is 10 mills. To be entitled to reimbursement, Becknell must request reimbursement annually and submit proof of payment of the property taxes. In the opinion of the District s general counsel, the Becknell Inclusion Agreement does not impair the District s ability to levy the Limited Mill Levy upon all property within the District, including the property owned by Becknell which is subject to the Effective Mill Levy. Pursuant to the Bond Resolution, however, moneys owed to Becknell under the terms of the Becknell Inclusion Agreement are deducted from District revenues generated by the Limited Mill Levy. See SECURITY FOR THE BONDS and RISK FACTORS Risk of Reductions in Assessed Value; Market Value of Land. Manheim Inclusion Agreement. In an Inclusion Agreement dated May 21, 1999 (the Manheim Inclusion Agreement ), between the District and Manheim Services Corporation ( Manheim ), the District agreed to include acres of property owned by Manheim into the District. The property which is subject to this agreement currently comprises 8.5% of the Exclusion Adjusted Taxing Area, measured by acreage, or approximately 3.5% of the Exclusion Adjusted Taxing Area, measured by its 2009 assessed valuation of approximately $5.56 million. 24

31 In the Manheim Inclusion Agreement, the District covenanted that it would levy its ad valorem property tax upon the property owned by Manheim, but would also calculate an Effective Mill Levy and rebate to Manheim the difference, if any, between the amount of property taxes paid by Manheim to the District, and the amount of the Effective Mill Levy, which is 20 mills (subject to certain adjustments). To be entitled to reimbursement, Manheim must request reimbursement annually and submit proof of payment of the property taxes. In the opinion of the District s general counsel, the Manheim Inclusion Agreement does not impair the District s ability to levy the Limited Mill Levy upon all property within the District, including the property owned by Manheim which is subject to the Effective Mill Levy. Pursuant to the Bond Resolution, however, moneys owed to Manheim under the terms of the Manheim Inclusion Agreement are deducted from District revenues generated by the Limited Mill Levy. See SECURITY FOR THE BONDS and RISK FACTORS Risk of Reductions in Assessed Value; Market Value of Land. ADC Inclusion Agreement. In an Inclusion Agreement dated March 13, 2006 (the ADC Inclusion Agreement ), between the District and ADC Frontage, LLC, ADC Industrial, LLC, ADC Tower, LLC, Quarry Assets, LLC, Quarry Amenities, LLC, Quarry Business Park, LLC and Quarry Retail, LLC (collectively ADC ), the District agreed to include acres of property owned by ADC into the District. Upon inclusion, the District is to provide only limited services, landscape maintenance (but not irrigation), of public rights of way located on such property. The property which is subject to this agreement currently comprises approximately acres, which represents approximately 3.04% of the Exclusion Adjusted Taxing Area by acreage and its 2009 assessed value of $6,740,860 represents 4.27% of the Exclusion Adjusted Taxing Area assessed value. In the ADC Inclusion Agreement, the District covenanted that it would levy its ad valorem property tax upon the property owned by ADC, but would also calculate an Effective Mill Levy and rebate to ADC the difference, if any, between the amount of property taxes paid by ADC to the District, and the amount of the Effective Mill Levy, which was not to exceed 5 mills for the tax year 2007, and in an amount not to exceed 10 mills in each tax year thereafter. To be entitled to reimbursement, ADC must request reimbursement annually and submit proof of payment of the property taxes. In the opinion of the District s general counsel, the ADC Inclusion Agreement does not impair the District s ability to levy the Limited Mill Levy upon all property within the District, including the property owned by ADC which is subject to the Effective Mill Levy. Pursuant to the Bond Resolution, however, moneys owed to ADC under the terms of the ADC Inclusion Agreement are deducted from District revenues generated by the Limited Mill Levy. See SECURITY FOR THE BONDS and RISK FACTORS Risk of Reductions in Assessed Value; Market Value of Land. Intergovernmental Agreements. The District has entered into the following intergovernmental agreements. City Intergovernmental Agreement. In 1999, the District and the City of Aurora ( Aurora ) entered into an intergovernmental agreement regarding various public improvements to be constructed by the District at the intersection of Airport Boulevard and 32 nd Avenue in the southeast portion of the District. All of these improvements have now been constructed, and the parties are now obligated by the agreement to jointly maintain the improvements RTD Agreement. In 1999, the District entered into an agreement (as amended) with the Regional Transportation District ( RTD ) pertaining to the construction of roadways and a park n ride facility to be used as part of RTD s metro area public transportation bus network (as 25

32 amended, the 1999 RTD Agreement ). Pursuant to the 1999 RTD Agreement, the District agreed to construct a portion of 40 th Avenue and Salida Street (including sewer, water, sidewalks and similar infrastructure) in the vicinity of the proposed facility, and RTD agreed to finance the costs of this construction. The facility was completed in 2003 and consists of a 1,079 space parking lot, kiosk with restrooms, bus shelters, and benches, landscaping and similar improvements. The 1999 RTD Agreement has been amended each year since 2003, and certain funds have been reserved for the completion of roadways and traffic signals, expected to be completed when the signals meet traffic warrants. In 2003, the District and RTD entered into a separate agreement pursuant to which the District agreed to maintain the facility in exchange for a fee. This agreement has subsequently expired and RTD now performs its own maintenance of the subject facility RTD Agreement. On December 23, 2009, the District entered into an agreement with RTD pertaining to the planning, scheduling, designing, funding and constructing of a grade separated crossing for the anticipated east corridor commuter rail line ( RTD FasTracks ) at 40 th Avenue and Pena Boulevard, by lowering a portion of 40 th Avenue and a constructing commuter rail bridge over the lowered portion of 40 th Avenue (the Separated Crossing ), as further described therein (the 2009 RTD Agreement ). Pursuant to the terms of the 2009 RTD agreement, the District has agreed to coordinate and cooperate with RTD and related consultants, contractors and subcontractors concerning the performance of each party s obligations. The District has agreed, among others, to design that portion of the Separated Crossing related to the lowering of 40 th Avenue ( Roadway Work ), constructing the Roadway Work in coordination the Bridge Work (defined hereafter), and to finance the net cost differential between the construction of the Bridge Work and construction of an at-grade, signalized crossing ( Grade Crossing ) at the same location. The Bridge Work was estimated to be approximately $2,000,000 and the cost differential was estimated to be $1,250,000. Subsequent to RTD competitive bidding and award of its Eagle Project to Denver Transit Partners (DTP) in June 2010, the Bridge Work is now estimated to be approximately $1,051,289, the at grade crossing cost is estimated to be $1,323,997 and the cost differential is now estimated to generate a project savings of $272,708. The project savings are inclusive of the cost of design and the District no longer has a responsibility to fund a bridge design escrow for the benefit of RTD. It is expected that Roadway Work will begin in July 2011, is expected to be complete in June 2012, being funded by existing District capital project funds. RTD has agreed, among others, to design and construct the commuter rail bridge portion of the Separated Crossing over the lowered portion of 40 th Avenue ( Bridge Work ), to credit any sums RTD would have expended in the creation of a Grade Crossing towards the costs of constructing the Bridge Work, including without limitation the costs of at-grade warning devices and related civil improvements (originally estimated to be $750,000, and now estimated to be $1,323,997), and complete all work, including but not limited to drainage, grading, and electrical substation improvements necessary to construct the rail line station ( 40 th /Airport Station ). Bridge Work, as well as 40 th /Airport Station work, is expected to begin in August 2012 and is expected to be complete in June Cost Sharing Agreements. The District has ongoing cost sharing and reimbursement agreements with the City of Aurora and other entities within the District for both maintenance and capital construction project (the Cost Sharing Agreements ). As of December 31, 2009, the District was reimbursed $312,294 under such agreements, and as of September 22, 2010, the District has been reimbursed $56,

