the series 2003 bonds

This Preliminary Official Statement and the information contained herein are subject to completion or amendment without notice. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED __________, 2003 In the opinion of Bond Counsel, under existing law, assuming compliance with certain covenants, interest on the Series 2003 Bonds (i) will be excludable from gross income for federal income tax purposes, (ii) will not be an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations, and (iii) will be exempt from all State of South Carolina, county, municipal, school district, and all other taxes and assessments, direct or indirect, general or special, whether imposed for the purpose of general revenue or otherwise, except inheritance, estate, or transfer taxes, provided that the interest thereon may be includable for certain franchise fees or taxes. The opinion contains greater detail, and is subject to exceptions, as noted in “LEGAL MATTERS - Opinion of Bond Counsel” herein. NEW ISSUE (Book-Entry Only) RATINGS Moody’s: A1 Standard & Poor’s: AASee “MISCELLANEOUS - Ratings” herein. $_______________* Building Equity Sooner For Tomorrow (BEST) (South Carolina) Installment Purchase Revenue Bonds (The School District of Greenville County, South Carolina Project), Series 2003 Dated: September 15, 2003 Due: December 1, as shown below The Installment Purchase Revenue Bonds (The School District of Greenville County, South Carolina Project), Series 2003 (the “Series 2003 Bonds”) are being issued by Building Equity Sooner for Tomorrow (BEST) (the “Issuer”) for the purpose of financing the costs of acquiring, constructing, renovating, and installing educational facilities to be sold by the Issuer to The School District of Greenville County, South Carolina (the “School District”) pursuant to a School Facilities Purchase and Occupancy Agreement, dated as of March 15, 2002, as supplemented and amended by a Supplemental School Facilities Purchase and Occupancy Agreement, dated as of September 15, 2003 (collectively the “Facilities Agreement”). See “PLAN OF FINANCING” herein. Interest on the Series 2003 Bonds is payable semiannually on December 1 and June 1 of each year, commencing on December 1, 2003. All Series 2003 Bonds bear interest from September 15, 2003. See “INTRODUCTION - Description of the Series 2003 Bonds” herein. The Series 2003 Bonds are subject to optional, extraordinary optional, and mandatory sinking fund redemption prior to maturity as described herein. See “THE SERIES 2003 BONDS - Redemption” herein. The Series 2003 Bonds are special limited obligations of the Issuer payable solely from and secured by amounts pledged (the “Trust Estate”) under a Trust Agreement, dated as of March 15, 2002, as supplemented and amended by a Supplemental Trust Agreement, dated as of September 15, 2003 (collectively the “Trust Agreement”), between the Issuer and Carolina First Bank, as trustee. The Trust Estate consists primarily of amounts to be paid to the Issuer under the Facilities Agreement, which will obligate the School District to make installment payments of purchase price to the Issuer in amounts calculated to be sufficient to enable the Issuer to pay, when due, the principal of, premium, if any, and interest on the Series 2003 Bonds. The financial obligations of the School District under the Facilities Agreement do not constitute general obligations of the School District to which its faith and credit or taxing power are pledged, but are subject to and dependent upon lawful appropriations of funds being made by the Board of Trustees of the School District to pay the installment payments of purchase price due in each fiscal year under the Facilities Agreement. The School District’s obligations under the Facilities Agreement are from year to year only and do not constitute a mandatory payment obligation of the School District in any fiscal year in which funds are not appropriated by the School District to pay the installment payments of purchase price due in such fiscal year. The School District has no continuing obligation to appropriate funds to pay installment payments of purchase price due under the Facilities Agreement and may terminate its obligations under the Facilities Agreement on an annual basis without any penalty. The Series 2003 Bonds will be issued and secured on a parity with the Prior Bonds (as defined herein) and any additional revenue bonds of the Issuer hereafter issued on a parity with the Prior Bonds and the Series 2003 Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2003 BONDS” herein. MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, AND PRICES OR YIELDS Maturity Principal Amount* Interest Rate $________________* Serial Bonds Price or Yield Maturity Principal Amount* Interest Rate Price or Yield $______________* ______% Term Bonds due December 1, _____, Priced at _______% to Yield _______% (Plus accrued interest from September 15, 2003) This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. The Series 2003 Bonds are offered when, as, and if issued by the Issuer and accepted by the Underwriter, subject to prior sale and to withdrawal or modification of the offer without notice, and are subject to the approving opinion of McGuireWoods LLP, Columbia, South Carolina, Bond Counsel. Certain legal matters will be passed on for the Issuer by its counsel, Haynsworth Sinkler Boyd, P.A., Greenville, South Carolina, for the School District by its counsel, C. Wade Cleveland, Esquire, Greenville, South Carolina, for the Project Manager by its counsel, Wyche Burgess Freeman & Parham, P.A., Greenville, South Carolina, and for the Underwriter by its counsel, Kilpatrick Stockton LLP, Atlanta, Georgia. The Series 2003 Bonds in definitive form are expected to be delivered to The Depository Trust Company in New York, New York on or about ________, 2003. UBS Financial Services Inc. Award Date: __________, 2003 ________________________ * Preliminary; subject to change. #1565446v3 KS Draft 9/4/03 PARTICIPANTS IN FINANCING Issuer BUILDING EQUITY SOONER FOR TOMORROW (BEST) 301 Camperdown Way Box 2848 Greenville, South Carolina 29602-2848 Telephone: (864) 241-3459 Telecopy: (864) 241-4140 Attention: Secretary School District THE SCHOOL DISTRICT OF GREENVILLE COUNTY, SOUTH CAROLINA 301 Camperdown Way Box 2848 Greenville, South Carolina 29602-2848 Telephone: (864) 241-3151 Telecopy: (864) 241-4861 Attention: Chief Financial Officer Trustee CAROLINA FIRST BANK 1501 Main Street Columbia, South Carolina 29201 Attention: Corporate Trust Department Telephone: (803) 929-5180 Telecopy: (803) 929-5189 Financial Advisor A.G. EDWARDS & SONS, INC. 3399 Peachtree Road, N.E. Suite 1100 Atlanta, Georgia 30326 Telephone: (404) 995-8930 Telecopy: (404) 264-9408 Underwriter UBS FINANCIAL SERVICES INC. Three Wachovia Center Suite 2500 401 South Tryon Street Charlotte, North Carolina 28202 Telephone: (704) 343-4025 Telecopy: (704) 373-7790 TABLE OF CONTENTS Page INTRODUCTION .........................................................................................................................................................1 The Issuer ............................................................................................................................................................... 1 The School District ................................................................................................................................................. 1 The Trustee ............................................................................................................................................................. 1 Purpose of the Series 2003 Bonds .......................................................................................................................... 2 Security and Sources of Payment for the Series 2003 Bonds ................................................................................. 2 Description of the Series 2003 Bonds .................................................................................................................... 3 Tax Exemption ....................................................................................................................................................... 3 Professionals Involved in the Offering ................................................................................................................... 4 Legal Authority ...................................................................................................................................................... 4 Offering and Delivery of the Series 2003 Bonds .................................................................................................... 4 Continuing Disclosure ............................................................................................................................................ 4 Investment Considerations ..................................................................................................................................... 4 Other Information ................................................................................................................................................... 7 THE ISSUER.................................................................................................................................................................8 Organization and Corporate Powers ....................................................................................................................... 8 Governing Body ..................................................................................................................................................... 8 Tax Status ............................................................................................................................................................... 8 THE SERIES 2003 BONDS ..........................................................................................................................................9 Description ............................................................................................................................................................. 9 Redemption ............................................................................................................................................................ 9 Book-Entry Only System ..................................................................................................................................... 10 Legal Authority .................................................................................................................................................... 12 Investments ........................................................................................................................................................... 12 Principal and Interest Requirements ..................................................................................................................... 13 PLAN OF FINANCING .............................................................................................................................................. 14 Estimated Sources and Applications of Funds ..................................................................................................... 14 The Capital Projects ............................................................................................................................................. 14 The Development and Management of the Construction and Renovation of the Facilities.................................. 16 Construction Process ............................................................................................................................................ 20 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2003 BONDS .................................................... 20 Facilities Agreement ............................................................................................................................................. 20 Source of Base Payments ..................................................................................................................................... 21 Trust Agreement ................................................................................................................................................... 22 Limited Obligations .............................................................................................................................................. 22 Parity Obligations ................................................................................................................................................. 22 Enforceability of Remedies .................................................................................................................................. 23 THE SCHOOL DISTRICT.......................................................................................................................................... 23 General Description .............................................................................................................................................. 23 Board of Trustees and Principal Administrative Officials .................................................................................... 23 Educational Initiative............................................................................................................................................ 24 Educational Programs and Services...................................................................................................................... 25 The Education Accountability Act of 1998 .......................................................................................................... 26 School Facilities ................................................................................................................................................... 26 Public School Enrollment in the School District .................................................................................................. 28 School District Employees ................................................................................................................................... 29 (i) Page ECONOMIC CHARACTERISTICS ........................................................................................................................... 29 Commerce and Industry ....................................................................................................................................... 29 Population Growth ............................................................................................................................................... 29 Per Capita Income ................................................................................................................................................ 30 Median Family Income ......................................................................................................................................... 30 Median Age and Education Levels ....................................................................................................................... 30 Construction ......................................................................................................................................................... 31 Retail Sales ........................................................................................................................................................... 31 Commercial and Savings Bank Deposits .............................................................................................................. 31 Capital Investment ................................................................................................................................................ 31 Major Employers .................................................................................................................................................. 32 Labor Force .......................................................................................................................................................... 33 Unemployment ..................................................................................................................................................... 33 Transportation ...................................................................................................................................................... 34 Hospital Facilities ................................................................................................................................................. 34 Education .............................................................................................................................................................. 35 FINANCIAL AND TAX INFORMATION ................................................................................................................ 35 Five Year Summary of General Fund Operations ................................................................................................ 35 Budget Procedure and Accounting Policies ......................................................................................................... 37 Revenues .............................................................................................................................................................. 38 Investment Policies ............................................................................................................................................... 41 Property Taxation and Assessment ....................................................................................................................... 41 Homestead Exemptions--Property Tax Relief ...................................................................................................... 42 Assessed Value ..................................................................................................................................................... 42 Estimated True Value of Taxable Property .......................................................................................................... 43 Payments in Lieu of Taxes ................................................................................................................................... 44 Limitation on Annual Tax Levy ........................................................................................................................... 45 Tax Collection Procedure ..................................................................................................................................... 45 Tax Collections for Last Five Years ..................................................................................................................... 46 Ten Largest Taxpayers ......................................................................................................................................... 47 Millage History..................................................................................................................................................... 