33 District Facilities and Services The District provides its property owners with certain public improvements such as streets, water and sewer facilities, transportation, traffic and safety, and park and recreation facilities. According to District officials, since the development of property within the District began in 1995, the District has constructed approximately $62,135,000 of public improvements (which amount does not include approximately $3,300,000 in cash which the District has for additional public improvement construction). As of January 1, 2010, approximately 867 acres of the 1,252 acres within the District (69%) is fully served with infrastructure, developed and/or sold for development. Of the remaining 423 acres, approximately 347 acres is fully served and ready for development or partially served with utilities and roadways. Once constructed, most of the infrastructure built by the District such as potable water, major roadways and sanitary sewerage system are dedicated to other local governments for perpetual operation and maintenance. Long-term services provided by the District preformed on retained District assets including right of way, landscape, lakes and detention ponds, and private street maintenance (e.g., sign and street light repair, snow removal, etc.). The District performs these services by retaining independent contractors. Recreation and Lake Maintenance Fees. On November 11, 2003, the District adopted a resolution imposing recreation and lake maintenance fees on certain properties which had been excluded from the District and therefore are not subject to the District s operations mill levy. Such fee, which became effective January 1, 2004, was originally $10.00 per month per single family home equivalent, and is now $11.00 per month per single family home equivalent. Revenue from the fee is to be used for the maintenance of the Lakes (as defined therein). Pressure Zone Improvement Fee. On November 9, 2009, the District adopted a resolution imposing a one time pressure zone improvement fee on certain properties as set forth therein (the Improvement Area ), to which the District has provided upgrades to water facilities in order to meet the water pressure demands. Such fee, which became effective November 9, 2009, was imposed at a rate of $3.9 per square foot on properties within the Improvement Area, for a total of $177, Such fees, if unpaid, are to bear interest at 1% per month, and together with said interest, will constitute and first and perpetual lien on or against the property served. Any such lien may be foreclosed in a manner as provided by law, which in turn may include foreclosure fees against the property served. As of September 3, 2010, approximately $156, has been collected for such fees. Services Available to Residents and Property Owners Within the District Xcel Energy provides electricity and natural gas to property within the District. Additional services such as fire and police protection are provided by the City of Aurora or the City and County of Denver, depending upon property location. DEVELOPMENT WITHIN THE DISTRICT The following information has been supplied by the Developer. The District and the Underwriter make no representations regarding projected development plans within the District, the financial soundness of property owners and developers, or the managerial ability of such persons and entities to complete development as planned. The development of the property within the District may be affected by factors such as governmental policies with respect to land development, the availability of utilities and energy, construction costs, interest rates, competition from other developments, and other political, legal 27

34 and economic conditions beyond the control of the District, property owners and developers. Further, the properties are subject to encumbrances as security for obligations payable to various parties, the default of which could adversely affect construction activity. See RISK FACTORS. General The District is located approximately 10 miles southwest of Denver International Airport, both north and south of Interstate 70, between Tower Road on the east and Chambers Road on the west. The District encompasses approximately 1,252 acres, approximately 292 acres of which are located in the City and County of Denver and the remainder of which are located in the City of Aurora. In addition, the approximately 70 developed acres which comprise the Excluded Property, all of which lie in Denver, are subject to the District s debt service mill levy for the payment of the debt service on a portion of the District s Series 2003 Bonds and Series 2004 Bonds, as well as all of the debt service on the District s Series 2010A Bonds. See THE DISTRICT District Powers. Accordingly, the Exclusion Adjusted Taxing Area is approximately 1,322 acres. Of this amount, the Developer considers approximately 1,285 acres to be developable. The remaining 34 acres consist of street rights of way, lakes, and other non taxable public uses. Note that as the remaining vacant property is developed, the amount used for street rights of way and other public uses will slightly increase. Development within the District began in Property within the District is zoned to allow residential, commercial, retail, office, hotel, warehouse distribution and light industrial uses. The principal owner and developer of property within the District is Gateway Business Park, LLC, a Colorado limited liability company (including subsidiaries and related entities GBP ). GBP has sold portions of the property within the District to unrelated third parties for commercial, residential, retail and industrial use, and has developed and retained other property within the District for lease to unrelated third parties, and retains the bulk of the undeveloped property within the District. The Developer GBP is owned by Pauls Real Estate Development, LLC, a Colorado limited liability company (50%) ( Pauls Development ), and the General Electric Pension Trust, a Delaware trust (50%) ( GEPT ). Pauls Development is owned by Pauls Real Estate, LLC, a Colorado limited liability company (70%) ( Pauls Real Estate ), and Medallion Enterprises, LLC, a Colorado limited liability company (30%). Pauls Real Estate is owned primarily by William B. Pauls and Paul W. Powers. GEPT operates under the name G.E. Asset Management, a trust organized for the benefit of employees of the General Electric Company, a New York corporation ( G.E. ). GBP, primarily through subsidiary limited liability companies, owns 466 acres or 35% of the 1,322 acres of Exclusion Adjusted Taxing Area the majority of which is currently undeveloped but is either fully or partially served with infrastructure. In addition, entities related to GBP own and manage certain developed properties within the District through various subsidiary limited liability companies. These properties include 18 warehouse distribution buildings, two office building, and three retail properties all of which are leased, or intended to be leased or sold, to unrelated third parties. See APPENDIX C. Due to their common ownership and control, the entities listed in the preceding two paragraphs are described collectively herein as the Developer, and represent the original and current developer of the property within the District. Since development began in 1995, the Developer has engaged in both bulk land sales and in the construction and leasing of commercial buildings. In 1998, Glenborough Properties, L.P. ( Glenborough ) purchased a portion of the developed properties owned by the Developer, and such ownership is reflected in the Summary of Current Development Status appended 28

35 hereto. In addition, Glenborough (NYSE: GLB) provided debt financing to the Developer secured by the Developer s remaining undeveloped land. Other parcels are owned on a 50:50 basis with GLB as tenants in common. As of May 31, 2010, the amount outstanding of such debt attributable to Glenborough was $14.2 million, including accrued interest. This debt facility is paid on a cash flow basis with interest accruing at 7%, and maturing on July 1, 2017 Existing Development All of the property within the District is zoned for commercial, industrial, retail or residential development. According to the Developer, current zoning designations are continually examined by the Developer in light of current and future market trends. For purposes of describing the property within the District by ownership, the property has been divided into five parcels listed below by total taxable property inclusive of excluded and included parcels: Gateway Park I, which encompasses approximately acres of taxable property; Gateway Park II, which encompasses approximately acres; Gateway Park III/ADC, which encompasses approximately acres; Gateway Park IV, which including the Excluded Property, encompasses approximately 803 acres; and Gateway Park V, which encompasses approximately acres. See APPENDIX C for detailed information regarding property ownership and development activity within each of the five parcels. According to the Developer, slightly over two-thirds of the Exclusion Adjusted Taxing Area is currently developed. Gateway Park I and Gateway Park II are nearly fully developed. Gateway Park III is also nearing full development with only a three remaining undeveloped tracts totally approximately 29 acres. All but 39 acres of the original 294 acres in Gateway Park IV west of Pena Boulevard have been developed for primarily office, hotel, residential, retail and restaurant uses. Gateway Park IV east of Pena (GP IV East) and Gateway Park V contain the bulk of the remaining developable land totaling nearly 400 acres. RTD owns and operates a major park-n-ride facility within the GPIV area and has recently awarded the construction and operating contract for its East and Gold Line Enterprise Public-Private Partnership ( Eagle 3P ) transit project to Denver Transit Partners, which project includes construction of a commuter rail line between Denver International Airport and Union Station in downtown Denver, Colorado including a station at the current location of the RTD park-n-ride in Gateway Park IV. Construction of the East Line is planned to commence in 2011 and completion of the entire project is to be completed in Currently, a National Archives Records Facility is planned on approximately six acres of property in Gateway Park V. The archives facility will be constructed and owned by a private party and leased to their end user, and will be subject to the Limited Mill Levy. See THE DISTRICT District Agreements Intergovernmental Agreements 2009 RTD Agreement. See APPENDIX C for a table which sets forth a description of, among other things, the existing and intended development within the District. DISTRICT FINANCIAL INFORMATION The Bonds are payable in part from ad valorem property taxes which may be levied against all taxable property within the District and the Exclusion Adjusted Taxing Area up to the maximum Limited Mill Levy to pay the principal of and interest on the Bonds when due. See THE BONDS Security for the Bonds. References in this section entitled DISTRICT FINANCIAL INFORMATION to the levy of taxes against the taxable property within the District are generally intended to include property within the Exclusion Adjusted Taxing Area unless the context of the reference indicates otherwise. 29