47 Building Aid ......................................................................................................................................................... 47 South Carolina Educational Assistance Endowment Fund ................................................................................... 48 State School Facilities Bonds ............................................................................................................................... 48 Fringe Benefits, Retirement, and Health Insurance .............................................................................................. 48 Liability Insurance ................................................................................................................................................ 49 DEBT STRUCTURE .................................................................................................................................................. 49 Legal Debt Limit of the School District ............................................................................................................... 49 Outstanding Indebtedness ..................................................................................................................................... 50 Composite Debt Service ....................................................................................................................................... 50 Legal Debt Limit of Counties, Incorporated Municipalities, and Special Purpose Districts ................................ 50 Overlapping Debt ................................................................................................................................................. 50 Miscellaneous Debt Information .......................................................................................................................... 51 LEGAL MATTERS .................................................................................................................................................... 52 Pending Litigation ................................................................................................................................................ 52 Settled Litigation .................................................................................................................................................. 52 Opinion of Attorney General ................................................................................................................................ 54 Opinion of Bond Counsel ..................................................................................................................................... 54 Original Issue Discount and Premium .................................................................................................................. 55 Collateral Federal Tax Consequences .................................................................................................................. 55 Closing Certificates .............................................................................................................................................. 56 (ii) Page MISCELLANEOUS .................................................................................................................................................... 56 Ratings .................................................................................................................................................................. 56 Underwriting ........................................................................................................................................................ 56 Financial Advisor ................................................................................................................................................. 56 Independent Auditors ........................................................................................................................................... 56 Pending Legislation .............................................................................................................................................. 56 Additional Information ......................................................................................................................................... 57 RESPONSIBILITY FOR OFFICIAL STATEMENT ................................................................................................. 58 APPENDIX A: FISCAL YEAR 2002 FINANCIAL STATEMENTS OF THE SCHOOL DISTRICT ..................A-1 APPENDIX B: DEFINITIONS AND SUMMARIES OF PRINCIPAL DOCUMENTS ........................................ B-1 Definitions ...................................................................................................................................... BThe Facilities Agreement ................................................................................................................ BThe Base Lease ............................................................................................................................... BThe Trust Agreement ...................................................................................................................... BAPPENDIX C: PROPOSED FORM OF LEGAL OPINION .................................................................................. C-1 (iii) OFFICIAL STATEMENT of BUILDING EQUITY SOONER FOR TOMORROW (BEST) (SOUTH CAROLINA) relating to its $_______________* INSTALLMENT PURCHASE REVENUE BONDS (THE SCHOOL DISTRICT OF GREENVILLE COUNTY, SOUTH CAROLINA PROJECT), SERIES 2003 INTRODUCTION The purpose of this Official Statement, which includes the cover page and the Appendices hereto, is to furnish certain information in connection with the sale by Building Equity Sooner for Tomorrow (BEST) of $_______________* in aggregate principal amount of its Installment Purchase Revenue Bonds (The School District of Greenville County, South Carolina Project), Series 2003 (the “Series 2003 Bonds”). Definitions of certain terms used in this Official Statement and not otherwise defined herein are set forth in Appendix B to this Official Statement under the heading “DEFINITIONS.” This Introduction is not a summary of this Official Statement and is intended only for quick reference. It is only a brief description of and guide to, and is qualified in its entirety by reference to, more complete and detailed information contained in the entire Official Statement, including the cover page and the Appendices hereto, and the documents summarized or described herein. Potential investors should fully review the entire Official Statement. The offering of the Series 2003 Bonds to potential investors is made only by means of the entire Official Statement, including the Appendices hereto. No person is authorized to detach this Introduction from the Official Statement or to otherwise use it without the entire Official Statement, including the Appendices hereto. The Issuer Building Equity Sooner for Tomorrow (BEST) (the “Issuer”), the issuer of the Series 2003 Bonds, is a nonprofit corporation organized and existing under the laws of the State of South Carolina. For more complete information, see “THE ISSUER” herein. The School District The School District of Greenville County, South Carolina (the “School District”) is a body politic and corporate and a political subdivision of the State of South Carolina. The School District is located in the northwest Piedmont region of South Carolina, approximately 160 miles northeast of Atlanta, Georgia, and approximately 80 miles southwest of Charlotte, North Carolina. The School District is the largest school district in South Carolina and encompasses virtually all of Greenville County and small portions of Spartanburg and Laurens Counties. For more complete information, see “THE SCHOOL DISTRICT” herein. The Trustee Carolina First Bank (the “Trustee”), Columbia, South Carolina, will act as trustee, as bond registrar, and as paying agent for the Series 2003 Bonds under the Trust Agreement. _________________________ * Throughout this Preliminary Official Statement, the asterisk indicates information that is preliminary and subject to change. Purpose of the Series 2003 Bonds The Issuer is issuing the Series 2003 Bonds for the purpose of providing funds to finance the costs of acquiring, constructing, renovating, and installing educational facilities (the “Capital Projects”) to be sold by the Issuer to the School District, to fully fund the Reserve Account of the Bond Fund to be held under the Trust Agreement, and to finance the costs of issuing the Series 2003 Bonds. Institutional Resources, LLC (the “Project Manager”) will provide development, design coordination, project management, and construction management services to the Issuer and the School District in connection with the Capital Projects, pursuant to a Development, Program Management, and Construction Management Agreement, dated March 15, 2001, as supplemented and amended by Amendment No. 1, dated July 11, 2001, and by Amendment No. 2, dated February 11, 2003 (collectively the “Project Agreement”), among the Issuer, the School District, and the Project Manager. For more complete information, see “PLAN OF FINANCING” herein. Security and Sources of Payment for the Series 2003 Bonds The Series 2003 Bonds are special limited obligations of the Issuer, payable solely from and secured by the amounts pledged (the “Trust Estate”) under the Trust Agreement, as described below. The Issuer will lease the land and existing improvements on which the Capital Projects will be located (such land, existing improvements, and Capital Projects hereinafter collectively referred to as the “Facilities”) from the School District for an initial rental payment of $47,625,487, which was paid from the proceeds of the hereinafter defined Prior Bonds to reimburse the School District for a portion of the costs of the Capital Projects, for an annual rental payment of $1, and for the agreement of the Issuer to carry out the Capital Projects, pursuant to a Base Lease Agreement, dated as of March 15, 2002, as supplemented and amended by a Supplemental Base Lease Agreement, dated as of September 15, 2003 (collectively the “Base Lease”), between the School District, as lessor, and the Issuer, as lessee. The School District will purchase the Capital Projects from the Issuer pursuant to a School Facilities Purchase and Occupancy Agreement, dated as of March 15, 2002, as supplemented and amended by a Supplemental School Facilities Purchase and Occupancy Agreement, dated as of September 15, 2003 (collectively the “Facilities Agreement”), between the Issuer, as seller, and the School District, as purchaser, which will obligate the School District to make semiannual installment payments of purchase price, also referred to as “Acquisition Payments,” to the Issuer in amounts calculated to be sufficient to enable the Issuer to pay, when due, the principal of, premium, if any, and interest on the Series 2003 Bonds. The financial obligations of the School District under the Facilities Agreement do not constitute general obligations of the School District to which its faith and credit or taxing power are pledged, but are subject to and dependent upon lawful appropriations of funds being made by the Board of Trustees of the School District to pay the installment payments of purchase price due in each fiscal year under the Facilities Agreement. The School District’s obligations under the Facilities Agreement are from year to year only and do not constitute a mandatory payment obligation of the School District in any fiscal year in which funds are not appropriated by the School District to pay the installment payments of purchase price due in such fiscal year. The School District has no continuing obligation to appropriate funds to pay installment payments of purchase price due under the Facilities Agreement and may terminate its obligations under the Facilities Agreement on an annual basis without any penalty. To secure its obligations under the Series 2003 Bonds, the Issuer has entered into a Trust Agreement, dated as of March 15, 2002, as supplemented and amended by a Supplemental Trust Agreement, dated as of September 15, 2003 (collectively the “Trust Agreement”), with the Trustee, pursuant to which the Issuer has (i) assigned to the Trustee, and granted a first priority security interest in, all of its right, title, interest, and remedies in and to (a) the Facilities Agreement (except for certain rights reserved to the Issuer) and all amounts to be received thereunder and (b) the Base Lease, the Project Agreement, and the contracts with the architects and contractors relating to the Capital Projects, (ii) assigned and pledged to the Trustee, and granted a first priority security interest in, all revenues and receipts derived from the Issuer’s ownership interests in the Facilities, and (iii) assigned and pledged to the Trustee, and granted a first priority security interest in, all moneys held by the Trustee in certain funds and accounts created under the Trust Agreement. The Series 2003 Bonds will also be secured by a separate subaccount within the Reserve Account of the Bond Fund, to be held by the Trustee under the Trust Agreement in an amount equal to $___________*. This subaccount of the Reserve Account will be fully funded upon the issuance of the Series 2003 Bonds, from proceeds of the sale of the Series 2003 Bonds. The Issuer has previously issued $800,000,000 in original aggregate principal amount of its Installment Purchase Revenue Bonds (The School District of Greenville County, South Carolina Project), Series 2002 (the “Prior Bonds”). The Prior Bonds are presently outstanding in the aggregate principal amount of $800,000,000 and were issued by the -2- Issuer on March 25, 2002 for the purpose of financing or refinancing a portion of the costs of the Capital Projects. The Prior Bonds are payable solely from and secured by installment payments of purchase price made by the School District to the Issuer pursuant to the Facilities Agreement. The Series 2003 Bonds will be equally and ratably secured on a parity basis with the Prior Bonds and with any additional revenue bonds of the Issuer hereafter issued on a parity basis with the Prior Bonds and the Series 2003 Bonds, except as to the subaccounts held within the Reserve Account, which will only secure the series of Bonds for which they were created. The Prior Bonds, the Series 2003 Bonds, and any additional revenue bonds of the Issuer hereafter issued on a parity basis with the Prior Bonds and the Series 2003 Bonds are collectively referred to as the “Bonds” in this Official Statement.. For more complete and detailed information, see “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2003 BONDS” herein. Description of the Series 2003 Bonds Redemption. The Series 2003 Bonds are subject to optional redemption, extraordinary optional redemption, and mandatory sinking fund redemption, prior to maturity. The Series 2003 Bonds maturing on or after December 1, ____ are subject to optional redemption, not earlier than December 1, ____, at the prices and on the terms described in this Official Statement, in the event of optional prepayment of the installment payments of purchase price payable under the Facilities Agreement by the School District. The Series 2003 Bonds are subject to extraordinary optional redemption, in part on any Bond Payment Date, at the prices and on the terms described in this Official Statement, in the event the School District elects to prepay installment payments of purchase price pursuant to the provisions of the Facilities Agreement relating to damage to a portion of the Facilities, a material defect in construction of a portion of the Facilities, condemnation of a portion of the Facilities by an entity other than the School District, or a defect in title to a portion of the Facilities. The Series 2003 Bonds maturing on December 1, ____*, are subject to mandatory sinking fund redemption by the Issuer on the dates and in the amounts herein described. For more complete information, see “THE SERIES 2003 BONDS - Redemption” herein. Denominations. The Series 2003 Bonds are issuable in the denominations of $5,000 or any integral multiple thereof. Book-Entry Bonds. Each of the Series 2003 Bonds will be issued as fully registered bonds in the denomination of one bond per aggregate principal amount of the stated maturity thereof, and, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company (“DTC”), New York, New York, an automated depository for securities and clearing house for securities transactions, which will act as securities depository for the Series 2003 Bonds. Purchasers will not receive certificates representing their ownership interest in the Series 2003 Bonds purchased. Purchases of beneficial interests in the Series 2003 Bonds will be made in book-entry only form (without certificates), in authorized denominations, and, under certain circumstances as more fully described in this Official Statement, such beneficial interests are exchangeable for one or more fully registered bonds of like principal amount and maturity in authorized denominations. For more complete information, see “THE SERIES 2003 BONDS - Book-Entry Only System” herein. Payments. So long as DTC or its nominee, Cede & Co., is the registered owner of the Series 2003 Bonds, payments of the principal of, premium, if any, and interest on the Series 2003 Bonds will be made directly to Cede & Co., which will remit such payments to the DTC participants, which will in turn remit such payments to the beneficial owners of the Series 2003 Bonds. For a more complete description of the Series 2003 Bonds, see “THE SERIES 2003 BONDS” herein. Tax Exemption In the opinion of Bond Counsel, under existing law, assuming compliance with certain covenants, interest on the Series 2003 Bonds (i) will be excludable from gross income for federal income tax purposes, (ii) will not be an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations, and (iii) will be exempt from all State of South Carolina, county, municipal, school district, and all other taxes and assessments, direct or indirect, general or special, whether imposed for the purpose of general revenue or otherwise, except inheritance, estate, or transfer taxes, provided that the interest thereon may be includable for certain franchise fees or taxes. See Appendix C hereto for the form of the opinion Bond Counsel proposes to deliver in connection with the issuance of the Series 2003 Bonds. For a more complete discussion of such opinion and certain other tax consequences of owning the Series 2003 Bonds, including certain exceptions to the exclusion of the interest on the Series 2003 Bonds from gross income, see “LEGAL MATTERS - Opinion of Bond Counsel, - Original Issue Discount and Premium, and - Collateral Federal Tax Consequences” herein. -3- Professionals Involved in the Offering Certain legal matters pertaining to the Issuer and its authorization and issuance of the Series 2003 Bonds are subject to the approving opinion of McGuireWoods LLP, Columbia, South Carolina, Bond Counsel. Copies of such opinion will be available