36 Ad Valorem Property Taxes The Board has the power, subject to constitutional and statutory guidelines, to certify a levy for collection of ad valorem taxes against all taxable property of the District. Property taxes are uniformly levied against the assessed valuation of all taxable property of the District and the Exclusion Adjusted Taxing Area. The property subject to taxation, the assessment of such property, and the property tax procedure and collections are discussed below. Property Tax Reduction for Senior Citizens and Disabled Veterans. On November 7, 2000 and November 7, 2006, respectively, the electors of the State of Colorado approved Referendum A and Referendum E, constitutional amendments granting a property tax reduction to qualified senior citizens and qualified disabled veterans. Generally, the reduction (a) reduces property taxes for qualified senior citizens and qualified disabled veterans by exempting 50% of the first $200,000 of actual value of residential property from property taxation; (b) requires that the State reimburse all local governments for any decrease in property tax revenue resulting from the reduction; and (c) excludes the State reimbursement to local governments from the revenue and spending limits established under Article X, Section 20 of the State Constitution. However, the Colorado State Legislature has disallowed the qualified senior citizens exemption beginning with the 2009 levy year (2010 collection year) through the 2011 levy year (2012 collection year). Property Subject to Taxation. Both real and personal property located within the boundaries of the District, unless exempt, are subject to taxation by the District. Exempt property generally includes property of the United States of America; property of the State and its political subdivisions; public libraries; public school property; charitable property; religious property; irrigation ditches, canals and flumes; household furnishings; personal effects; intangible personal property; inventories of merchandise and materials and supplies which are held for consumption by a business or are held primarily for sale; livestock; agricultural and livestock products; agricultural equipment which is used on the farm or ranch in the production of agricultural products; and non profit cemeteries. Assessment of Property. All taxable property is listed, appraised and valued for assessment as of January 1 of each year by the county assessor. The actual value, with certain exceptions, is determined by the county assessor annually based on a biennially recalculated level of value set on January 1 of each odd numbered year. The level of value is ascertained for each two year reassessment period from manuals and associated data prepared and published by the State property tax administrator for the eighteen month period ending on the June 30 immediately prior to the beginning of each two year reassessment period. For example, actual values for the 2007 levy/2008 collection year as well as the 2008 levy/2009 collection year are based on market data obtained from the period January 1, 2005 June 30, Actual values for the 2009 levy/2010 collection year are based on market data from the period January 1, 2007 June 30, The level of value calculation does not change for even numbered years. The classes of property the actual value of which is not determined by a level of value include oil and gas leaseholds and lands, producing mines and other lands producing nonmetallic minerals. The assessed value of taxable property is then determined by multiplying the actual value (determined as described in the immediately preceding paragraph) times an assessment ratio. The assessment ratio of residential property is subject to change from year to year based on a constitutionally mandated requirement to keep the ratio of the assessed value of commercial property to residential property at the same level as it was in the property tax year commencing January 1, 1985 (the Gallagher Amendment ). The Gallagher Amendment requires that statewide residential assessed values must be approximately 45% of the total assessed value in the State with commercial and other assessed values making up the other 55% of the assessed values in the State. In order to maintain this 45%/55% ratio, the 30

37 commercial assessment rate is established at 29% of the actual value of commercial property (including vacant land and undeveloped lots) and the residential assessment rate fluctuates. Over the past nine years the residential ratio has decreased from 9.74% for the 2000 levy year and 9.15% for the 2001 and 2002 levy years, to 7.96% for the 2003 through 2009 levy years. The Colorado Legislative Council Staff s December 2009 forecast (as contained in its Focus Colorado: Economic and Revenue Forecast, ), projects that the residential assessment ratio will remain at 7.96% through the 2012 levy year (for tax collection in 2013). Beginning in May of each year each county assessor hears taxpayers objections to property valuations, and the county board of equalization hears assessment appeals. The assessor is required to complete the assessment roll of all taxable property no later than August 25 each year. The abstract of assessment prepared therefrom is reviewed by the State property tax administrator. Assessments are also subject to review at various stages by the State board of equalization, the State board of assessment appeals and the State courts. Therefore, the District s assessed valuation may be subject to modification as a result of the review of such entities. In the instance of the erroneous levy of taxes, an abatement or refund must be authorized by the board of county commissioners; and in no case will an abatement or refund of taxes be made unless a petition for abatement or refund is filed within two years after January 1 of the year following the year in which the taxes were levied. Refunded or abated taxes are prorated among all taxing jurisdictions which levied a tax against the property. Taxation Procedure. The assessed valuation and statutory actual valuation of taxable property within the District is required to be certified by the county assessor to the District no later than August 25 each year. Such value is subject to recertification by the county assessor prior to December 10. The Board then determines a rate of levy which, when levied upon such certified assessed valuation, and together with other legally available revenues, will raise the amount required annually by the District for its General Fund and Bond Fund to defray its expenditures during the ensuing fiscal year. In determining the rate of levy, the Board must take into consideration the limitations on certain increases in property tax revenues as described in Constitutional Amendment Limiting Taxes and Spending and Budget and Appropriation Procedure. The Board must certify the District s levy to the board of county commissioners no later than December 15. Upon receipt of the tax levy certification of the District and other taxing entities within the county, the board of county commissioners levies against the assessed valuation of all taxable property within the county the applicable property taxes. Such levies are certified by the board of county commissioners to the county assessor, who thereupon delivers the tax list and warrant to the county treasurer for the collection of taxes. Property Tax Collections. Taxes levied in one year are collected in the succeeding year. Taxes certified in 2009, for example, will be collected in Taxes are due on January 1 in the year of collection; however, they may be paid, at the election of the taxpayer, in either one installment (not later than the last day of April) or two equal installments (not later than the last day of February and June 15) without interest or penalty. Taxes which are not paid within the prescribed time bear interest at the rate of 1% per month until paid. Unpaid amounts become delinquent on, and interest thereon will accrue from, March 1 (with respect to the first installment) and June 16 (with respect to the second installment) until the date of payment, provided that if the full amount of taxes is to be paid in a single payment, such amount will become delinquent on May 1 and will accrue interest thereon from such date until paid. The county treasurer collects current and delinquent property taxes, as well as any interest, penalties, and other requirements and remits the amounts collected on behalf of the District to the District on a monthly basis. All taxes levied on real and personal property, together with any interest and penalties prescribed by law, as well as other costs of collection, until paid, constitute a perpetual lien on and against the taxed 31

38 property. Such lien is on a parity with the liens of other general taxes. It is the county treasurer s duty to enforce the collection of delinquent real property taxes by sale of the tax lien on such realty in December of the collection year and of delinquent personal property taxes by the distraint, seizure and sale of such property at any time after October 1 of the collection year. There can be no assurance, however, that the value of taxes, penalty interest and costs due on the property can be recovered by the county treasurer. Further, the treasurer may set a minimum total amount below which competitive bids will not be accepted, in which event property for which acceptable bids are not received will be set off to the county. Taxes on real and personal property may be determined to be uncollectible after a period of six years from the date of becoming delinquent and canceled by the board of county commissioners. Ad Valorem Property Tax Data The District s and the Excluded Property s assessed valuation and mill levies from 2004 to date are set forth in the following tables. See Ad Valorem Property Taxes Assessment of Property above for a description of the assessment ratios for taxable property used in each of such years. See Constitutional Amendment Limiting Taxes and Spending. The properties that comprise the Excluded Property, all of which lie in the City and County of Denver, remain subject to taxation for purposes of paying the debt service on portions of the Series 2003 Bonds and the Series 2004 Bonds, as well as all of the Series 2010A Bonds. However, pursuant to State law, such properties are not subject to taxation for purposes of paying debt service on portions of the Series 2003 Bonds and the Series 2004 Bonds, as well as all of the Series 2006 Bonds and the Series 2010B Bonds. According to the Adams County and the City and County of Denver Assessors offices, as of the August 25, 2010 preliminary certification date, the preliminary 2010 assessed valuation for the District is $143,632,910, and for the Exclusion Adjusted Taxing Area is $153,432,590. Historically, such preliminary valuations have been subject to adjustments and are therefore the ratios based on such preliminary valuations are not presented herein. TABLE II History of Assessed Valuation for the District and Excluded Property Levy/Collection Year Denver District Assessed Valuation Adams County 1 Total Percent Increase Excluded Property Assessed Valuation 2 Total Exclusion Adjusted Assessed Percent Valuation 3 Increase 2004/2005 $19,296,030 $ 62,974,460 $ 82,270, $8,480,210 $ 90,750, / ,178,480 70,763,390 97,941, % 8,698, ,640, % 2006/ ,981,010 84,149, ,130, ,817, ,947, / ,110, ,101, ,212, ,547, ,759, / ,454, ,053, ,507, ,567, ,074, / ,951, ,590, ,542, ,508, ,050, For a description of certain rebate agreements that portions of the property within the District are subject to, as well as the assessed valuation of the underlying properties, see THE DISTRICT District Agreements Rebate Agreements. 2 Consists of the assessed valuation of the Excluded Property located in the City and County of Denver, which remains subject to taxation for purposes of paying the debt service on portions of the Series 2003 Bonds and the Series 2004 Bonds, as well as all of the Series 2010A Bonds. See THE DISTRICT District Powers and the discussion preceding this table. 3 Consists of the District Assessed Valuation and the Excluded Property Assessed Valuation. Sources: State of Colorado, Division of Property Taxation, Annual Reports, ; Adams County Assessor s Office; and the City and County of Denver s Assessor s Office 32