at the time of delivery of the Series 2003 Bonds, and a copy of the proposed form of such opinion is attached hereto as Appendix C. Certain legal matters will be passed on for the Issuer by its counsel, Haynsworth Sinkler Boyd, P.A., Greenville, South Carolina, for the School District by its counsel, C. Wade Cleveland, Esquire, Greenville, South Carolina, for the Project Manager by its counsel, Wyche Burgess Freeman & Parham, P.A., Greenville, South Carolina, and for the Underwriter by its counsel, Kilpatrick Stockton LLP, Atlanta, Georgia. Kilpatrick Stockton LLP also represented the School District in negotiating the terms of the Project Agreement with the Project Manager. A.G. Edwards & Sons, Inc., Atlanta, Georgia, has been employed as Financial Advisor to the School District in connection with the issuance of the Series 2003 Bonds. The general purpose financial statements of the School District as of June 30, 2002, and for the year then ended, attached hereto as Appendix A, have been audited by Greene, Finney & Horton, LLP, Greenville, South Carolina, independent certified public accountants, to the extent and for the period indicated in its report thereon, which appears in Appendix A hereto. See “MISCELLANEOUS - Financial Advisor and - Independent Auditors” herein. Legal Authority The Series 2003 Bonds are being issued and secured pursuant to the authority granted by the laws of the State of South Carolina and under the provisions of a Bond Resolution of the Issuer, adopted by the Board of Directors of the Issuer on ________, 2003. For more complete information, see “THE SERIES 2003 BONDS - Legal Authority” herein. Offering and Delivery of the Series 2003 Bonds The Series 2003 Bonds are offered when, as, and if issued by the Issuer and accepted by the underwriter named on the front cover of this Official Statement (the “Underwriter”), subject to prior sale and to withdrawal or modification of the offer without notice. The Series 2003 Bonds in definitive form are expected to be delivered to The Depository Trust Company in New York, New York on or about ___________, 2003. Continuing Disclosure The Issuer has determined that no financial or operating data concerning the Issuer is material to any decision to purchase, hold, or sell the Series 2003 Bonds, and the Issuer will not provide any such information. The School District has undertaken all responsibilities for any continuing disclosure to beneficial owners of the Series 2003 Bonds as described below, and the Issuer will have no liability to the beneficial owners of the Series 2003 Bonds or any other person with respect to such disclosures. The School District will covenant in the Facilities Agreement and a Disclosure Dissemination Agent Agreement (the “Disclosure Agreement”) to be entered into between the School District and Digital Assurance Certification, L.L.C. (the “Dissemination Agent”), for the benefit of the beneficial owners of the Series 2003 Bonds, to provide certain financial information and operating data relating to the School District (the “Annual Report”) by not later than February 1 of each year, commencing February 1, 2004, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Dissemination Agent with each Nationally Recognized Municipal Securities Information Repository. The notices of material events will be filed by the Dissemination Agent on behalf of the School District with each Nationally Recognized Municipal Securities Information Repository. The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized in Appendix B hereto under the caption “THE FACILITIES AGREEMENT - Continuing Disclosure.” These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Investment Considerations Introduction In analyzing the Series 2003 Bonds and the security and sources of payment therefor and in order to make an informed investment decision, potential investors should carefully consider the following investment considerations prior to making a decision to purchase the Series 2003 Bonds. The following investment considerations are not intended to be exhaustive of the general or specific investment considerations relating to the purchase of the Series 2003 Bonds. Additional investment considerations relating to the purchase of the Series 2003 Bonds are described throughout this -4- Official Statement, whether or not specifically designated as investment considerations. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. Settled Litigation A taxpayer of the School District filed a lawsuit against the Issuer and the School District in 2001 seeking a declaratory judgment finding that, among other things, the Prior Bonds and the Facilities Agreement are invalid. The circuit court ruled in favor of the Issuer and the School District, and the taxpayer appealed the ruling. The taxpayer, the Issuer, and the School District subsequently entered into a settlement agreement in February of 2002 prior to the issuance of the Prior Bonds, pursuant to which the taxpayer dismissed his appeal. Although the Issuer and the School District intend to assert, if another taxpayer lawsuit is filed, that the favorable court ruling described above will preclude any other taxpayer from challenging the validity of the Series 2003 Bonds or the Facilities Agreement, no assurance can be given that this court ruling (1) will prevent any other taxpayer from filing suit in the future against the same defendants and asserting the same claims or (2) will bind a future court hearing such claims to reach the same legal conclusions. For more complete and detailed information, see “LEGAL MATTERS - Settled Litigation” herein. Pending Legislation The School District is subject to a statutory millage limit on the amount of ad valorem taxes it may annually levy to fund operations and does not presently have sufficient unused capacity under its operating millage limit to levy additional ad valorem taxes to fund the installment payments of purchase price due under the Facilities Agreement. The School District is, however, authorized to levy an unlimited ad valorem tax to pay its general obligation debt and has covenanted and agreed in the Facilities Agreement to exercise its best efforts to issue its general obligation debt from time to time to provide funds to make installment payments of purchase price due under the Facilities Agreement. Legislation has been introduced and is presently pending in the South Carolina General Assembly that, if enacted in its present form, may prevent the School District from issuing its general obligation debt to fund installment payments of purchase price due under the Facilities Agreement, notwithstanding its covenant contained in the Facilities Agreement to exercise its best efforts to issue such general obligation debt. The School District believes that, based upon advice of counsel, this legislation would likely be unconstitutional as applied to the School District because it would violate the provisions of the United States and South Carolina Constitutions that prohibit the South Carolina General Assembly from passing any law impairing the obligation of contracts. For more complete and detailed information, see “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2003 BONDS - Source of Base Payments” and “MISCELLANEOUS - Pending Legislation” herein. No assurance can be given that other legislation will not be introduced in the future that may adversely affect the ability of the School District to issue its general obligation debt from time to time to provide funds to make installment payments of purchase price due under the Facilities Agreement. Nonappropriation The debt service on the Series 2003 Bonds will be payable primarily from installment payments of purchase price made by the School District pursuant to the Facilities Agreement. The obligation of the School District to make installment payments of purchase price under the Facilities Agreement is limited to funds that are specifically budgeted and appropriated annually for that purpose. The School District may terminate the Facilities Agreement annually without any penalty. Each installment payment of purchase price made by the School District under the Facilities Agreement will cause an undivided interest in the Capital Projects, equal to that percentage of the total debt service (principal and interest) payable on the Bonds represented by such installment payment, to transfer from the Issuer to the School District. The Facilities Agreement provides that upon its termination, either by reason of default or nonappropriation, entire components of the Facilities will be partitioned between the Issuer and the School District based upon their respective percentages of undivided interests in the Capital Projects. The Facilities Agreement further provides that the value assigned to particular components of the Facilities in any partition will be based solely on the amount of proceeds of the Bonds expended on the Capital Projects, without regard to the fair market value of the Facilities. The determination of which particular components of the Facilities will remain with the Issuer and which components will be transferred to the School District will be made by an advisor appointed by the Trustee, who is directed by the Facilities Agreement to protect the interests of the owners of the Bonds in preparing the partition plan. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2003 BONDS” herein. The decision to budget and appropriate funds to make installment payments of purchase price under the Facilities Agreement will be made on the basis of various factors, including (a) the completion of the Capital Projects in a manner satisfactory to the School District, (b) the continuing need of the School District for the portion of the Facilities that have not transferred to the School District, and (c) the ability of the School District to generate sufficient funds from periodic -5- sales of its general obligation debt and other sources to make installment payments of purchase price under the Facilities Agreement. (a) Construction Risk. The School District believes that the proceeds of the Series 2003 Bonds and the Prior Bonds, together with additional bonds either it will issue or the Issuer will issue under separate financing instruments in late 2005 or early 2006, will be sufficient to complete the Capital Projects. See “PLAN OF FINANCING” herein. Although the Issuer and the School District have entered into the Project Agreement with the Project Manager and although all of the contracts with architects and engineers for the design of the Capital Projects have been bid, approximately 77% of the contracts with contractors for the construction of the Capital Projects have not been bid, and various circumstances could result in cost overruns. The Facilities Agreement does not require the School District to expend any of its own funds for the completion of the Capital Projects, and the Issuer has no source of funds for the completion of the Capital Projects, other than the proceeds of Bonds issued under the Trust Agreement or revenue bonds issued by it under separate financing instruments. In the event that the proceeds of the Series 2003 Bonds and the Prior Bonds are insufficient for such purpose and the School District does not elect to expend its own funds or issue its general obligation bonds for such purpose, the Issuer and the School District have agreed in the Facilities Agreement to either: (i) make such modifications to the plans and specifications for the Capital Projects as will permit the Capital Projects to be completed from the amounts available therefor in the Project Fund, or (ii) use their best efforts to sell Additional Bonds to provide funds for the completion of the Capital Projects. The Trust Agreement limits the amount of Additional Bonds that may be issued to fund the completion of the Capital Projects, and the Issuer will exhaust this contractual debt limitation with the issuance of the Series 2003 Bonds. The only remaining avenue for the Issuer to fund the completion of the Capital Projects is through the issuance of its revenue bonds pursuant to and secured by financing instruments separate from the Trust Agreement, the Facilities Agreement, and the Base Lease. The School District plans to either issue its general obligation bonds or request the Issuer to issue such revenue bonds under separate financing instruments to fund the completion of the Capital Projects. There can be no assurance that such bonds can be sold, as events ranging from legislative changes to credit market conditions and access could prevent the sale of such bonds. The Facilities Agreement provides that, subject to the right of nonappropriation contained therein, the School District’s obligation to make installment payments of purchase price thereunder will be absolute and unconditional, regardless of whether the Issuer is able to complete the Capital Projects. (b) Continuing Need for Decreasing Interest in the Facilities. As the School District makes installment payments of purchase price over the term of the Bonds, it will increase its undivided interest in the Capital Projects and reduce the Issuer’s undivided interest in the Capital Projects. As a result, the School District’s need for the portion of the Capital Projects retained by the Issuer will diminish as the Issuer’s undivided interest in the Capital Projects decreases. Moreover, as installment payments of purchase price are made, the School District’s proportionate undivided interest in the Capital Projects will increase at a relatively faster rate than the outstanding principal amount of the Bonds will be reduced. In the later years of the term of the Bonds, the unpaid principal amount of the Bonds might exceed the value of the Issuer’s undivided interest in the Capital Projects. In the event the Facilities Agreement is terminated and the Facilities are partitioned between the Issuer and the School District, the Facilities Agreement directs the advisor preparing the partition plan to protect the interests of the owners of the Bonds. (c) Ability to Issue Future General Obligation Debt. The ability of the School District to issue its general obligation debt during the term of the Series 2003 Bonds to provide funds to make installment payments of purchase price under the Facilities Agreement will depend upon, among other things, future credit market conditions, the future credit condition of the School District, the future credit market access of the School District, and the ability of the School District to preserve its capacity to issue general obligation debt that does not require voter approval. The School District has covenanted in the Facilities Agreement to take all steps necessary to maintain its capacity to issue general obligation debt that does not require voter approval, in amounts and at times sufficient to make such installment payments when due. Remedies Upon Nonappropriation The Issuer has not granted any lien on or security interest in the Facilities to secure the Bonds. In the event the School District terminates the Facilities Agreement, the Bonds will be payable from such moneys, if any, as may be held or made available by the Trustee from the leasing until the expiration of the Base Lease (March 1, 2052) of the Facilities that remain with the Issuer after the partitioning described above is accomplished. The Base Lease, as required by South Carolina law, requires the Facilities to always be operated for a civic or public purpose. This restriction as to the use of the Facilities will limit the potential tenants to which the Facilities could be leased and could reduce the revenues from leasing the Facilities. The Facilities are designed to be used solely for educational purposes. There can be no assurance of the value of the Facilities for any use other than educational purposes in the event of termination of the Facilities Agreement. In this event, the revenues from leasing the Facilities may be substantially less than the amount of remaining debt service on the Bonds. -6- Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. This Official Statement contains forecasts, projections, and estimates that are based on current expectations but are not intended as representations of fact or guarantees of results. If and when included in this Official Statement, the words “expects,” “forecasts,” “projects,” “intends,” “anticipates,” “estimates,” and analogous expressions are intended to identify forward-looking statements as defined in the Securities Act of 1933, as amended, and any such statements inherently are subject to a variety of risks and uncertainties, which could cause actual results to differ materially from those contemplated in such forward-looking statements. These forward-looking statements speak only as of the date of this Official Statement. The Issuer and the School District each disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. This Official Statement and the Appendices hereto contain brief descriptions of, among other matters, the Issuer, the School District, the Project Manager, the Series 2003 Bonds, the Facilities, the Trust Agreement, the Facilities Agreement, the Base Lease, the Project Agreement, the Disclosure Agreement, and the security and sources of payment for the Series 2003 Bonds. Such descriptions and information do not purport to be comprehensive or definitive. The summaries of various constitutional provisions and statutes, such contracts, and other documents are intended as summaries only and are qualified in their entirety by reference to such laws and documents, and references herein to the Series 2003 Bonds are qualified in their entirety by reference to the form thereof included in the Trust Agreement. Copies of such contracts and other documents and information are available, upon request and upon payment to the Trustee of a charge for copying, mailing, and handling, from the Trustee at the address set forth on the inside front cover of this Official Statement. During the period of the offering of the Series 2003 Bonds copies of such documents are available, upon request and upon payment to the Underwriter of a charge for copying, mailing, and handling, from the Underwriter at the address set forth on the inside front cover of this Official Statement. The Series 2003 Bonds and their underlying obligations have not been registered under the Securities Act of 1933, and the Trust Agreement has not been qualified under the Trust Indenture Act of 1939, in reliance on exemptions contained in such Acts. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, the Series 2003 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. No dealer, broker, salesman, or other person has been authorized by the Issuer, the School District, the Project Manager, or the Underwriter to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations should not be relied upon as having been authorized by the Issuer, the School District, the Project Manager, or the Underwriter. Except where otherwise indicated, all information contained in this Official Statement has been provided by the Issuer, the School District, or the Project Manager. The information set forth herein has been obtained by the Issuer, the School District, or the Project Manager from sources that are believed to be reliable but is not guaranteed as to accuracy or completeness by the Underwriter. The Issuer has not provided information regarding the School District or the Project Manager and does not certify as to the accuracy or sufficiency of the disclosure practices of or content of the information provided by the School District or the Project Manager and is not responsible for the information provided by the School District or the Project Manager. The Project Manager has not provided information regarding the Issuer or the School District and does not certify as to the accuracy or sufficiency of the disclosure practices of or content of the information provided by the Issuer or the School District and is not responsible for the information provided by the Issuer or the School District. The information contained herein is subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create an implication that there has been no change in the affairs of the Issuer, the School District, or the Project Manager or the other matters described herein since the date hereof or the earlier dates set forth herein as of which certain information contained herein is given. In connection with this offering, the Underwriter may over-allot or effect transactions that stabilize or maintain the market prices of the Series 2003 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. -7- THE ISSUER Organization and Corporate Powers Building Equity Sooner for Tomorrow (BEST) was incorporated as a nonprofit corporation on March 7, 2001, pursuant to the provisions of the South Carolina Nonprofit Corporation Act of 1994, Chapter 31 of Title 33 of the South Carolina Code. The Articles of Incorporation of the Issuer provide that the Issuer has been incorporated for the specific charitable purpose of serving as a “support organization” to be supervised or controlled in connection with the School District. The Issuer has limited operating history and has and will have no assets other than its interest in the Facilities. The Articles of Incorporation of the Issuer provide that the Bylaws and the Articles of Incorporation of the Issuer may not be amended without the approval of the Board of Trustees of the School District. The Articles of Incorporation and Bylaws of the Issuer also provide that, in the event of dissolution or liquidation of the Issuer, all of the residual assets of the Issuer shall be delivered to the School District. Governing Body The affairs of the Issuer are conducted by a Board of Directors consisting of five members. The Bylaws of the Issuer require each Director of the Issuer to be a former member of the Board of Trustees of the School District, due to such individuals’ aggregate experience with the administration and operation of the School District, given the charitable mission of the Issuer. The members of the Board of Directors serve staggered terms of office of three years and are eligible to succeed themselves. Under the Bylaws of the Issuer, within three months prior to the expiration of a Director’s term, the Directors whose terms are not expiring appoint a proposed Director to fill the vacancy created by the expiration of such term. The proposed Director is then presented to the Board of Trustees of the School District, which, upon the exercise of its reasonable judgment, may approve or reject the Director; in the event a proposed Director is rejected, the Directors whose terms are not expiring shall appoint alternative Directors, subject to the reasonable approval of the Board of Trustees of the School District, until a Director is approved and appointed. Under the Bylaws of the Issuer, the Board of Trustees of the School District has the authority, at any time and for any reason, to remove a Director from office. The Bylaws also grant the Board of Trustees of the School District the authority to remove an officer of the Issuer at any time, with or without cause. The Bylaws of the Issuer require the Board of Directors, at their annual meeting, to adopt a plan of operations (the “Operating Plan”) for the next fiscal year and to submit the Operating Plan to the Board of Trustees of the School District for their reasonable approval. Any changes to the Operating Plan must be approved by the Board of Trustees of the School District. The Bylaws provide that (i) any action to approve amendments to the Base Lease or the Trust Agreement, (ii) any issuance or incurrence of debt obligations of the Issuer, and (iii) any change, amendment, modification, or waiver of any condition or requirement of the Project Agreement, must be either approved by the Board of Trustees of the School District, or be done concurrently with similar action by the Board of Trustees of the School District. Information concerning the current members of the Board of Directors of the Issuer is set forth below: Name and Office Held Expiration of Term Principal Occupation Thomas G. Chappelear, Chairman and President James W. Blakely, Jr. Michael Jaskwhich August 7, 2006 Retired Businessman August 7, 2005 August 7, 2004 Andrew M. Jones, Jr. August 7, 2004 Project Manager CEO of Chemical Manufacturing Company Lawyer Tax Status The Issuer intends to apply for determinations from the Internal Revenue Service that it is exempt from federal income taxation (1) under Section 115 of the Internal Revenue Code of 1986, as amended (the “Tax Code”), and (2) as an organization described in Section 501(c)(3) of the Tax Code. Bond Counsel will render its opinion on the date of issuance of the Series 2003 Bonds that the payments received by the Issuer pursuant to the Facilities Agreement will not be included in the gross income of the Issuer for federal and State of South Carolina income tax purposes. -8- THE SERIES 2003 BONDS Description The Series 2003 Bonds will be dated as of September 15, 2003, and will bear interest at the rates per annum set forth on the cover page of this Official Statement, computed on the basis of a 360-day year consisting of twelve 30-day months, payable on December 1, 2003, and semiannually thereafter on June 1 and December 1 of each year (each a “Bond Payment Date”) and will mature on the dates and in the amounts set forth on the cover page of this Official Statement, unless earlier called for redemption. Each of the Series 2003 Bonds will bear interest from the later of September 15, 2003, or the date to which interest has been paid immediately preceding the authentication date thereof, unless the authentication date thereof is a Bond Payment Date, in which event each such Series 2003 Bond will bear interest from the earlier of such authentication date or the date to which interest has been paid or, in the event no interest has been paid, from September 15, 2003. The Series 2003 Bonds are issuable only as fully registered bonds, without coupons, in the denomination of $5,000 or any integral multiple thereof. Purchases of beneficial ownership interests in the Series 2003 Bonds will be made in book-entry form, and purchasers will not receive certificates representing interests in the Series 2003 Bonds so purchased. If the book-entry system is discontinued, Series 2003 Bonds will be delivered as described in the Trust Agreement, and Beneficial Owners will become the registered owners of the Series 2003 Bonds. See “THE SERIES 2003 BONDS - Book-Entry Only System” herein. Redemption Optional Redemption In the event the School District exercises its option pursuant to the Facilities Agreement to prepay Base Payments, or in the event the School District makes a voluntary prepayment under the Facilities Agreement, the Series 2003 Bonds will be redeemed in whole on any date or in part on any Bond Payment Date, on or after December 1, ____, by the Issuer at the redemption prices (expressed as percentages of principal amount) set forth in the table below plus accrued interest to the redemption date: Redemption Dates (inclusive) Redemption Price December 1, ____, through November 30, ____ December 1, ____, through November 30, ____ December 1, ____, and thereafter Extraordinary Optional Redemption In the event the School District elects to prepay Acquisition Payments using Net Proceeds of applicable insurance policies, performance bonds, or condemnation awards pursuant to the provisions of the Facilities Agreement relating to damage to a portion of the Facilities, a material defect in construction of a portion of the Capital Projects, condemnation of a portion of the Facilities by an entity other than the School District, or a defect in title to a portion of the Facilities, the Series 2003 Bonds will be subject to redemption on the earliest reasonably practicable Bond Payment Date, as selected by the Trustee, at a price equal to 100% of the principal amount of the Series 2003 Bonds so redeemed, without premium, plus accrued interest to the date of redemption. Mandatory Sinking Fund Redemption The Series 2003 Bonds maturing on December 1, ____*, are subject to mandatory sinking fund redemption, at a redemption price equal to the principal amount to be redeemed plus accrued interest, if any, to the redemption date, without premium on December 1 in the years and amounts as follows: Principal Amount Year (Leaving $__________ to mature on December 1, ____) -9- Notice of Redemption The notice of the call for redemption of Series 2003 Bonds will be given by the Trustee by first class mail, postage prepaid, at least 30 days, but not more than 60 days, prior to the date fixed for redemption to the registered owner of each Series 2003 Bond subject to redemption at such owner’s address shown on the registration books of the Issuer on the 15th day preceding that mailing. Partial Redemption If less than all of the Series 2003 Bonds are called for redemption, the Series 2003 Bonds to be redeemed will be selected in the manner that the Issuer shall determine as set forth in a certificate of the Issuer filed with the Trustee. If less than all Series 2003 Bonds of any one maturity are called for redemption, the Trustee shall select the Series 2003 Bonds to be redeemed by lot, each $5,000 portion of the principal being counted as one Series 2003 Bond for this purpose; provided, however, that so long as the only registered owner of the Series 2003 Bond is Cede & Co., such selection shall be made by The Depository Trust Company, as described herein under the heading “THE SERIES 2003 BONDS - Book-Entry Only System.” Book-Entry Only System The Depository Trust Company (“DTC”), New York, New York, or its successor, will act as securities depository for the Series 2003 Bonds. The Series 2003 Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC’s partnership nominee). One fully registered Series 2003 Bond certificate will be issued for each maturity, in the aggregate principal amount of such maturity, and will be deposited with DTC. So long as DTC or its nominee is the registered owner of the Series 2003 Bonds, payments of the principal and redemption premium of and interest due on the Series 2003 Bonds will be payable directly to DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants (“Participants”) deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Participants are either “Direct Participants” or “Indirect Participants.” Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Series 2003 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2003 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2003 Bond (a “Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2003 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2003 Bonds, except in the event that use of the book-entry system for the Series 2003 Bonds is discontinued. To facilitate subsequent transfers, all Series 2003 Bonds deposited by Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. The deposit of Series 2003 Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2003 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2003 Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. -10- Redemption notices will be sent to Cede & Co. If less than all of the Series 2003 Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to Series 2003 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2003 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium, and interest payments on the Series 2003 Bonds will be made to DTC. DTC’s practice is to credit Direct Participants’ accounts on the payable date in accordance with their respective holdings shown on DTC’s records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, and interest to DTC is the responsibility of the Issuer or the Trustee; disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2003 Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2003 Bond certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2003 Bond certificates will be printed and delivered. The information concerning DTC and DTC’s book-entry system set forth above has been obtained from DTC. The Issuer does not make any representation or warranty regarding the accuracy or completeness thereof. SO LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE SOLE HOLDER, THE ISSUER SHALL TREAT CEDE & CO. AS THE ONLY HOLDER FOR ALL PURPOSES, INCLUDING RECEIPT OF ALL PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2003 BONDS, RECEIPT OF NOTICES, VOTING, AND REQUESTING OR DIRECTING THE ISSUER AND THE TRUSTEE TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS. THE ISSUER HAS NO RESPONSIBILITY OR OBLIGATION TO THE PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (A) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY PARTICIPANT; (B) THE PAYMENT BY ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2003 BONDS; (C) THE DELIVERY OR TIMELINESS OF DELIVERY BY ANY PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE TRUST AGREEMENT TO BE GIVEN TO HOLDERS; OR (D) OTHER ACTION TAKEN BY DTC OR CEDE & CO. AS HOLDER. Beneficial Owners of the Series 2003 Bonds may experience some delay in their receipt of distributions of principal and interest on the Series 2003 Bonds since such distributions will be forwarded by the Trustee to DTC and DTC will credit such distributions to the accounts of Direct Participants, which will thereafter credit them to the accounts of Beneficial Owners either directly or indirectly through Indirect Participants. Issuance of the Series 2003 Bonds in book-entry form may reduce the liquidity of the Series 2003 Bonds in the secondary trading market since investors may be unwilling to purchase Series 2003 Bonds for which they cannot obtain physical certificates. In addition, since transactions in the Series 2003 Bonds can be effected only through DTC, Direct Participants, Indirect Participants, and certain banks, the ability of a Beneficial Owner to pledge Series 2003 Bonds to persons or entities that do not participate in the DTC system, or otherwise to take action in respect of such Series 2003 Bonds, may be limited due to lack of a physical certificate. Beneficial Owners will not be recognized by the Trustee as registered owners for purposes of the Trust Agreement, and Beneficial Owners will be permitted to exercise the rights of registered owners only indirectly through DTC and the Participants. -11- Legal Authority The Series 2003 Bonds are being issued and secured by the Issuer pursuant to the authority granted by Chapter 31 of Title 33 of the Code of Laws of South Carolina 1976 (the “South Carolina Code”), known as the “South Carolina Nonprofit Corporation Act of 1994.” The Series 2003 Bonds are being issued under the provisions of a Bond Resolution adopted by the Board of Directors of the Issuer on ___________, 2003. Section 59-19-180 of the South Carolina Code authorizes the Board of Trustees of the School District, whenever it deems it expedient to acquire lands for the erection thereon of any public schoolhouse or building or making any addition to or extension of any public schoolhouse or building already established or for public school playgrounds or other use for such public schools, to purchase the lots or parcels of land necessary for such purposes, provided the fee simple title of such land is vested in the School District from the day of the sale. Section 59-19-125 of the South Carolina Code authorizes the Board of Trustees of the School District to (1) lease any school property for a rental which it considers reasonable for civic or public purposes and (2) enter into a long-term lease with a corporation, if the corporation will use the property to be leased for civic or public purposes. Section 59-19-90 of the South Carolina Code authorizes the Board of Trustees of the School District to provide suitable schoolhouses in the School District, and Section 59-17-10 of the South Carolina Code authorizes the School District to contract to the extent of its school fund. The execution, delivery, and performance of the Facilities Agreement and the Base Lease by the School District were authorized and approved pursuant to resolutions adopted by the Board of Trustees of the School District on August 13, 2001, as ratified on March 4, 2002, and August 12, 2003, as ratified on September 9, 2003. Investments For a description of how the proceeds of the Series 2003 Bonds are to be invested pending their use, the provisions governing those investments, the conditions that must be satisfied before such proceeds of the Series 2003 Bonds may be applied to their intended use, and other provisions governing the investment of such proceeds of the Series 2003 Bonds and the amounts held to pay debt service on the Series 2003 Bonds, see “THE TRUST AGREEMENT - Investments” in Appendix B hereto. [Remainder of Page Intentionally Left Blank] -12- Principal and Interest Requirements Set forth below are the principal and interest payment requirements with respect to the Prior Bonds and the Series 2003 Bonds. For purposes of calculating the principal payable in any year, the relevant maturity or mandatory redemption amount is used. A description of the debt service requirements of the School District is set forth herein under “DEBT STRUCTURE - Composite Debt Service.” Prior Bonds Year Ending June 30 Principal Total Debt Service Requirements 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 $ --1,010,000 2,385,000 3,845,000 5,430,000 7,140,000 8,980,000 10,955,000 13,070,000 15,345,000 17,800,000 20,420,000 23,270,000 26,365,000 29,680,000 33,195,000 36,960,000 41,050,000 45,450,000 50,035,000 54,795,000 59,865,000 65,265,000 71,005,000 77,140,000 79,545,000 $ 44,648,775.00 45,643,625.00 46,961,737.50 48,303,100.00 49,675,450.00 51,071,200.00 52,496,975.00 53,948,681.25 55,433,025.00 56,942,950.00 58,486,462.50 60,055,412.50 61,660,306.25 63,297,278.13 64,965,956.26 66,668,128.13 68,406,450.00 70,179,250.00 71,984,250.00 73,829,787.50 75,706,962.50 77,623,812.50 79,582,737.50 81,575,312.50 83,636,325.00 81,732,487.50 Totals $800,000,000 $1,644,516,437.52 Series 2003 Bonds Principal -13- Interest Total Debt Service Requirements Combined Total Debt Service Requirements PLAN OF FINANCING Estimated Sources and Applications of Funds The sources and applications of funds in connection with the issuance of the Series 2003, the Prior Bonds, and a proposed series of future bonds are estimated below. Estimated Sources of Funds*: Proceeds of Series 2003 Bonds 1 Proceeds of Prior Bonds 2 Interest Earnings during Construction 3 Proceeds of Future Bonds2,4 $ 675,418,271 Total Sources of Funds Estimated Applications of Funds*: Costs of Capital Projects 5 Deposit to Reserve Account6 Costs of Issuance 7 Underwriting Discount 8 Total Applications of Funds ________________________ 1 Excludes accrued interest to the date of delivery and after deducting net original issue discount of $_________. 