39 TABLE III History of Mill Levies for the District and the Exclusion Adjusted Taxing Area General Fund Debt Service Fund Total Mill Levy Exclusion Adjusted Taxing Area 2 District Levy/Collection Year District 1 District Exclusion Adjusted Taxing Area 2004/ / / / / / The Excluded Property is not subject to the District s General Fund mill levy for operations and maintenance. 2 The Exclusion Adjusted Taxing Area remains responsible for payment of a portion of the debt service on the District s Series 2003 Bonds and Series 2004 Bonds, as well as the debt service on the Series 2010A Bonds. Sources: State of Colorado, Division of Property Taxation, Annual Reports, ; Adams County Assessor s Office; and the City and County of Denver s Assessor s Office The following table sets forth the 2009 assessed and actual valuations (for the 2010 tax collection year) of specific classes of property within the District and the Exclusion Adjusted Taxing Area. As shown below, commercial property has accounted for the largest percentage of the assessed valuation. TABLE IV 2009 Valuation of Classes of Property in the District and the Exclusion Adjusted Taxing Area Assessed Valuation Class District Assessed Valuation District Percent of Assessed Valuation Excluded Property Assessed Valuation Exclusion Adjusted Taxing Area Assessed Valuation Exclusion Adjusted Percent of Assessed Valuation Commercial $114,685, % $ -- $114,685, % Personal Property 26,773, ,970 26,975, Vacant 6,742, ,742, State Assessed 265, , Residential 64, ,306,070 9,370, Agricultural 9, , Total Assessed Valuation $148,542, % $9,508,040 $158,050, % Actual Valuation Class District Actual Valuation District Percent of Actual Valuation Excluded Property Actual Valuation Exclusion Adjusted Taxing Area Actual Valuation Exclusion Adjusted Percent of Actual Valuation Commercial $395,467, % $ -- $395,467, % Personal Property 92,323, ,448 93,020, Vacant 23,250, ,250, State Assessed 914, , Residential 815, ,910, ,725, Agricultural 33, , Total Actual Valuation $512,805, % $117,606,875 $630,412, % Source: Adams County Assessor s Office and City and County of Denver Assessor s Office The following table sets forth a history of the Exclusion Adjusted Taxing Area s ad valorem property tax collections within the District since 2004 on a calendar year basis. 33

40 TABLE V History of Exclusion Adjusted Taxing Area s Property Tax Collections Levy/Collection Tax Collections as Year Taxes Levied Property Tax Collections 1 Percent of Tax Levied 2004/2005 $2,144,096 $2,111, % 2005/2006 2,631,209 2,427, /2007 3,018,993 2,986, /2008 3,558,203 3,486, /2009 3,625,110 3,632, / ,210,306 4,091, Figures represent current collections, interest paid on current taxes, and delinquent taxes paid with any interest and/or penalties thereon. In addition, the County Treasurers collection fees have not been deducted from these amounts. 2 Collections lower due to abatements. 3 Property tax collections through August 31, 2010 four additional tax collection payment periods remain in Source: State of Colorado, Colorado Department of Local Affairs, Division of Property Taxation, State of Colorado Property Tax Annual Reports and the District Largest Taxpayers. Set forth in the following table are the persons or entities which represent the largest taxpayers within the Exclusion Adjusted Taxing Area for the 2009 levy year, as provided by the Adams County and Denver Assessors Offices. A determination of the largest taxpayers within the Exclusion Adjusted Taxing Area can be made only by manually reviewing individual tax records. Therefore, it is possible that owners of several small parcels may have an aggregate assessment in excess of those set forth in the following table. Furthermore, the taxpayers shown in the table may own additional parcels within the Exclusion Adjusted Taxing Area. No independent investigation has been made of and no representation is made herein as to the financial condition of any of the taxpayers listed below or that such taxpayers will continue to maintain their status as major taxpayers in the Exclusion Adjusted Taxing Area. The total tax bill for each of the properties is dependent upon the mill levies of the other taxing entities which overlap the properties. 34

41 TABLE VI Largest Taxpayers Within the Exclusion Adjusted Taxing Area Name 2009 Assessed Valuation Percent of Total Assessed Valuation 1 Glenborough Gateway Office LLC 2 $9,166, % Prologis 7,896, Quarry Assets LLC et al 6,740, Manheim Services Corporation 5,560, Wal-Mart Real Estate Business Trust 5,001, Kittridge Street Apartments 4,300, Lodgian Denver LLC 3 3,574, State Street Bank & Trust Co. 3,479, GVAC-PCCP Gateway LLC 3,205, Graebel Warehouse LLC 4 3,065, Totals 32.9% 1 Based on a 2009 certified assessed valuation of $158,050,140 (which includes the Excluded Property). 2 Glenborough owns four office buildings within the District. 3 Consists of the Marriott Hotel. 4 This trust owns a warehouse/distribution facility and an office building. The trust is controlled by Graebel Companies, Inc., which currently uses all of both buildings. The office building serves as Graebel s headquarters. Sources: Adams County Assessor s Office and the City and County of Denver Assessor s Office and the Developer Overlapping Mill Levies Numerous entities located wholly or partially within the District are authorized to levy taxes on property located within the District. According to the Adams County and City and County of Denver Assessor s Offices, there are currently seven entities overlapping all or a portion of the District. As a result, property owners within the District may be subject to various mill levies depending upon the location of their property. The following table sets forth the total 2009 mill levy (for payment in 2010) attributable to taxpayers within the Adams County portion and the Denver County portion of the District. Additional taxing entities may overlap the District in the future. See also the caption DEBT STRUCTURE General Obligation Debt herein. 35

42 Taxing Entity TABLE VII Sample Total 2009 Mill Levies 1 Adams County Portion Mill Levy City and County of Denver Portion Mill Levy Adams County Adams-Arapahoe School District 28J Aurora (City of) Denver (City and County of) Denver County School District No Regional Transportation District Urban Drainage & Flood Control District Urban Drainage & Flood Control District- South Platte Total Overlapping Mill Levy The District Total Mill Levy One mill equals 1/10 of one cent. Mill levies certified in 2009 are for the collection of ad valorem property taxes in The mill levies for the 2010 levy year (2011 collection year) are expected to be certified by December 15, Source: Adams County and City and County of Denver Assessor s Offices Accounting Policies and Financial Statements The accounts of the District are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. Such funds are segregated for the purpose of accounting for the operation of specific activities or attaining certain objectives. The District has established three governmental funds, the General Fund, Debt Service Fund and Capital Projects Fund. The General Fund is the general operating fund of the District and is used to account for all financial resources except those required to be accounted for in another fund. The Debt Service Fund is used to account for the accumulation of revenues for, and the payment of, general long term debt principal, interest and related costs. The Capital Projects Fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities. Financial Statements In accordance with Title 29, Article 1, Part 6, C.R.S., an annual audit is required to be made of the District s financial statements at the end of the fiscal year. The audited financial statements must be filed with the Board within six months after the end of the fiscal year and with the state auditor 30 days thereafter. Failure to comply with this requirement to file an audit report may result in the withholding of the District s property tax revenue by the county treasurer pending compliance. The District s 2009 audit was performed by Bondi & Co., Certified Public Accountants and Management Consultants, Englewood, Colorado, and was filed with the State auditor and posed with EMMA in accordance with the District s outstanding secondary market undertakings. The general purpose financial statements from such audit are appended hereto. Such audited financial statements are the most current available for the District. 36