2 After deducting issuance expenses, capitalized interest, and deposit to Reserve Account. 3 Based on estimated earnings on the unexpended construction and capitalized interest funds at an investment rate of __% over a period of __ months. 4 The School District plans to either issue its general obligation bonds or request the Issuer to issue revenue bonds under separate financing instruments in late 2005 or early 2006 to finance the costs of completing the Capital Projects. These bonds, however, may not need to be issued to pay for the costs of completing the Capital Projects if the construction contingency funds are not used, if construction cost savings materialize, or if the School District uses its funds to pay such costs. Any improvements financed by these future bonds will not be made subject to the Base Lease and will not secure the Series 2003 Bonds. 5 See “PLAN OF FINANCING - The Capital Projects” herein for a detailed itemization of costs. 6 This amount fully funds the subaccount of the Reserve Account for the Series 2003 Bonds. 7 Includes legal and accounting fees, the Financial Advisor’s fees, initial Trustee’s fees, printing costs, rating agencies’ fees, and other costs of issuance for the Series 2003 Bonds. 8 _____% of the principal amount of the Series 2003 Bonds. See “MISCELLANEOUS - Underwriting” herein. The Capital Projects The Capital Projects are described in the hereinafter defined New Facilities Plan that is governed by the Project Agreement and consist of the acquisition, construction, and equipping of new school facilities, additions to, renovations of, repairs of, improvements to, and equipment for the School District’s existing school facilities, and the acquisition of instructional and administrative technology improvements. The Capital Projects will be located on sites either presently owned by the School District or to be acquired by the School District, using its own funds. The School District will lease these sites and all improvements thereon to the Issuer until March 1, 2052, pursuant to the Base Lease. From 1990 to 2000, the student enrollment in the School District increased approximately 14.2%. The increase in student enrollment in the School District resulted in overcrowded schools and forced the School District to use an inordinate amount of portable classrooms (approximately 400 in 2002) to house its students. The School District expects increases in student enrollment to continue as the population of Greenville County continues to grow. See “ECONOMIC CHARACTERISTICS - Population Growth” herein. Also, many of the School District’s school facilities are out-dated and are in need of either replacement or significant renovation. The purpose of the Capital Projects is to relieve the overcrowding of the School District’s schools, to update many of the School District’s schools, to reduce the need for portable classrooms, and to accelerate the School District’s 10-year capital improvement program. -14- The Capital Projects are designed, in part, to move toward balancing classrooms, furniture and equipment, and technology throughout the School District’s schools. Several of the School District’s older schools will be renovated and equipped to match more closely the standards of its newer, more modern schools. The Capital Projects will result in additions or improvements to many of the School District’s existing schools. Approximately $245 million of the money to be spent on the Capital Projects will be used to maintain, improve, and expand existing schools through major additions and renovations at 27 existing schools (including a child development center, 6 elementary schools, 7 middle schools, 6 high schools, an alternative school, a science center, and 5 career centers). These projects include improvements such as additional classrooms and labs, electrical upgrades, new windows, driveways, drainage improvements, drop-off canopies, intercom systems, security systems, parking areas, roofing, flooring, painting, heating, air conditioning, and water piping. When completed, these additions and renovations will yield approximately ____ new classrooms. Approximately $546 million of the money to be spent on the Capital Projects will be used to construct 23 new elementary schools, 4 new middle schools, 7 new high schools, a bus center, a special needs school, 3 child development centers, and a new fine arts center. When completed, these new school projects will yield approximately _____ new classrooms. Approximately $7 million of the money to be spent on the Capital Projects will be expended to acquire and install instructional and administrative technology improvements. Instructional technology funds will be used for items such as networking (video, data, and voice) computers, foreign language technology, and special education technology. The administrative technology improvements include upgrading School District telephones and computer networks. The School District and the Project Manager have developed a plan to finance the Capital Projects, which relies on a combination of proceeds of the Prior Bonds, the Series 2003 Bonds, and bonds either the School District or the Issuer expects to issue in late 2005 or early 2006 and investment earnings thereon. These future bonds, however, may not need to be issued to pay for the costs of completing the Capital Projects if the construction contingency funds are not used, if construction cost savings materialize, or if the School District uses its funds to pay such costs. The School District and the Project Manager expect that these sources of funds will be sufficient to provide funding for the Capital Projects, but can give no assurance in this regard because approximately 77% of the construction contracts for the Capital Projects have not been bid. The expected categories of expenditures of funds related to the Capital Projects, based upon the revised New Facilities Plan that was approved on _____________, are set forth below: Uses of Funds: New Construction 23 Elementary Schools 4 Middle Schools 7 High Schools Fine Arts Center Bus Center Special Needs School 3 Child Development Centers 27 Additions and Renovations 6 Elementary Schools 7 Middle Schools 6 High Schools Child Development Center Alternative School Science Center 5 Career Centers Project Manager’s Fees and Reimbursable Amounts Contingency $231,776,347 57,886,949 231,366,740 8,758,847 1,060,141 6,870,490 7,853,236 29,322,496 74,136,293 116,907,110 2,760,281 3,349,590 1,500,000 16,898,515 30,210,842 41,877,784 Total $862,535,661 The expected completion date of the total Capital Projects is July 12, 2006. The New Facilities Plan may change in response to changing circumstances, and the Project Agreement contains a mechanism for amending the New Facilities Plan. -15- The Development and Management of the Construction and Renovation of the Facilities The Project Agreement Introduction Pursuant to the Project Agreement, the Project Manager will provide development, financing and design coordination, project management, and construction management services with respect to the Capital Projects. The Project Manager’s obligations under the Project Agreement are to be performed in accordance with all applicable laws and with industry standards of care and diligence. To the extent such standards are not met and the required notice is given, the Project Manager must provide corrective services. The Project Manager may delegate portions of its responsibilities to one or more of its members, but such delegation will not relieve the Project Manager of its obligations under the Project Agreement. The Project Manager may not assign its interests under the Project Agreement without the prior written consent of the School District and the Issuer. The Project Manager and its members have agreed to use reasonable efforts to maintain substantially the individuals, firm affiliations, assignments, and responsibilities during the term of the Project Agreement, and no change of such entities or individuals may be effected by the Project Manager without the prior approval of the Issuer’s representative. Design, Development, and Financing Coordination In satisfaction of an initial obligation under the Project Agreement, and in cooperation with the School District and the Issuer, the Project Manager prepared a New Facilities Plan (as amended, the “New Facilities Plan”) setting forth all significant parameters and including a detailed budget for the Capital Projects. The Issuer and the School District, upon the recommendation of the Project Manager, revised the initial New Facilities Plan by a revision adopted on ___________ and by a second revision adopted on ________, 2003. The Project Agreement and, accordingly, the New Facilities Plan, anticipate that the Capital Projects will be completed by phased selection of consultants, and issuance of construction documents and bidding packages, as described below. Each such phase is referred to below as a “Segment.” For each new Segment, the Project Manager is responsible, among other things, for selecting (or managing the selection process with respect to), in accordance with the School District’s procurement code and with the approval of the Issuer’s representative, consultants needed to provide services with respect to one or more of the Capital Projects, general contractors, and vendors of items to be included in such Capital Projects. Such consultants include companies providing environmental, surveying, geotechnical, and architectural or engineering services. The Project Manager is responsible for coordinating and directing or monitoring the scope and schedule of the services to be provided by such consultants, contractors, and vendors. The Project Manager is also responsible for managing and coordinating the identification and procurement of long-lead items needed in connection with the Capital Projects. For each new Segment, the Project Manager is also responsible for overseeing the preparation of documentation (collectively “Construction Documents”) consisting of architectural and engineering plans and specifications and all other documentation that is (1) acceptable to and approved by the Project Manager and the Issuer’s representative, (2) consistent with the physical characteristics specified for each Capital Project in the New Facilities Plan, and (3) sufficient to enable the Issuer to enter into construction contracts for the Segment. Specifically, the Construction Documents will be based on standard form agreements of The American Institute of Architects, with modifications, and will include drawings, specifications, and other documents that define the size, character, quality, and extent of each Segment. The Construction Documents must be in sufficient detail to enable the Issuer to submit the Construction Documents for review by the appropriate government agency for the issuance of building permits, and must set forth the complete requirements for construction of the Segment. The Project Manager will analyze in detail, and advise the architect or engineer, as the case may be, with respect to, alternative designs, materials, construction methods, scheduling, and other matters that may be in the best interests of the School District and the Issuer. Any architect or engineer preparing Construction Documents must certify that such Construction Documents, in final form, meet condition (2) above in all material respects. Significant changes to Construction Documents for Capital Projects can be made only upon submission of the change to the Issuer, with an updated architect’s or engineer’s certificate stating how such change affects the original certification made by it. Construction Documents for the Capital Projects must be approved by the Issuer’s representative. Once approved, Construction Documents will be issued by the Project Manager for bidding. In the course of performance of its duties under the Project Agreement, the Project Manager may advise the School District and the Issuer of, and make recommendations with respect to, the identity of new sites not currently owned by the School District that could be acquired for purposes of the Capital Projects. Any new sites identified and approved by the School District and the Issuer will be acquired using funds of the School District available for that purpose, and the School District and the Issuer are obligated to execute and deliver all documents necessary to incorporate the new site into the Base Lease. -16- In preparation of the New Facilities Plan, the Project Manager analyzed in detail and advised the Issuer regarding the most cost-effective use of funds in accordance with the Project Agreement. With respect to any Segment, (1) in the event that costs of labor or materials, unforeseen events, or other circumstances cause actual design and construction costs to exceed the funds available for that Segment, or (2) in the event that the School District or the Issuer desires to modify the New Facilities Plan, the Project Manager will submit a revised New Facilities Plan or analyze and provide a report with respect to such proposed changes. As may be necessary in connection with such changes, a modified New Facilities Plan will be prepared, reviewed, and approved in the same manner as the original New Facilities Plan. Project Management and Construction Management After completion of bidding and execution of the construction contracts with respect to a Segment, the Project Manager will work for the purpose of enabling construction to commence at the time stated in the New Facilities Plan or as soon thereafter as possible. The Project Manager is obligated to provide quality control services for the Capital Projects. The Project Manager will monitor the contractors and enforce the provisions of the construction contracts, select vendors as needed, obtain evidence of insurance coverage required of the consultants, contractors, and vendors by the Construction Documents, maintain a master program schedule and a master cost report, prepare and make filings for necessary permits and licenses, and manage the process of obtaining utilities and necessary third party consents. In addition, and subject to any conflicting provision of the Project Agreement and to certain modifications stated in the Project Agreement, the Project Manager will provide the services described in Article 2 of the Standard Form of Agreement Between Owner and Construction Manager where the Construction Manager is not a Constructor, AIA Document B801/CMa, 1992 Edition, published by The American Institute of Architects. A new Segment is deemed completed when (1) the Project Manager has inspected the work and certified that, in its opinion, it has been completed, (2) the architect/engineer issues a Certificate of Final Completion evidencing its concurrence that the new Segment is complete, and (3) the Project Manager has obtained and provided to the Issuer’s representative final lien waivers from every entity that, to its knowledge or of which it should reasonably have known, is performing work or providing services or materials on the new Segment. Prior to the earlier of substantial completion of a Segment or possession by the School District or the Issuer of a Segment, the Project Manager will require the general contractor for the Segment to maintain the Segment and the equipment located thereon. Thereafter, the Project Manager will have no responsibility with respect to either the operations or maintenance of the Segment, all such responsibility to be borne by the Issuer or the School District. Expense Reimbursement and Compensation of Project Manager Certain Capital Project costs (“Direct Costs”) are payable directly to consultants, contractors, and vendors, while others (“Reimbursable Amounts”) will be reimbursed to the Project Manager by the School District or the Trustee. Reimbursable Amounts may not exceed the product of (x) Capital Project costs set forth in the New Facilities Plan, plus certain other costs, as enumerated in the Project Agreement (“Total Project Costs”), and (y) 0.025 (the “Reimbursable Amounts Cap”). Additionally, the Project Manager will be paid a fee (the “Project Manager Fee”) equal to the product of Total Project Costs and 0.0115, plus certain other amounts as specified in the Project Agreement. In connection with approval of a New Facilities Plan in accordance with the Project Agreement, the parties may agree to make a good faith estimate of the Reimbursable Amounts and Project Manager Fee that would otherwise have been payable, such sum (the “Lump Sum Payment”) to be paid (minus any Reimbursable Amounts and Project Manager Fee already paid to the Project Manager) in lieu of the actual Reimbursable Amounts and Project Manager Fee. The Reimbursable Amounts Cap and the Project Manager Fee (or the Lump Sum Payment) is subject to enumerated increases in the event of certain failures by the School District or the Issuer to perform, any change in scope of the Capital Projects by the School District or the Issuer, amendments to the New Facilities Plan, force majeure events, third party defaults, judicial or arbitral decisions, and other events not due to defaults of the Project Manager that increase Total Project Costs. The Project Manager Fee (or portion of the Lump Sum Payment attributable to the Project Manager Fee) is subject to enumerated decreases due to completion delays of the entire Capital Projects exceeding 4 months and not caused by the foregoing. On July 9, 2003, the Issuer, the School District, and the Project Manager agreed by letter agreement to convert the Reimbursable Amounts and Project Manager Fee to a Lump Sum Payment. Performance and Payment Bonding Performance and labor and material payment bonds must be obtained by any general contractor for one or more Segments, as required by the construction contracts to which it is a party, prior to beginning work on any such Segment. All such bonds must be reasonably satisfactory in form and substance to the Issuer’s representative and the Project -17- Manager and must contain dual obligee riders naming the Issuer, the Trustee, the Project Manager, and such other persons as may be designated by the School District or the Issuer. All of the payment and performance bonds described above must be issued by a corporate surety that appears on the Department of Treasury’s most recent Federal Register, Fiscal Service Department Circular 570, is rated A+ or better in A. M. Best’s most recent rating guide, and is registered to conduct business in the State of South Carolina. Insurance Requirements The Project Manager is required to maintain (1) professional liability insurance of at least $1,000,000 per claim and $5,000,000 aggregate, (2) comprehensive general liability insurance of at least $500,000 per occurrence