43 Historical Financial Information Set forth hereafter is a comparative statement of revenues, expenses and changes in fund balance for the District s General Fund, Bond Fund and Capital Projects Fund. Such information should be read together with the financial statements and accompanying notes appended hereto. Preceding years financial statements may be obtained from the sources noted in MISCELLANEOUS Additional Information. TABLE VIII General Fund Statement of Revenues, Expenditures and Changes in Fund Balance Revenues: Property Taxes $ 321,362 $384,318 $533,393 $ 596,035 $ 640,220 Specific Ownership Taxes 31,530 36,755 47,057 54,211 46,978 Infrastructure Reimbursements 1 120, , , , ,294 Intergovernmental Agreements 2 104, , Interest ,643 Total 579, , ,719 1,148,344 1,002,135 Expenditures: Audit 11,030 4,730 8,498 8,610 9,000 Legal 16,841 16,362 9,490 12,098 15,434 Management Fees 32,950 30,754 39,505 37,606 40,077 Insurance 2, ,663 2,533 2,466 County Treasurer Fees 4,456 5,335 7,315 8,386 9,062 Utilities 147, , , , ,506 Other 8,675 8,135 6,532 19,352 3,332 Property Tax Rebates , ,557 Landscape Maintenance 514, , , , ,595 Total 739, , , , ,029 Excess of Revenues Over (Under) Expenditures (160,026) (99,399) (94,165) 271, ,106 Other Financing Sources (Uses): Transfer From (To) Other Funds (162,000) Total (162,000) Excess of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (160,026) (99,399) (94,165) 271,533 9,106 Fund Balance Beginning of Year 1,154, , , ,122 1,072,655 Fund Balance End of Year $ 994,686 $895,287 $801,122 $1,072,655 $1,081,761 1 Constitutes reimbursements payable to the District pursuant to cost sharing agreements. See Note 9 to the District s audited financial statements appended hereto. 2 In 2003, the District and RTD entered into a separate agreement pursuant to which the District agreed to maintain the facility in exchange for a fee. This agreement has subsequently expired and RTD now performs its own maintenance of the subject facility. Source: District s audited financial statements for the years ended December 31,

44 TABLE IX Debt Service Fund Statement of Revenues, Expenditures and Changes in Fund Balance Revenues: Property Taxes $1,794,753 $2,187,386 $2,564,595 $2,779,108 $2,836,236 Specific Ownership Taxes 178, , , , ,909 Interest Earnings 71, , ,212 89,787 36,529 Total 2,044,769 2,554,390 2,972,603 3,122,901 3,081,674 Expenditures: Current: County Treasurer Fees 24,159 29,831 34,167 38,514 39,533 Bank Service Fee -- 2,075 2,650 1,850 1,345 Other 1, Debt Service: Bond Principal 5,000 5, , , ,000 Bond Interest 2,450,912 2,761,861 2,871,190 3,202,355 3,285,360 Bond Issue Costs 18, Property Tax Rebates , ,854 74,150 Total Expenditures 2,500,446 2,798,767 3,285,087 3,845,573 4,175,388 Excess of Revenues Over (Under) Expenditures (455,677) (244,377) (312,484) (722,672) (1,093,714) Other Financing Sources (Uses): Proceeds From Bonds -- 4,616, ,000 3,000, Payment of Refunding of Debt -- (3,124,317) Bond Issue Costs -- (473,522) (23,982) Transfer From (To) Other Funds (2,575,000) 162,000 Total -- 1,018, , , ,000 Excess of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (455,677) 774, ,534 (297,672) (931,714) Fund Balance Beginning of Year 1,759,795 1,304,118 2,078,351 2,416,885 2,119,213 Fund Balance End of Year $1,304,118 $2,078,351 $2,416,885 $2,119,213 $1,187,499 Source: District s audited financial statements for the years ended December 31, [Remainder of page intentionally left blank] 38

45 TABLE X Capital Projects Fund Statement of Revenues, Expenditures and Changes in Fund Balance Revenues: Interest Earnings $ 29,647 $ 149,513 $ 115,617 $ 76,909 $ 18,621 Total 29, , ,617 76,909 18,621 Expenditures: Capital Outlay Management Fees ,856 9,320 91,327 86,490 Other Contract Services ,877 8,729 74,245 86,674 Landscape Maintenance -- 95,152 76, ,776 61,078 Construction Costs -- 1,250,540 2,228,376 3,736,247 1,109,717 Total 3,629,932 1,721,425 2,323,275 4,046,595 1,343,959 Excess of Revenues Over (Under) Expenditures (3,600,285) (1,571,912) (2,207,658) (3,969,686) (1,325,338) Other Financing Sources (Uses): Bond Proceeds 3,000,000 4,383,551 3,325, Transfers From (To) Other Funds ,575, Total 3,000,000 4,383,551 3,325,000 2,575, Excess of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (600,285) 2,811,639 1,117,342 (1,394,686) (1,325,338) Fund Balance Beginning of Year (21,369) (621,654) 2,189,985 3,307,327 1,912,641 Fund Balance End of Year $ (621,654) $2,189,985 $3,307,327 $1,912,641 $ 587,303 Source: District s audited financial statements for the years ended December 31, Budget and Appropriation Procedure The District s budget is prepared on a calendar year basis as required by , et seq., C.R.S. The budget must present a complete financial plan for the District, setting forth all estimated expenditures, revenues, and other financing sources for the ensuing budget year, together with the corresponding figures for the previous fiscal year. On or before October 15 of each year, the District s budget officer must submit a proposed budget to the Board for the next fiscal year. Thereupon notice must be published stating, among other things, that the proposed budget is open for inspection by the public and that interested electors may file or register any objection to the budget prior to its adoption. Before the beginning of the fiscal year, the Board must enact an appropriation resolution which corresponds with the budget. The income of the District must be allocated in the amounts and according to the funds specified in the budget for the purpose of meeting the expenditures authorized by the appropriation resolution. District expenditures may not exceed the amounts appropriated, except in the case of an emergency or a contingency which was not reasonably foreseeable. Under such circumstances, the Board may authorize the expenditure of funds in excess of the budget by a resolution adopted by a two-thirds vote of the Board following proper notice. If the District receives revenues which were unanticipated or unassured at the time of adoption of the budget, the Board may authorize the expenditure thereof by adopting a supplemental budget and appropriation resolution after proper notice and a hearing thereon. The transfer of budgeted and appropriated moneys within a fund or between funds may be accomplished only in accordance with State law. Limitation on Certain Tax Revenues. It is through the preparation of the budget and by taking into consideration all sources of revenue, costs of construction, expenses of operating the District, and the 39

46 debt service requirements of the District s outstanding bonds and other obligations that the rate of mill levy is determined each year. Budgeted Financial Information The following tables set forth a comparison and a summary of the 2009 and 2010 budgets as adopted, and the 2010 year to date unaudited figures for the District s General Fund, Debt Service Fund and Capital Projects Fund. The Board adopted the District s 2010 budget and appropriation resolution as described above and the District filed such budget with the State Division of Local Government on January 30, The modified accrual basis of accounting and governmental funds was used in the preparation of these budgets. [Remainder of page intentionally left blank] 40

47 TABLE XI General Fund Budget Summary and Comparison 2010 Year to Date Actual (Unaudited) Budget 2010 Budget Revenues: Property Taxes $ 662,435 $ 742,711 $ 563,641 Specific Ownership Taxes 56,307 44,562 19,707 Landscape Fees (Lake) 2 8,760 9,000 9,658 Chilis Payment 5,000 5, Interest 750 1,500 1,490 Reimbursements 3 74, ,093 55,693 Total 807,252 1,247, ,189 Expenditures: Accounting and Audit 8,800 9,000 9,000 Bank Fees Legal 13,000 14,000 6,770 Operating Mill Levy Rebate 4 52,810 64, Developer Management Fees 35,000 37,000 17,551 Insurance 2,800 2,800 1,531 Landscape and Maintenance 396, ,500 92,840 Utilities 258, ,000 18,008 Contingency 3,000 3, County Treasurer Fees 9,000 9,500 7,893 Drainage/Mosquito Control 6,000 6,000 3,083 Other 4,650 3, Total 789, , ,682 Excess of Revenues Over (Under) Expenditures 17, , ,507 Other Financing Sources (Uses): Transfers From (To) Other Funds -- (400,093) -- Total -- (400,093) -- Excess of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses 17,492 34, ,507 Fund Balance Beginning of Year 1,151,593 1,153,185 1,081,760 Fund Balance End of Year $1,169,085 $1,187,907 $-- 1 Actual unaudited year to date figures through June 20, Represents a fee imposed beginning in 2004 upon users of lakes. See THE DISTRICT District Facilities and Services. 3 Constitutes reimbursements payable to the District pursuant to cost sharing agreements. See Note 9 to the District s 2009 audited financial statements attached as APPENDIX A. 4 See THE DISTRICT District Agreements Rebate Agreements. Sources: District s 2009 and 2010 budgets and the District 41