and $1,000,000 aggregate for bodily injury and $500,000 per occurrence and $500,000 aggregate for property damage, (3) comprehensive automobile liability insurance of at least $500,000 per occurrence and $1,000,000 aggregate for bodily injury and $200,000 per occurrence for property damage, (4) comprehensive excess or umbrella insurance of at least $1,000,000, (5) worker’s compensation insurance at statutory limits, and (6) valuable papers insurance of at least $300,000. The insurance policies must name the Issuer or the School District as additional insured. Indemnification The parties to the Project Agreement have agreed to indemnify each other for certain costs and liabilities resulting from their respective negligent acts or omissions. Termination for Convenience The Issuer and the School District have the right, in their discretion, to terminate jointly (but not unilaterally) their remaining obligations under the Project Agreement on not less than thirty days’ written notice to the Project Manager. Upon such termination, the Issuer and the School District will pay to the Project Manager the accrued but unpaid Project Manager Fee and Reimbursable Amounts (or Lump Sum Payment, as the case may be), plus the Project Manager’s reasonable demobilization costs. If the Project Manager requests approval by the School District and the Issuer of a revised New Facilities Plan that is submitted by the Project Manager to account for the design and construction costs of a Segment exceeding available funds and such approval is not provided within 60 days, the Project Manager may terminate its obligations under the Project Agreement on a date that is at least 30 days later unless by that date the School District and the Issuer have approved a revised New Facilities Plan submitted by the Project Manager, even if the School District and the Issuer are not then in default under the Project Agreement. In such event, the Project Manager will be paid the accrued but unpaid Project Manager Fee and Reimbursable Amounts (or Lump Sum Payment, as the case may be), plus the Project Manager’s reasonable demobilization costs. Termination for Cause In the event of an enumerated default (in general, the breach of material covenants or warranties or voluntary or involuntary bankruptcy) by the Issuer or the School District and following notice and the applicable cure period, the Project Manager will have the right to terminate in writing its remaining obligations under the Project Agreement and be paid the accrued but unpaid Project Manager Fee and Reimbursable Amounts (or Lump Sum Payment, as the case may be), plus its reasonable demobilization costs, and all recoverable actual damages for breach, and the Project Manager shall be entitled to any other available remedies at law or in equity. In the event of an enumerated default (in general, the breach of material covenants or warranties or voluntary or involuntary bankruptcy) by the Project Manager and following notice and the applicable cure period, the Issuer and the School District will have the right to jointly (but not unilaterally) terminate in writing their remaining obligations under the Project Agreement and pay to the Project Manager the accrued but unpaid Project Manager Fee and Reimbursable Amounts (or Lump Sum Payment, as the case may be), plus the Project Manager’s reasonable demobilization costs, less all recoverable actual damages for breach, and the Issuer and the School District shall be entitled to any other available remedies at law or in equity. The Project Manager The Project Manager is a South Carolina limited liability company, formed in 1999 for the purpose of providing development, design coordination, project management, and construction management services to the Issuer and the School District in connection with the acquisition, construction, renovation, and installation of the Facilities. The Project Manager’s offices are located at 225 South Pleasantburg Drive, Suite B10, Greenville, South Carolina 29607. -18- The members of the Project Manager and their ownership interests are set forth below: Member Ownership Interest Hughes Development Corporation Global Performance, LLC Hanscomb Inc. Shouse Development Corporation 25% 25 25 25 Hughes Development Corporation is a real estate development firm located in Greenville, South Carolina, which was founded in 1991 by Robert E. Hughes, Jr., after his 15-year association with his family’s real estate development firm. Hughes Development Corporation has developed or redeveloped six shopping centers, four office buildings, a medical office park, and a mixed-use office, residential, and retail project located in the vicinities of Greenville, South Carolina and Asheville, North Carolina. Hughes Development Corporation’s primary responsibilities for the Project Manager are the financing and overall coordination of the Capital Projects. Global Performance, LLC is a project management firm located in Greenville, South Carolina, which was founded in 1999 by Dennis Braasch, Glenn Ellzey, and Steve Kiker. The firm presently employs over 70 full-time personnel. Global Performance, LLC has provided design and program management services for projects located throughout the world for companies in the automotive, trucking, food, and tire industries. Global Performance, LLC’s primary responsibility for the Project Manager is to coordinate the construction and renovation activities associated with the Capital Projects. Hanscomb Inc., part of the WS Atkins worldwide group of companies, is a construction management firm, which was founded in 1946 and is regionally based in Atlanta, Georgia, with 25 additional offices in the United States. The firm presently employs over 500 full-time personnel. Hanscomb Inc. has participated in projects in numerous countries and offers real estate advisory services, program management services, project management services, construction management services, design-build oversight, construction scheduling services, cost management services, value engineering services, software systems development, risk management, litigation support, quantity surveying, and development/construction economic advice. Hanscomb Inc.’s primary responsibility for the Project Manager is to provide cost management/budget control of the Capital Projects and to provide construction management services for the Capital Projects. Shouse Development Corporation is a real estate development firm located in Greenville, South Carolina, which was founded in 2000 by J. Coleman Shouse for the purpose of being a member of the Project Manager. Shouse Development Corporation’s primary responsibility for the Project Manager is to coordinate the collection and dissemination of demographic and enrollment data trends, determine compliance with applicable procurement codes, and coordinate with local and state officials regarding zoning, utilities, roads, and other required infrastructure needs or improvements. Set forth below are the names and residences of the executive committee members of the Project Manager: Name Residence Robert E. Hughes, Jr. J. Coleman Shouse Glenn Ellzey James D. Pustejovsky Greenville, South Carolina Greenville, South Carolina Greenville, South Carolina Atlanta, Georgia Robert E. Hughes, Jr. is the President and founder of Hughes Development Corporation, and Chairman of a family-owned real estate development and management company. Previously, he was Vice President of Hughes Real Estate, Inc., specializing in the development of shopping centers, medical office buildings, and residential and industrial real estate, with numerous development accomplishments to his credit in the southeast, particularly in the Greenville area. Mr. Hughes received a B.A. degree, cum laude, in Economics and Political Science from Duke University in 1973, and a J.D. degree from the University of South Carolina School of Law in 1975. J. Coleman Shouse is the managing principal of Lazarus Shouse Communities, LLC, a home builder and land development company serving upstate South Carolina from more than eight locations. He has been a partner or held various executive positions with several residential and commercial real estate development and investment companies, and an architectural and engineering company. Mr. Shouse has also held planning positions at city, county, and state levels. Mr. Shouse was a member of the Board of Trustees of the School District from 1990 to 1998, serving as -19- Chairman in 1993, 1994, and 1998. He also served as Chairman of the School District’s Special Task Force on Programming, Design, and Construction. Mr. Shouse received a B.S. degree in Agriculture from Western Kentucky University in 1962 and a Masters degree in Urban Planning from the University of Washington in 1966. Glenn Ellzey is the Executive Vice President of Global Performance, LLC and has over twenty-five years of experience in the engineering/construction field. Mr. Ellzey has held various project manager, division manager, and key executive positions, and has held a variety of positions on projects ranging from power plants, manufacturing facilities, and office complexes to commercial facilities and automotive plants. James D. Pustejovsky is a Senior Vice President of Hanscomb Inc. and has over seventeen years of experience in the construction management industry. Mr. Pustejovsky has held various project manager and key executive positions and has held a variety of positions on projects ranging from public school facilities to institutional and manufacturing facilities. Mr. Pustejovsky received a B.S. degree in Civil Construction from Texas A&M University. Construction Process The Project Manager on behalf of the Issuer, has selected or expects to select architects to serve as the design architects for various components of the Capital Projects. After an architect completes and the Issuer’s representative approves a set of plans and specifications for a particular component of the Capital Projects, the Project Manager will submit the plans and specifications to the State of South Carolina Department of Education for approval. After the State of South Carolina Department of Education approves the plans and specifications, the Project Manager will advertise for bids from general contractors in local newspapers, in a publication known as “South Carolina Business Opportunities,” and in construction trade and industry publications. After the advertisements have generally run at least 3 times during a 30-day period, the Project Manager will publicly open all bids and, subject to the approval of the Issuer’s representative, award the construction contract for the particular component to the lowest responsive and responsible bidder. All of the design architects have been selected, and approximately 23% of the construction contracts have been bid. The timely completion of the Capital Projects is dependent upon, among other factors, promptly obtaining approvals and permits from various governmental agencies and the absence of delays due to strikes, shortages of labor and materials, and adverse weather conditions. The cost of the Capital Projects may be affected by factors beyond the control of the School District, the Issuer, or the Project Manager, including strikes, energy, labor, and material shortages, contractor and subcontractor defaults, bidder protests, adverse weather conditions, and other unforeseen contingencies. There can be no assurance that the Issuer and the School District will complete the Capital Projects in accordance with their present construction schedule and construction budget. The Facilities Agreement provides that, subject to the right of nonappropriation contained therein, the School District’s obligation to make installment payments of purchase price thereunder will be absolute and unconditional, regardless of whether the Issuer is able to complete the Capital Projects. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2003 BONDS Facilities Agreement Pursuant to the Facilities Agreement, the School District has agreed to pay to the Issuer installment payments of purchase price for the Capital Projects in such amounts and at such times as will be sufficient to enable the Issuer to pay the principal of, premium, if any, and interest on the Series 2003 Bonds, as and when the same shall become due and payable. See “THE FACILITIES AGREEMENT” in Appendix B hereto. The financial obligations of the School District under the Facilities Agreement do not constitute general obligations of the School District to which its faith and credit or taxing power are pledged, but are subject to and dependent upon lawful appropriations of funds being made by the Board of Trustees of the School District to pay the installment payments of purchase price due in each fiscal year under the Facilities Agreement. The School District’s obligations under the Facilities Agreement are from year to year only and do not constitute a mandatory payment obligation of the School District in any fiscal year in which funds are not appropriated by the School District to pay the installment payments of purchase price due in such fiscal year. The School District has no continuing obligation to appropriate funds to pay installment payments of purchase price due under the Facilities Agreement and may terminate its obligations under the Facilities Agreement on an annual basis without any penalty. The School District’s exercise of its option to terminate its obligations under the Facilities Agreement is determined by the failure of its Board of Trustees to specifically budget and appropriate moneys to pay all Acquisition Payments for the next fiscal year of the School District, determined by July 1 of each year. As more fully set forth in Appendix B -20- hereto under “DEFINITIONS,” the term “Acquisition Payments” includes the Base Payments and the Additional Payments, the term “Base Payments” means the amount payable by the School District under the Facilities Agreement for payment of the Bonds, including principal and interest, and the term “Additional Payments” means the cost of maintenance and repair, cost of insurance, administrative expenses, payments to the Reserve Account, and other costs payable by the School District with respect to the Facilities pursuant to the Facilities Agreement. Under the terms of the Facilities Agreement, upon each payment or prepayment of Base Payments, an undivided interest in the Capital Projects, equal to that percentage of the “Acquisition Price” (defined to mean the sum of all Base Payments, which equals the total principal and interest payable on the Bonds) represented by such payment or prepayment, will transfer from the Issuer to the School District. Under the terms of the Facilities Agreement, payment by the School District of Base Payments also entitles the School District to the use and occupancy of all of the Facilities during the applicable Fiscal Year in which such Base Payments are made. The Facilities Agreement provides that upon its termination, either by reason of default or nonappropriation, entire components of the Facilities will be partitioned between the Issuer and the School District based upon their respective percentages of undivided interests in the Capital Projects. The Facilities Agreement further provides that the value assigned to particular components of the Facilities in any partition will be based solely on the amount of proceeds of the Bonds expended on the Capital Projects, without regard to the fair market value of the Facilities. The determination of which particular components of the Facilities will remain subject to the leasehold interest of the Issuer and which components will be transferred to the School District will be made by an advisor appointed by the Trustee, who is directed by the Facilities Agreement to protect the interests of the owners of the Bonds in preparing the partition plan. The Facilities Agreement provides that, in making the determinations of which components of the Facilities are to be allocated to the Issuer to protect the interests of the owners of the Bonds, the advisor preparing the partition plan may take into account the market value of such components and the relative importance of such components to the School District, all to determine which components will best protect the interests of the owners of the Bonds. The Facilities Agreement obligates the School District to relinquish its right of possession to the components of the Facilities partitioned to the Issuer and obligates the Issuer to release from the Base Lease the components of the Facilities partitioned to the School District. See “THE FACILITIES AGREEMENT - Event of Nonappropriation” in Appendix B hereto. Source of Base Payments The School District may budget and appropriate any moneys for the purpose of making Base Payments, including ad valorem property taxes, and may levy an ad valorem tax specifically for the purpose of making the Base Payments. The School District is, however, subject to a statutory millage limit on the amount of ad valorem taxes it may annually levy to fund operations. See “FINANCIAL AND TAX INFORMATION - Limitation on Annual Tax Levy” herein. The School District does not presently have sufficient unused capacity under its operating millage limit to levy additional ad valorem taxes to fund Base Payments. The School District is, however, authorized to levy an unlimited ad valorem tax to pay its general obligation debt and has covenanted and agreed in the Facilities Agreement to exercise its best efforts to issue its general obligation debt, either in the form of general obligation bonds or bond anticipation notes, from time to time to provide funds to make Base Payments when due. The School District has also covenanted in the Facilities Agreement to take all steps necessary to maintain its capacity to issue general obligation debt that does not require voter approval, in amounts and at times sufficient to make Base Payments when due. The School District is authorized by the South Carolina Constitution to incur general obligation debt without voter approval in an amount not exceeding eight percent of the assessed value of all taxable property of the School District. See “DEBT STRUCTURE - Legal Debt Limit of the School District” herein. These covenants of the School District contained in the Facilities Agreement are subject to termination, if the Facilities Agreement is terminated by the School District upon nonappropriation. The School District expects to make the Base Payments from proceeds of general obligation bonds it expects to issue semi-annually (approximately 90 days before each Bond Payment Date) for the purpose of making the Base Payments due on the 15th day preceding the following Bond Payment Date. The School District expects to levy an annual ad valorem tax sufficient in amount to retire by June 30 of each year its general obligation debt to be issued semi-annually to fund Base Payments. For information concerning the unused eight percent debt capacity of the School District, see “DEBT STRUCTURE - Legal Debt Limit of the School District” herein. Legislation has been introduced and is presently pending in the South Carolina General Assembly that, if enacted in its present form, would