48 TABLE XII Debt Service Fund Budget Summary and Comparison 2010 Year to Date Actual (Unaudited) Budget 2010 Budget Revenues: Property Taxes $2,962,136 $3,467,595 $2,616,017 Specific Ownership Taxes 251, ,055 91,454 Interest 70,100 30,000 13,749 Total 3,284,018 3,705,650 2,721,220 Expenditures: County Treasurer Fees 40,978 42,000 36,091 Bank Fees -- 1, Rebate for Inclusions 84, Rebate for Tax Protests 29,000 74,149 74,150 Bond Principal 775,000 1,060, Bond Interest 3,355,860 2,805,563 1,632,988 Bond Issue Costs 5, , Miscellaneous Total 4,291,049 4,504,452 1,744,054 Excess of Revenues Over (Under) Expenditures (1,007,031) (798,802) 977,166 Other Financing Sources (Uses) Bond Proceeds 1,500,000 16,634, SWAP Proceeds , SWAP Settlement -- (500,000) -- Bond Refunding -- (15,112,259) Transfers to Capital Projects (1,297,500) (932,500) -- Transfer from General Fund , Reimbursements 370, Total Other Financing Sources 572, , Excess of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (434,531) 190, ,166 Fund Balance Beginning of Year 2,295,667 1,861,136 1,187,499 Fund Balance End of Year $1,861,136 $2,051,668 $-- 1 Actual unaudited year to date figures through June 20, Sources: District s 2009 and 2010 budgets and the District 42

49 TABLE XIII Capital Projects Fund Budget Summary and Comparison 2010 Year to Date Actual (Unaudited) Budget 2010 Budget Revenues Interest $ 37,500 $ 10,000 $ -- Bank Fees -- (100) 3,509 Total 37,500 9,900 3,509 Expenditures Capital Outlay 3,142, , ,943 Total 3,142, , ,943 Excess of Revenues Over (Under) Expenditures (3,104,800) (880,300) 184,434 Other Financing Sources (Uses) Transfers from Other Funds 1,297, , Total Other Financing Sources 1,297, , Excess of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (1,807,300) 52, ,434 Fund Balance-Beginning of Year 2,396, , ,304 Fund Balance-End of Year $ 589,556 $641,756 $-- 1 Unaudited actual year to date figures through June 20, Sources: District s 2009 and 2010 budgets and the District Management Discussion of Material Trends See the District s audited financial statements appended hereto for the Management s Discussion and Analysis which provides a narrative overview and analysis of the financial activities of the District for the year ended December 31, Deposit and Investment of District Funds State statutes set forth requirements for the deposit of District funds in eligible depositaries and for the collateralization of such deposited funds. See Note 5 to the District s financial statements appended hereto. The District also may invest available funds in accordance with applicable state statutes. The investment of the proceeds of this issue also is subject to the provisions of the Federal Tax Code. See TAX MATTERS. Risk Management The Board acts to protect the District against loss and liability by maintaining certain insurance coverages. The Board is insured as a member of the Colorado Special Districts Property and Liability Pool, a property and liability self-insurance pool established for Colorado special districts on April 1, See Note 10 to the District s financial statements appended hereto for a discussion of the pool. The District believes that its present insurance coverage is adequate. However, there can be no assurance that the District will continue to maintain its current level of coverage. 43

50 Constitutional Amendment Limiting Taxes and Spending On November 3, 1992, Colorado voters approved an amendment to the Colorado Constitution, which is commonly referred to as the Taxpayer s Bill of Rights, or Amendment One ( TABOR ), and now constitutes Section 20 of Article X of the Colorado Constitution. TABOR imposes various limits and new requirements on the State and all Colorado local governments which do not qualify as enterprises under TABOR (each of which is referred to in this section as a governmental unit ). Any of the following actions, for example, now require voter approval in advance: (a) any increase in a governmental unit s spending from one year to the next in excess of the rate of inflation plus a growth factor based on the net percentage change in actual value of all real property in a governmental unit from construction of taxable real property improvements, minus destruction of similar improvements, and additions to, minus deletions from, taxable real property for government units other than school districts, and the percentage change in student enrollment for a school district; (b) any increase in the real property tax revenues of a local governmental unit (not including the State) from one year to the next in excess of inflation plus the appropriate growth factor referred to in clause (a) above; (c) any new tax, tax rate increase, mill levy above that for the prior year, valuation for assessment ratio increase for a property class, extension of an expiring tax or a tax policy change directly causing a net tax revenue gain; and (d) except for refinancing bonded indebtedness at a lower interest rate or adding new employees to existing pension plans, creation of any multiple fiscal year direct or indirect debt or other financial obligation whatsoever without adequate present cash reserves pledged irrevocably and held for payments in all future fiscal years. Elections on such matters may only be held on the same day as a State general election, at the governmental unit s regular biennial election or on the first Tuesday in November of odd numbered years, and must be conducted in accordance with procedures described in TABOR. Revenue collected, kept or spent in violation of the provisions of TABOR must be refunded, with interest. TABOR requires a governmental unit to create an emergency reserve of 3% of its fiscal year spending (excluding bonded debt service) in 1995 and subsequent years. TABOR provides that [w]hen [a governmental unit s] annual... revenue is less than annual payments on general obligation bonds, pensions, and final court judgments, the [voter approval requirement for mill levy and other tax increases referred to in clause (c) of the preceding paragraph and the voter approval requirement for spending and real property tax revenue increases referred to in clauses (a) and (b) of the preceding paragraph] will be suspended to provide for the deficiency. The preferred interpretation of TABOR will, by its terms, be the one that reasonably restrains most the growth of government. De-Brucing. At elections held in 1995, 1996, 1998 and 2000, District s voters eliminated the revenue and expenditure limitations contained within TABOR. Proposed Amendments - November 2010 Election. The State Constitution provides that people of the State reserve to themselves the power to propose laws and amendments to the State Constitution (referred to as initiatives), and to enact or reject such initiatives by a vote of the people by a Statewide ballot. Three initiated measures (the Ballot Initiatives ) have been placed on the November 2010 statewide general election ballot which would amend TABOR (as well as Article XI of the Colorado Constitution) through the addition of the following: Proposition 101 would amend State tax statutes to substantially reduce several sources of State and local revenue, including the State income tax, vehicle fees and taxes and telecommunication charges. If Proposition 101 is approved, it is anticipated that specific ownership taxes otherwise payable to the District will decline, and the District may be required to increase its mill levy to provide for payment of the Bonds as a result. 44

51 Amendment 60 would amend the Colorado Constitution to further restrict the ability of local governments to impose and collect property taxes, require voter approval of property tax increases and extensions of expiring taxes but limit the effectiveness of such approvals to 10 years, and prohibit voters from approving the collection and spending of property tax revenues in excess of TABOR limits (as described in De Brucing above) for periods greater than four years. If Amendment 60 is approved, it could decrease the property taxes available to the District for its general operations. However, Amendment 60 is not anticipated to impact the District s ability to impose the debt service mill levy required for payment of the Bonds because it provides that nothing therein shall limit the payment of bonded debt issued before In addition, Amendment 60 proposes to mandate that by the year 2020, all school districts reduce their 2011 tax levy rates (excluding debt service levies) by one half, and would require that the State replace the lost revenue with State funds. Amendment 61 would amend the Colorado Constitution to (a) prohibit the State, its agencies and instrumentalities, from borrowing, entering into lease purchase agreements or contracting loans in any other form for any purpose or any period of time and (b) require a broad range of government financing, including traditional governmental bonds but also some financing transactions that historically have not been treated as debt under State law, such as lease purchase agreements, etc., and whether or not issued by enterprises, to be approved by the voters of the local government unit and to mature within 10 years, without extension. Amendment 61 would also lower the debt limit of the District from the current limit, which is the greater of $2 million or 50% of the assessed valuation of real and personal taxable property within the District (subject to certain exceptions; see DEBT STRUCTURE Debt Restrictions Statutory Debt Limit ), to 10% of the assessed valuation of only real property within the District. Each of the Ballot Initiatives would take effect January 1, It is not possible to predict whether any or all of the Ballot Initiatives will be approved by a majority of the voting electors at the November 2010 election. DEBT STRUCTURE The following is a discussion of the District s authority to incur general obligation indebtedness and other financial obligations and the amount of such obligations presently outstanding. Required Elections Various State constitutional and statutory provisions require voter approval prior to the incurrence of general obligation indebtedness by the District. Among such provisions, Article X, Section 20 of the Colorado Constitution requires that, except for refinancing bonded debt at a lower interest rate, the District must have voter approval in advance for the creation of any multiple-fiscal year direct or indirect District debt or other financial obligation whatsoever without adequate present cash reserves pledged irrevocably and held for payments in all future fiscal years. The District has significant amounts of voter authorization for both the issuance of new debt and the refunding of its debt at higher interest rates. See Authorized but Unissued Debt. Debt Restrictions The issuance of additional bonds is restricted by: (a) State statutes which restrict the amount of debt issuable by special districts; (b) elections held within the District; and (c) the District s Service Plan debt limitations. Each restriction is described below and in General Obligation Debt Authorized But Unissued Debt below. 45

52 Statutory Debt Limit. The District is subject to a statutory debt limitation established pursuant to (6), C.R.S. Said limitation provides that, with specific exceptions, the total principal amount of general obligation debt issued by a special district will not at the time of issuance exceed the greater of $2 million or 50% of the District s assessed valuation. The sale of the Bonds fits into an exception, as permitted by (6), C.R.S., because the general obligation debt issued by the District will not at the time of issuance exceed 50% of the District s assessed valuation. Service Plan Debt Limit. The Service Plan imposes a separate debt limitation of $70,000,000 upon the District (excluding costs associated with refundings). As noted below, upon the issuance of the Bonds, the District will have approximately $66,330,000 of general obligation limited tax debt outstanding. Accordingly, after the issuance of the Bonds, the District will be entitled under the Service Plan to issue $3,670,000 of additional debt, subject to other restrictions contained in the Service Plan, unless otherwise amended by the District through the City of Aurora. General Obligation Debt Authorized but Unissued Debt. Upon the issuance of the Bonds, the District will have $189,170,000 of unissued authorization from prior elections remaining for various capital improvement purposes, and $203,293,000 of unissued authorization remaining for refunding purposes. See THE BONDS Application of Bond Proceeds. The District s use of this remaining authorization is subject to the statutory laws and the Service Plan debt limitations discussed above. Outstanding General Obligation Debt. The following table sets forth the District s outstanding general obligation limited tax debt as of the issuance of the Bonds. TABLE XIV Outstanding General Obligation Limited Tax Debt Issue Amount Outstanding General Obligation Limited Tax Refunding and Improvement Bonds, Series 2003 $14,740,000 General Obligation Limited Tax Refunding and Improvement Bonds, Series ,545,000 General Obligation Limited Tax Refunding and Improvement Bonds, Series ,000,000 General Obligation Limited Tax Refunding Bonds, Series 2010A 18,200,000 General Obligation Limited Tax Refunding Bonds, Series 2010B 10,845,000 Total $66,330,000 Estimated Overlapping General Obligation Debt Certain public entities whose boundaries may be entirely within, coterminous with, or only partially within the District are also authorized to incur general obligation debt, and to the extent that properties within the District are also within such overlapping public entities such properties will be liable for an allocable portion of such debt. For purposes of this Official Statement, the percentage of each entity s outstanding debt chargeable to District property owners is calculated by comparing the assessed valuation of the portion overlapping the District to the total assessed valuation of the overlapping entity. To the extent the District s assessed valuation changes disproportionately with the assessed valuation of overlapping entities, the percentage of general obligation debt for which District property owners are responsible will also change. The following table sets forth the estimated overlapping general obligation debt chargeable to properties within the District as of the date of this Official Statement. The District is not financially or legally obligated with regard to any of the indebtedness shown on the immediately 46

53 following table. Although the District has attempted to obtain accurate information as to the outstanding debt of the entities which overlap the District, it does not warrant its completeness or accuracy as there is no central reporting entity which is responsible for compiling this information. TABLE XV Estimated Overlapping General Obligation Debt Overlapping Entity Outstanding General Obligation Debt Percentage Applicable to District Amount Applicable to District Adams Arapahoe School District 28J $326,905, % $21,248,825 Aurora (City of) 56,430, ,166,912 Denver (City and County of) 616,209, ,663,764 Denver County School District No ,158, ,036,227 Total $27,115,728 Source: Adams County Assessor s Office, City and County of Denver Assessor s Office and individual entities General Obligation Debt Ratios Set forth in the following table are selected historical general obligation debt ratios for the District for the last five years. See INTRODUCTION Debt Ratios for general obligation debt ratios for the District upon issuance and delivery of the Bonds. TABLE XVI District Historical Debt Ratios Fiscal Years Ended December General Obligation Debt Outstanding $47,615,000 $53,610,000 $57,335,000 $59,840,000 $59,065,000 District Assessed Value $97,941,870 $111,130,810 $131,212,090 $132,507,710 $148,542,100 Ratio of Debt to Assessed Value 48.62% 48.24% 43.70% 45.16% 39.76% Sources: Adams County Assessor s Office, City and County of Denver Assessors Offices, District Audited Financial Statements, ; State of Colorado, Division of Property Taxation, Annual Reports ; Regional Economics Information System Bureau of Economic Analysis; and the District Revenue and Other Financial Obligations The District also has the authority to issue revenue obligations payable from the net revenue of District facilities, to enter into obligations which do not extend beyond the current fiscal year, and to incur certain other obligations. Other than the agreements described in THE DISTRICT District Agreements, no such obligations are currently outstanding. 47

54 LEGAL MATTERS Sovereign Immunity The Colorado Governmental Immunity Act, Title 24, Article 10, C.R.S. (the Governmental Immunity Act ), provides that, with certain specified exceptions, sovereign immunity acts as a bar to any action against a public entity, such as the District, for injuries which lie in tort or could lie in tort. The Governmental Immunity Act provides that sovereign immunity does not apply to injuries occurring as a result of certain specified actions or conditions. In such instances, the public entity may be liable for injuries arising from an act or omission of the public entity, or an act or omission of its public employees, which are not willful and wanton, and which occur during the performance of their duties and within the scope of their employment. The maximum amounts that may be recovered under the Governmental Immunity Act, whether from one or more public entities and public employees, are as follows: (a) for any injury to one person in any single occurrence, $150,000; (b) for an injury to two or more persons in any single occurrence, $150,000 per person not to exceed the sum of $600,000. Suits against both the District and a public employee do not increase such maximum amounts which may be recovered. The District may not be held liable either directly or by indemnification for punitive or exemplary damages. In the event that the District is required to levy an ad valorem property tax to discharge a settlement or judgment, such tax may not exceed a total of ten mills per annum for all outstanding settlements or judgments. The District may be subject to civil liability and may not be able to claim sovereign immunity for actions founded upon various federal laws. Examples of such civil liability include, but are not limited to, suits filed pursuant to 42 U.S.C alleging the deprivation of federal constitutional or statutory rights of an individual. In addition, the District may be enjoined from engaging in anti competitive practices which violate the antitrust laws. However, the Governmental Immunity Act provides that it applies to any action brought against a public entity or a public employee in any Colorado State court having jurisdiction over any claim brought pursuant to any federal law, if such action lies in tort or could lie in tort. Pending and Threatened Litigation General Counsel to the District is expected to render an opinion upon delivery of the Bonds stating that, to the best of its actual knowledge, there is no action, suit or proceeding now pending or threatened against the District that will materially and adversely affect the financial condition or operations of the District or the District s power to levy the Required Mill Levy, issue and deliver the Bonds, or execute and perform the obligations of the Bond Resolution. Legal Representation Legal matters incident to the authorization and issuance of the Bonds are subject to approval by Kutak Rock LLP, Denver, Colorado, Bond Counsel. In addition to acting as Bond Counsel, Kutak Rock LLP has been retained to advise the District concerning, and has assisted the District in the preparation of, this Official Statement. Certain matters will be passed upon by Grimshaw & Harring, P.C., Denver, Colorado, as General Counsel to the District. The legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to legal issues expressly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of the result indicated by that expression of professional judgment, or of the transaction on which the opinion is 48