count the Facilities Agreement or the Bonds against the eight percent constitutional debt limitation of the School District, in determining whether the School District could incur general obligation debt in the future without voter approval. If this legislation were to become law in its present form or if similar legislation were to be enacted in the future, the School District could be prevented from issuing its general obligation debt to fund Base -21- Payments, notwithstanding its covenant contained in the Facilities Agreement to exercise its best efforts to issue such general obligation debt. The School District believes that, based upon advice of counsel, this legislation would likely be unconstitutional as applied to the School District because it would violate the provisions of the United States and South Carolina Constitutions that prohibit the South Carolina General Assembly from passing any law impairing the obligation of contracts. See “MISCELLANEOUS - Pending Legislation” herein. Trust Agreement As security for its obligations under the Bonds, the Issuer has (1) assigned and pledged to the Trustee, and granted a first priority security interest in, all of its right, title, interest, and remedies in and to (a) the Facilities Agreement, including all moneys, revenues, and receipts to be received thereunder (except for certain rights reserved to the Issuer), and (b) the Base Lease, the Project Agreement, and the contracts with the architects and contractors relating to the Capital Projects, (2) assigned and pledged to the Trustee, and granted a first priority security interest in, all revenues and receipts derived from the Issuer’s ownership interests in the Facilities, and (3) assigned and pledged to the Trustee, and granted a first priority security interest in, all moneys held by the Trustee in certain funds and accounts created under the Trust Agreement, all pursuant to the Trust Agreement. See “THE TRUST AGREEMENT” in Appendix B hereto. Under the terms of the Trust Agreement, the Series 2003 Bonds will be equally and ratably secured on a parity basis with the Prior Bonds, which are presently outstanding in the aggregate principal amount of $800,000,000, except as to the subaccounts held within the Reserve Account, which will only secure the series of Bonds for which they were created. Under the Trust Agreement, a Reserve Account has been created in the Bond Fund, and a separate subaccount therein will be fully funded upon the issuance and delivery of the Series 2003 Bonds from the proceeds thereof, in an amount equal to the Reserve Requirement (which, in the case of the Series 2003 Bonds, is equal to $_________*). A subaccount of the Reserve Account was created to secure the Prior Bonds and was funded in the amount of $85,938,966, but this subaccount will not secure the Series 2003 Bonds. See the definition of “Reserve Requirement” in “DEFINITIONS” in Appendix B hereto. Amounts deposited in this subaccount of the Reserve Account will be used to pay debt service on the Series 2003 Bonds if amounts on hand are otherwise insufficient. The School District is obligated to pay as Additional Payments amounts necessary to restore to the Reserve Account any amount so used to pay debt service. See “THE FACILITIES AGREEMENT - Acquisition Payments” and “THE TRUST AGREEMENT - Creation of Bond Fund; Acquisition Account and Reserve Account” in Appendix B hereto. The Issuer has not granted any lien on or security interest in the Facilities to secure the Series 2003 Bonds. In the event the School District terminates the Facilities Agreement, the Series 2003 Bonds will be payable from such moneys, if any, as may be held or made available by the Trustee from the leasing until the expiration of the Base Lease (March 1, 2052) of the Facilities that remain with the Issuer after the partitioning is accomplished that is described herein under “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2003 BONDS - Facilities Agreement.” The Base Lease, as required by Section 59-19-125 of the South Carolina Code, requires the Facilities to always be operated for a civic or public purpose. This restriction as to the use of the Facilities will limit the potential tenants to which the Facilities could be leased and could reduce the revenues from leasing the Facilities. Under certain circumstances, the Series 2003 Bonds will also be payable from the Net Proceeds of insurance policies, surety bonds, or condemnation awards or proceeds received as a consequence of awards resulting from defaults under construction contracts. Limited Obligations The Series 2003 Bonds are special limited obligations of the Issuer payable solely from the Trust Estate pledged under the Trust Agreement. The Series 2003 Bonds are not payable from and are not secured by a lien, security interest, or encumbrance upon any other funds or assets of the Issuer. The Series 2003 Bonds shall not constitute a general obligation of the School District nor a debt, indebtedness, or obligation of, or a pledge of the faith and credit or taxing power of, the School District or the State of South Carolina or any political subdivision thereof, within the meaning of any constitutional or statutory provision whatsoever. Neither the faith and credit nor the taxing power of the State of South Carolina, the School District, or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the Series 2003 Bonds or other costs incident thereto. The Issuer has no taxing power. Parity Obligations Under certain circumstances, the Trust Agreement permits the Issuer, for specified purposes, to issue Additional Bonds, which will be equally and ratably secured on a parity basis with the Series 2003 Bonds under the Trust Agreement. Prior to the delivery of any Additional Bonds, the Trust Agreement requires a supplemental Facilities Agreement to be filed with the Trustee, pursuant to which the Base Payments must be increased and the term of the -22- Facilities Agreement must be extended, if necessary, so as to assure that the additional Base Payments will adequately provide for the retirement of the Additional Bonds by making available sufficient money for the payment when due of principal and interest. For a description of additional requirements for issuing Additional Bonds, see “THE TRUST AGREEMENT - Provisions Relating to Additional Bonds; Conditions for Issuance” in Appendix B hereto. The Trust Agreement limits the amount of Additional Bonds that may be issued to fund the completion of the Capital Projects, and the Issuer will exhaust this contractual debt limitation with the issuance of the Series 2003 Bonds. Enforceability of Remedies The realization of value from the pledge of the Trust Estate under the Trust Agreement upon any default or nonappropriation of sufficient funds to make Base Payments due under the Facilities Agreement will depend upon the exercise of various remedies specified by the Trust Agreement and the Facilities Agreement. These and other remedies may require judicial actions, which are often subject to discretion and delay and which may be difficult to pursue. The enforceability of rights and remedies with respect to the Series 2003 Bonds may be limited by state and federal laws, rulings, and decisions affecting remedies and by bankruptcy, reorganization, insolvency, or other laws affecting creditors’ rights or remedies heretofore or hereafter enacted. Under existing law (including particularly federal bankruptcy law), certain remedies specified by the Trust Agreement or the Facilities Agreement may not be readily available or may be limited. A court may decide not to order the specific performance of the covenants contained in the Trust Agreement or the Facilities Agreement. The various legal opinions to be delivered concurrently with the delivery of the Series 2003 Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by state and federal laws, rulings, and decisions affecting remedies and by bankruptcy, insolvency, reorganization, fraudulent conveyance, or other similar laws affecting the enforcement of creditors’ rights generally. THE SCHOOL DISTRICT General Description Greenville County, located in the northwestern Piedmont area of South Carolina, has the largest school district in South Carolina and the 64th largest in the nation, with over 62,000 students. The county-wide student-teacher ratio is 24.5 to 1. Greenville is also the site for an International Baccalaureate Program, the South Carolina Governor’s School for the Arts, and the Roper Mountain Science Center. The School District comprises 789 square miles, including virtually all of Greenville County and small portions of Spartanburg and Laurens Counties. It was formed in 1951 by consolidation of 82 existing school districts and is governed by an elected 12-member Board of Trustees, as described below. The land usage in the School District is principally for residential and manufacturing and commercial enterprises. Board of Trustees and Principal Administrative Officials The twelve members of the Board of Trustees are elected from and represent single-member districts. Each member must be resident in the district from which elected. Trustees are elected in nonpartisan elections during each bi-annual general election to serve numbered districts for four-year terms of office, which commence one week after certification of election results. The numbered districts are divided such that one-half of the members of the Board of Trustees are elected in each general election. -23- The members of the Board of Trustees, their occupations, the number of years of service on the Board of Trustees, and the expiration of their present terms of office are as follows: Name Tommie E. Reece (Chair) Marilyn K. Hendrix (Vice Chair) Grady Butler, D.Min. (Secretary) Debi C. Bush Patrick Suddeth William D. Herlong Valerie B. Hollinger Roger D. Meek Crystal Ball O’Connor, Ph.D. Charles J. Saylors Leola C. Robinson Ann W. Sutherlin Occupation College Administrator Director, Greenville Technical College, Brashier Campus Retired Minister and Educator Business Owner/Designer Retired Educator Attorney Social Worker Insurance Agency Owner Policy Analyst Manufacturers Representative Counselor Music Teacher Term of Office Expires Tenure 2004 2004 7 7 2004 2004 2004 2006 2004 2006 2006 2008 2004 2006 2 7 1 5 7 9 5 1 7 13 Dr. William E. Harner, Lieutenant Colonel, United States Army (retired), began duties in July 2000 as Superintendent of the School District. Dr. Harner received a bachelor’s degree in Engineering from the United States Military Academy at West Point, a master’s degree in Personnel and Employee Relations from the University of South Carolina, a master’s of science degree in Educational Leadership from Troy State University, a master’s degree in Educational Supervision from the University of South Carolina, and a doctorate (Ph.D.) in Educational Leadership and Administration from the University of South Carolina. During Dr. Harner’s 20-year military career, he served as commander of a basic training battalion at Fort Jackson, South Carolina, Chief of Operations and Secretary of the General Staff at Fort Campbell, Kentucky, Chief of Policy and Strategy Office of the U.S. Forces in Korea, and a faculty member at West Point teaching Leadership and Character Development, while simultaneously serving as aide de camp to the superintendent of the United States Military Academy. Dr. Phinnize J. Fisher was appointed Chief of Staff in July 2000. Dr. Fisher, who has more than 30 years experience in education, received a bachelor’s degree in Education from St. Paul’s College in Virginia and a master’s degree and doctoral degree in Education from Rutgers - The State University in New Jersey. Richard Hammett, Chief Financial Officer, joined the School District on August 1, 2000. His most recent experience was as budget/research analyst for the Ways and Means Committee of the South Carolina House of Representatives. In addition, Mr. Hammett has served as Director of Finance for Chester County School District, South Carolina, and Director of Financial Information and Manager of Single Audit for the South Carolina Department of Education. Mr. Hammett holds a bachelor of science degree in Business Administration from Limestone College. The School District administration also includes executive directors for the following service and support teams: Human Resources, Communications, Educational Technology Services, Demographics, and Planning and Facilities. The School District administration also includes Assistant Superintendents for Schools, Teaching and Learning, and Special Education and an Associate Superintendent for Student Performance. Educational Initiative During the spring of 1999, the Superintendent invited a group of parents, community leaders, business leaders, religious community representatives, and educators throughout Greenville County to come together to produce The School District of Greenville County’s Guide to Educational Excellence: The Education Plan. Intensive planning from March to October 1999 resulted in objectives and key performance measures for improving the quality of education for all students in the School District. In November 1999, the Board of Trustees unanimously approved the plan. The Education Plan is designed to focus the community’s resources, energy, and efforts on achieving those educational priorities considered most critical to providing a world-class education for all students. As a result, School District divisions and departments made specific program plans and budget recommendations for fiscal year 2001 based on the goals, objectives, and performance measures of the Education Plan, which will continue to be met in fiscal year 2004. [CONFIRM] -24- Educational Programs and Services The School District provides elementary and secondary education as well as a number of special programs to its residents. All schools in the School District are fully accredited by the State of South Carolina and the Southern Association of Colleges and Schools. The instructional programs of the School District are described below. Funding for the programs of the School District is provided from the State and federal government as well as local property taxes, as described under the heading “FINANCIAL AND TAX INFORMATION” herein. Instructional Programs. The School District provides basic and advanced educational programs through its elementary schools, middle schools, and high schools. The high school curriculum includes career skills courses for those whose formal education ends with high school, as well as college preparatory programs. The School District serves academically talented high school students through honors courses and college level or advanced placement courses. Special Programs. The School District has a number of special programs, including the following: Pre-School. Child development classes provide pre-school education for four-year-old children who need an intervention program to prepare them for school. An all-day program and kindergarten classes are available to children from low-income families at one child development center. Full-day kindergarten is available on a limited basis in all elementary schools. Gifted/Talented. Programs for gifted and talented students provide both enrichment and acceleration. Students in grades 3-5 are served through a combination of pull-out and in-class instruction; students in grades 6-8 attend special subject area courses. Special Education. Special education programs are provided for all students who qualify for them regardless of the handicapping condition. Special transportation is provided for some severely handicapped students, and other necessary related services are available for handicapped students whenever appropriate. Centers for certain severely handicapped students include Washington Center and West Greenville. Homebound Instruction. Students who are unable to attend school because of accidents, illness, and pregnancy receive homebound teaching. Career Centers. High school students may attend one of four career centers for a two-hour period each day. Students earn four units in one area each year during a two-year vocational program. Fine Arts Center. Artistically talented high school students may enroll for daily classes at the Fine Arts Center to study music, drama, art, filmmaking, dance, and creative writing. Roper Mountain Science Center. The Science Center offers a full range of science enrichment programs to students throughout upstate South Carolina, focusing on the elementary grades. Large numbers of teachers receive teacher in-service training at the Science Center in a variety of programs focusing on hands-on learning, with the majority of the programs offered in extended summer workshops. The Science Center is also open to the public at scheduled times. The Science Center offers hands-on learning experiences for students, teachers, and the public in up-to-date facilities found nowhere else in the region. Alternative Programs. Alternative programs include a Teen Parent Center and three middle school programs for the benefit of students who have dropped out of school or are potential dropouts. Adult Education classes are available in 37 centers throughout the School District. Basic education courses, General Education Development (GED) State Equivalency Test, and high school diploma programs are also offered. English as a Second Language Program. The English as a Second Language Program provides native language instruction to elementary, middle, and high school students whose native language is not English at three centers in the School District. International Baccalaureate Program. The International Baccalaureate Program was started in 1987-88 at Southside High School. International Baccalaureate offers an advanced curriculum and emphasizes the philosophy of learning. Designed to challenge academically and highly motivated students, the program incorporates the traditional liberal arts courses and includes multicultural perspectives and international standards of achievement. Courses are approved by the International Baccalaureate Organization in Geneva, Switzerland. International Baccalaureate examiners prepare and grade the examinations. By successfully completing the program, students will receive diplomas recognized internationally. -25- Accountability. The Board of Trustees adopted in the 1997-98 school year a school accountability plan. Under this plan, each school in the School District is evaluated based on how the school performs on standardized tests compared with its prior year’s performance, how well each student performs compared with his/her ability, as measured by aptitude tests, and how teachers, students, and parents rate the school in a survey. Schools making dramatic progress can qualify for cash incentives, while those falling below standard would receive aid from the School District in drafting a plan to improve deficient areas. In assessing the results of its accountability system, the School District has determined that other factors, such as teacher and student attendance and accreditation status, also needed to be included. Additionally, the General Assembly of the State of South Carolina adopted the Education