55 rendered, or of the future performance of parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. TAX MATTERS Generally. In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Bonds (including any original issue discount properly allocable to the owners of certain of the Bonds) is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Also, with respect to the Series 2010B Bonds, interest thereon is not included in adjusted current earnings for purposes of the federal alternative minimum tax. The opinions described in the preceding sentences assume the accuracy of certain representations and compliance by the District with covenants designed to satisfy the requirements of the Tax Code that must be met subsequent to the issuance of the Bonds. Failure to comply with such requirements could cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted in the Bond Resolution and the Tax Compliance Certificate executed and delivered in connection with the issuance of the Bonds to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Bonds. Under existing State statutes interest on the Bonds is exempt from State taxation, except inheritance, estate and transfer taxes. Bond Counsel has expressed no opinion regarding other tax consequences arising with respect to the Bonds under the laws of Colorado or any other state or jurisdiction. Notwithstanding Bond Counsel s opinion that interest on the Series 2010A Bonds (including any original issue discount properly allocable to the owners of certain of the Series 2010A Bonds) is not a specific preference item for purposes of the federal alternative minimum tax, such interest will be included in adjusted current earnings of certain corporations, and such corporations are required to include in the calculation of alternative minimum taxable income 75% of the excess of such corporations adjusted current earnings over their alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). The accrual or receipt of interest on the Bonds (including any original issue discount properly allocable to the owners of certain of the Bonds) may otherwise affect the federal income tax liability of the owners of the Bonds. The extent of these other tax consequences will depend upon such owner s particular tax status and other items of income or deduction. Bond Counsel has expressed no opinion regarding any such consequences. Purchasers of the Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of social security or railroad retirement benefits, taxpayers otherwise entitled to claim the earned income credit, or taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax exempt obligations, should consult their tax advisors as to the tax consequences of purchasing or owning the Bonds. Bank Qualified. The District has represented that it does not reasonably anticipate issuing greater than $30,000,000 of tax exempt obligations in calendar year 2010 (excluding certain private activity and refunding bonds) and that it has properly designated the Bonds as qualified tax exempt obligations within the meaning of Section 265(b)(3) of the Tax Code. Accordingly, Bond Counsel is of the opinion that in the case of certain banks, thrift institutions or other financial institutions owning the Bonds, a deduction is allowed for 80% of that portion of such institutions interest expense allocable to interest on the Bonds. Bond Counsel has expressed no opinion with respect to any deduction for federal tax law purposes of interest on indebtedness incurred or continued by a holder of the Bonds or a related person to purchase or carry the Bonds. 49

56 Backup Withholding. As a result of the enactment of the Tax Increase Prevention and Reconciliation Act of 2005, interest on tax exempt obligations such as the Bonds is subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments made after March 31, 2007 to any bondholder who fails to provide certain required information including an accurate taxpayer identification number to any person required to collect such information pursuant to Section 6049 of the Tax Code. The new reporting requirement does not in and of itself affect or alter the excludability of interest on the Bonds from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax exempt obligations. Original Issue Discount. Certain of the Bonds are being sold at an original issue discount (the Discount Bonds ). The difference between the initial public offering prices of such Discount Bonds and their stated amounts to be paid at maturity constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as described above. The amount of original issue discount which is treated as having accrued with respect to such Discount Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity). Amounts received upon disposition of such Discount Bond which are attributable to accrued original issue discount will be treated as tax exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days which are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such discount Bond for a particular semiannual accrual period is equal to the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discount Bond at the beginning of the particular accrual period if held by the original purchaser, less the amount of any interest payable for such Discount Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Original Issue Premium. Certain of the Bonds are being sold at a premium. An amount equal to the excess of the issue price of a Bond over its stated redemption price at maturity constitutes premium on such Bond. An initial purchaser of a Bond must amortize any premium over such Bond s term using constant yield principles, based on the purchaser s yield to maturity (or, in the case of Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser s yield to the call date and giving effect to any call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser s basis in such Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Bond prior to its maturity. Even though the purchaser s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Bonds should consult with their tax advisors with respect to the determination and 50

57 treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Bond. Changes in Federal and State Tax Law. From time to time, there are legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to above or adversely affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value of the Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Bonds or the market value thereof would be impacted thereby. Purchasers of the Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives, or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Bonds and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives, or litigation. Rating MISCELLANEOUS Fitch Ratings ( Fitch ) has assigned the rating to the Bonds shown on the cover page hereof. Such rating reflects only the view of the rating agency and any desired explanation of the significance of such rating should be obtained from One State Street Plaza, New York, New York Generally, a rating agency bases its ratings on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that a ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agency, if, in the judgment of such agency, circumstances so warrant. Any such downward revision or withdrawal of one or both of the ratings indicated above may have an adverse effect on the market price of the Bonds. Registration of Bonds Registration or qualification of the offer and sale of the Bonds (as distinguished from registration of the ownership of the Bonds) is not required under the federal Securities Act of 1933, as amended, the Colorado Securities Act, as amended, or the Colorado Municipal Bond Supervision Act, as amended, pursuant to exemptions from registration provided in such acts. THE DISTRICT ASSUMES NO RESPONSIBILITY FOR QUALIFICATION OR REGISTRATION OF THE BONDS FOR SALE UNDER THE SECURITIES LAWS OF ANY JURISDICTION IN WHICH THE BONDS MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED. The Colorado Municipal Bond Supervision Act, Article 59 of Title 11, Colorado Revised Statutes, (the Act ) generally provides for the Colorado Securities Commissioner (the Commissioner ) to regulate and monitor the issuance of municipal securities by special districts and certain other entities. Among other things, the Act requires that all bonds, debentures, or other obligations (defined in the Act as bonds ) issued by a special district must first be registered with the Commissioner unless exempt under the Act. Exempted from the registration requirement are, among others, an issue of bonds that is rated in one of its four highest rating categories by one or more nationally recognized organization which 51

58 regularly rate such obligations. The Bonds will be exempt from registration pursuant to said exemption, among others. Interest of Certain Persons Named in This Official Statement The legal fees to be paid to Bond Counsel and Underwriter s Counsel are contingent upon the sale and delivery of the Bonds. Continuing Disclosure Undertaking Pursuant to the requirements of the Securities and Exchange Commission Rule 15c2 12 (17 C.F.R. Part 240, c2-12) ( Rule 15c2-12 ), the District has covenanted, for the benefit of the holders of the Bonds, to provide certain financial information and other operating data and notices of material events after the Bonds are issued. The form of the District s Continuing Disclosure Undertaking for the Bonds is attached as APPENDIX B to this Official Statement. The District is current with respect to all necessary filings pursuant to the Rule. Related Parties RBC Capital Markets Corporation is a wholly owned indirect subsidiary of the Royal Bank of Canada. RBC Capital Markets Corporation is serving as the Underwriter for the Bonds and the Royal Bank of Canada entered into a "cash settle swap" with the District in 2007 (see THE BONDS Application of Bond Proceeds The Termination Payment ). It is expected that some of the proceeds of the 2010A Bonds will be utilized to make a swap termination payment to the Royal Bank of Canada. Underwriting The Bonds are being sold by the District to the Underwriter at an underwriter s discount of $347, pursuant to a bond purchase agreement entered into between the Underwriter and the District. Expenses associated with the issuance of the Bonds are being paid by the District from proceeds of the Bonds. The right of the Underwriter to receive compensation in connection with the Bonds is contingent upon the actual sale and delivery of the Bonds. The Underwriter has initially offered the Bonds to the public at the prices or yields set forth on the cover page of this Official Statement. Such prices or yields, as the case may be, may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other investment banking firms in offering the Bonds to the public. Additional Information Copies of statutes, resolutions, opinions, contracts, agreements, financial and statistical data, and other related reports and documents described in this Official Statement are either publicly available or available upon request and the payment of a reasonable copying, mailing, and handling charge from the sources noted in the INTRODUCTION. 52

59 Official Statement Certification The preparation of this Official Statement and its distribution have been authorized by the Board. This Official Statement is hereby duly approved by the Board as of the date on the cover page hereof. This Official Statement is not to be construed as an agreement or contract between the District and the purchasers or owners of any Bond. SAND CREEK METROPOLITAN DISTRICT By /s/ Paul W. Powers President 53

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