Accountability Act of 1998 (the “Accountability Act”) in June 1998. See “THE SCHOOL DISTRICT - The Education Accountability Act of 1998” herein. The School District, in accordance with the Accountability Act, has submitted its accountability system, with modifications, to the State Board of Education. The Education Accountability Act of 1998 At its 1998 legislative session, the General Assembly of the State of South Carolina adopted the “Education Accountability Act of 1998.” The purpose of the Accountability Act is to establish a “performance based accountability system,” which focuses on improving teaching and learning in order to equip students with a strong academic foundation. The Accountability Act requires all school districts, among other things, to establish local accountability systems to stimulate quality teaching and learning practices and target assistance to low performing schools. The linchpin for the Accountability Act is the annual report card that will be provided to each school and school district. These report cards are expected to furnish clear and specific information about school and district academic performance and other performance to parents and the public. From a school district’s perspective, the Accountability Act requires boards of trustees, among other things, to establish and annually review a performance based accountability system (or modify its existing system) to reinforce the state accountability system. The School District’s current accountability plan is expected to be modified each year in order to conform to State accountability system requirements. If a school receives a rating of below average or unsatisfactory, that school must review and revise its improvement plan (required of every school under the EFA, as described in more detail in “FINANCIAL AND TAX INFORMATION - Revenues” herein). Once the revised plan is developed, a school district’s superintendent and board of trustees must review and approve the plan. In addition, schools that receive unsatisfactory ratings (or those receiving a below average rating that so request) will be assigned an external review. If these plans are not implemented satisfactorily or within the period expected, or if student academic performance has not met expected progress, the State Board of Education may declare a state of emergency in the school. If a school district receives a rating of below average, the State Superintendent of Education, with the approval of the State Board of Education, will appoint an external review committee. If the recommendations of the external review committee are not implemented either satisfactorily or within the period expected, then the State Board of Education may declare a state of emergency. Although there are certain grant and other programs provided to help defray the cost of implementing the Accountability Act, the potential effect and cost of implementing the Accountability Act on the School District cannot be determined at this time. [STILL TRUE?] School Facilities The present teaching facilities of the School District’s school system consist of 83 schools: 49 elementary schools, 18 middle schools, 14 high schools, one alternative school, and one special education facility. The School District presently has _____ schools under construction. In addition, the School District has 17 special program centers, 1 maintenance facility, 3 transportation facilities, and 1 warehouse facility. The School District has 4 buildings that house central office personnel. -26- Set forth below is information concerning the schools presently comprising the School District’s school system. School Name Elementary Schools: Alexander Armstrong Augusta Circle Baker's Chapel Bell’s Crossing Berea Bethel Blythe Academy Brook Glenn Brushy Creek Bryson Buena Vista Chandler Creek Cone/Sans Souci Crestview Duncan Chapel East Gantt East North Street Ellen Woodside Fork Shoals Fountain Inn Gateway Greenbrier Greenview Grove Heritage Hollis Academy Lake Forest Mauldin Mitchell Road Monaview Mountain View Oakview Paris Pelham Road Plain Sara Collins Simpsonville Sirrine Skyland Slater Marietta Stone Academy Sue Cleveland Summit Drive Taylors Tigerville Welcome Westcliffe Woodland Subtotal Middle Schools: Beck Berea Blue Ridge Bryson Greenville Greer Hillcrest Hughes Lakeview League Mauldin Northwest Northwood Parker Riverside Sevier Tanglewood Woodmont Subtotal Grades Enrollment Size of Site (acres) Occupied Year1 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 K-5 335 443 423 266 872 541 929 557 411 647 951 732 746 361 709 655 347 642 673 445 706 590 714 527 467 595 705 669 933 650 411 477 969 498 628 983 661 677 266 599 444 499 425 291 732 257 533 215 729 28,535 11.85 20.00 4.67 10.60 26.33 18.87 18.26 14.91 8.83 11.30 50.00 14.40 34.50 11.98 25.32 16.00 15.00 13.00 26.55 19.61 27.43 59.00 21.93 10.85 32.90 35.00 25.00 15.30 13.38 12.00 31.13 21.02 28.33 6.16 22.70 18.50 19.14 8.50 9.17 19.87 23.65 3.62 7.54 12.68 11.70 5.31 11.75 11.49 15.50 912.53 1965 1999 1923 1957 2002 1998 1964 1951 1969 2001 1995 1984 1971 1958 1970 1999 1969 2001 2000 1998 1998 1982 1968 1980 1969 1994 2002 2000 1937 1966 1954 1957 1995 1936 1975 1982 1964 1939 1958 1998 1951 1923 1948 2001 1981 1938 1964 1969 1960 30 35 26 16 33 38 52 20 26 43 38 36 52 15 37 44 19 56 42 41 42 36 34 20 27 38 52 44 20 35 39 7 53 28 26 36 33 25 19 39 24 35 26 27 37 9 41 14 18 1,583 0 0 0 6 0 0 0 0 3 0 15 1 0 10 2 0 5 0 0 0 0 3 5 15 0 0 0 0 0 0 0 23 0 0 12 18 14 16 5 0 0 0 0 0 2 11 0 0 0 166 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 6-8 720 792 830 1,285 769 904 1,085 880 522 717 1,169 879 972 425 786 500 587 846 26.00 59.65 44.11 32.50 11.05 37.13 25.31 19.91 26.80 20.09 29.76 31.50 27.45 10.29 105.00 24.12 59.63 82.42 1965 1972 1954 1957 1968 1999 1965 1950 1971 1964 1999 1973 1964 1928 1999 1970 1964 1982 49 46 55 53 36 60 60 62 31 33 60 49 49 40 60 27 43 39 0 0 0 3 2 0 0 0 7 5 0 0 0 0 0 0 0 0 14,668 672.72 852 17 -27- Number of Classrooms Portable Classrooms High Schools: Berea Blue Ridge Carolina Eastside Greenville Greer Hillcrest JL Mann Mauldin Riverside Southside Travelers Rest Wade Hampton Woodmont Subtotal 9-12 9-12 9-12 9-12 9-12 9-12 9-12 9-12 9-12 9-12 9-12 9-12 9-12 9-12 Alternative Schools: West Greenville Subtotal 6-12 Special Education: Washington Center Subtotal K-8 Totals 1,151 973 730 1,246 1,226 1,139 2,140 1,148 1,774 1,256 938 1,205 1,253 925 17,104 44.35 44.12 37.25 45.00 13.52 70.66 47.65 33.00 46.22 45.00 45.00 31.33 25.50 30.00 558.60 1962 1986 1955 1970 1938 1998 1992 1965 1973 1973 1970 1956 1960 1966 55 46 49 51 59 93 90 51 115 46 43 51 81 41 871 ---2 --- 0 4 0 0 0 0 0 8 0 14 10 8 0 8 52 5 5 108 108 27.25 27.25 60,415 2,143.85 1961 45 45 0 0 3,351 240 ________________________ 1 Represents the year during which the school was initially opened and utilized for instructional purposes, but does not reflect the most recent year of subsequent additions, improvements, or renovations, if any, to such facility. 2 Students attending the West Greenville Alternative School are included in the enrollment numbers of the school they last attended. Public School Enrollment in the School District Public school enrollment in the School District for the last 10 school years and for the current school year is shown in the following table. These figures are based on 135-day average daily membership and include Special Education. School Year Kindergarten 1993-1994 3,507 1994-1995 3,246 1995-1996 3,519 1996-1997 2,930 1997-1998 3,530 1998-1999 3,713 1999-2000 3,645 2000-2001 3,692 2001-2002 3,843 2002-2003 3,993 2003-2004 2 4,049 ________________________ 1 Totals may not add due to rounding. 2 Projection Grades 1-8 Grades 9-12 Total1 Percent Change 34,910 35,199 35,747 37,180 37,217 37,720 38,012 38,598 38,927 39,342 39,907 14,513 14,737 14,963 15,491 15,919 16,047 16,362 16,358 16,962 17,448 17,697 52,930 53,182 54,229 55,600 56,666 57,480 58,019 58,648 59,723 60,783 61,653 1.11% 0.48 1.97 2.53 1.92 1.44 0.94 1.08 1.85 1.76 1.44 -28- School District Employees The following table sets forth a categorical breakdown of the total professional public school staff for the 2003-04 [CONFIRM] school year in full time equivalencies: Directors/Consultants/Coordinators/Administrators Principals Assistant Principals Nurses/LPNs Secretaries/Clerical Teachers Aides Food Service Personnel Custodians Guidance Counselors Librarians Maintenance School Bus Drivers Others Total 214 92 92 78 492 3,806 605 508 470 129 90 100 357 84 7,117 None of the employees of the School District is represented by unions or other collective bargaining groups. The School District believes itself to have good relations with its employees. ECONOMIC CHARACTERISTICS Commerce and Industry Although the School District is not coterminous with Greenville County and includes small portions of Laurens and Spartanburg Counties, the majority of its total 789 square miles are located in Greenville County. The School District received approximately 97% of its general fund tax revenues in the fiscal year ended June 30, 2003, from Greenville County and attributed approximately 97% of its assessed taxable property to Greenville County. Accordingly, the following discussion on the economic characteristics of the School District is based on statistical information relating to Greenville County. Even though there is a regional concentration of employment in the trade and financial sectors in Greenville County, manufacturers are the major employers in Greenville County, accounting for approximately 20% of the nonagricultural workforce. Greenville County’s non-agricultural employment base by place-of-work has grown by more than 27,000 during the past five years. Over the last quarter century, Greenville County has experienced a healthy industrial growth rate in terms of both new industry location and expansion of existing facilities. Since 1970, more than 200 new industrial concerns have moved into Greenville County. Some of the major firms that have located in Greenville County include Bausch & Lomb, Coats & Clark, Moody, Hitachi Electronic Devices (U.S.A.), Lockheed Aeromod, 3-M, Michelin, Reliance Electric, Lucas Automotive, Dana Corporation, Textron Lycoming, W.W. Grainger, Ellcon National, and Thomas & Betts. According to the South Carolina Department of Commerce, the total capital invested in Greenville County by existing and new industries was approximately $1.3 billion in 2001 and $487 million in 2002, which was approximately 19% of the total 2001 and 2002 capital investment for the State of South Carolina. In addition, 3,131 new jobs were created in Greenville County in 2001 and 2002. Greenville’s location, access to the interstate system, diverse employment base, and educational institutions favor a continuation of this growth trend toward more economic development and new jobs. Population Growth The Greenville Metropolitan Statistical Area (the “Greenville MSA”), South Carolina’s largest metro area, is now comprised of Greenville, Spartanburg, Pickens, Anderson, and Cherokee Counties. The population for the Greenville MSA was 962,441 in 2000 according to the U.S. Bureau of the Census. The U.S. Bureau of the Census estimates that the 2002 population of Greenville County was 391,334. This figure represents an approximate 22.2% increase in population over the 1990 census of 320,167. The U.S. Bureau of the -29- Census states that there was a 21.7% increase in the number of households in Greenville County from 122,878 in 1990 to 149,556 in 2000 (the latest statistics available). The following table shows population information for Greenville County. Year Greenville County 1980 1990 1998 1999 2000 2001 2002 287,895 320,167 353,986 358,936 379,616 386,581 391,334 ________________________ Source: U.S. Department of Commerce, Bureau of the Census. All population figures for years other than 2000, 1990, and 1980 are estimates by the U.S. Department of Commerce, Bureau of the Census. Per Capita Income According to the U.S. Department of Commerce, Bureau of Economic Analysis, Greenville County ranked fourth among the 46 counties of the State in per capita income for 2001. The per capita income in Greenville County, the State, and the United States for each of the last five years for which information is available is shown below. Year Greenville County State 1997 $25,805 $21,005 1998 27,744 22,127 1999 28,852 22,903 2000 28,743 23,952 20011 29,109 24,840 ________________________ 1 Preliminary Estimate. Source: U.S. Department of Commerce, Bureau of Economic Analysis. United States $25,427 26,909 27,859 29,451 30,413 Median Family Income Listed below is the median family income for the last five years for the Greenville MSA, the State, and the United States. Year Greenville MSA State United States 1998 $43,700 $40,600 $45,300 1999 47,200 43,600 47,800 2000 48,700 45,000 50,200 2001 50,400 46,600 52,500 2002 53,200 49,200 54,400 ________________________ Source: U.S. Department of Housing and Urban Development, Economic and Market Analysis Divisions. Median Age and Education Levels The U.S. Bureau of the Census reports that the median age of the population of Greenville County was 35.5 in 2000, the last year for which the information is available. In 2000, the U.S. Department of Commerce ranked Greenville County as the 4th highest in the State in percent of population 25 years old or older with at least a bachelor’s degree or equivalent. Greenville County had 26.2% of its population 25 years old or older with a bachelor’s degree or equivalent, while the median for all counties was 20.4%. -30- Construction Construction in Greenville County reflects steady growth. The following table shows the approximate number of building permits issued for new construction in Greenville County and the valuations assigned to those permits by the permitting offices, in each of the last five years. Residential1 Year Number of Permits Number of Permits Value Commercial2 Estimated Construction Costs 1998 3,276 $284,451,385 254 $ 93,789,187 1999 3,623 318,551,176 256 66,661,105 2000 2,871 281,806,811 658 70,832,370 2001 3,128 296,900,236 1,334 112,526,429 2002 3,216 310,720,526 ________________________ Sources: 1 U.S. Department of Commerce, Bureau of the Census, Manufacturing and Construction Division, Building Permits Branch. All of Greenville County, incorporated and unincorporated. 2 Greenville County Department of Public Works. Unincorporated Greenville County. Retail Sales The State imposes a 5% sales tax on all retail sales. The following table shows the level of gross retail sales for businesses located in Greenville County for the last five years: Year Total Retail Sales 1998 $ 9,827,961,291 1999 10,151,074,000 2000 10,323,175,560 2001 8,961,069,172 2002 8,336,225,436 ________________________ Source: South Carolina Department of Revenue, Administrative Division. Increase (Decrease) Over Previous Year 5.22 % 3.28 1.70 (15.20) (7.50) Commercial and Savings Bank Deposits According to the Federal Deposit Insurance Corporation and the Office of Thrift Supervision, as of June 30, 2002, the most recent date for which figures are available, Greenville County had 18 commercial banks with a total of 144 branches and with total deposits of $5,953,000,000, and 2 savings institutions with a total of 3 branches and with total deposits of $143,000,000. According to the National Credit Union Administration, as of December 31, 2002, the most recent date for which information is available, there were 9 credit unions in Greenville County with total shares and deposits of $351,535,075. Capital Investment Listed below is the total capital investment and additional employment for new and expanded industry in Greenville County for the past five years. Year Total Capital Investment Additional Employment 1998 $ 938,899,000 3,858 1999 725,228,000 4,025 2000 978,843,000 3,629 2001 1,302,748,000 2,936 2002 487,471,913 2,180 ________________________ Source: South Carolina Department of Commerce, Office of Information Management. -31- Major Employers The 10 largest manufacturing employers located within Greenville County and approximate number of employees is listed below. Name Product / Service Employees Sealed Air Corp.-Cryovac Division Plastic Bags and Plastic Film 1,700 General Electric Co. Gas Turbines 1,600 Michelin North America Tires 1,543 Lockheed Martin Aircraft Maintenance and Modification 1,531 KEMET Electronics Capacitors 1,300 Hitachi Electronic Devices Television Picture Tubes 1,150 Rockwell Automation Speed Reducers and Chargers 795 Collins & Aikman Automotive Carpets 700 Mitsubishi Polyester Film Co. Polyester Film 681 House of Raeford Processed Poultry 630 ________________________ 1 KEMET Electronics announced in _________ that it plans to reduce its workforce in Greenville County by 550 employees by December 31, 2004. Sources: South Carolina Industrial Directory; Greenville Chamber of Commerce The ten largest non-manufacturing employers, exclusive of the School District, located within Greenville County and approximate number of employees are listed below. Name Greenville Hospital System Bi-Lo State of South Carolina St. Francis Health System Bob Jones University Fluor Daniel Greenville County MCI Worldcom Greenville Technical College TeleTech ________________________ Source: Greenville Chamber of Commerce. Product / Service Health Services Retail Grocery State Government Health Services Educational Services Engineering, Planning, and Construction County Government Communications Educational Services Communications -32- Employees 7,483 4,083 2,561 2,103 1,783 1,680 1,607 1,200 1,124 800 Labor Force The composition of the labor force in Greenville County for the last five years available is as follows: Greenville County Nonagricultural Wage and Salary Employment (by place of work) 1997 1998 1999 2000 2001 46,100 15,200 13,200 57,900 9,500 45,900 15,500 12,900 59,700 10,200 46,600 16,400 12,300 61,000 9,700 48,500 15,100 15,400 59,900 9,700 47,840 14,840 15,410 58,040 9,710 55,300 22,600 59,000 23,800 62,900 24,200 68,400 24,900 66,200 25,590 Total1 219,900 226,900 233,000 241,800 ________________________ 1 May not add due to rounding. Source: South Carolina Employment Security Commission, Labor Market Information. 237,630 Manufacturing Construction & Mining Transportation and Public Utilities Wholesale and Retail Trade Finance, Insurance, and Real Estate Services (including Agricultural Services) Government Labor Force Estimates (by place of residence) 1998 1999 2000 2001 2002 1 Civilian Labor Force 195,070 192,870 199,570 193,350 195,080 Employment 191,120 188,110 195,790 187,110 186,530 Unemployment 3,950 4,760 3,780 6,250 8,560 Percent of Labor Force Unemployed 2.0% 2.5% 1.9% 3.2% 4.4% ________________________ 1 Workers involved in labor disputes are included among the employed. Total employment also includes agricultural workers, proprietors, self-employed persons, workers in private households, and unpaid family workers. Source: South Carolina Employment Security Commission, Labor Market Information. Unemployment The average unemployment rate in Greenville County, the State, and the United States for each of the last five years is shown below. Year Greenville County State United States 1998 2.0% 3.8% 1999 2.5 4.5 2000 1.9 3.9 2001 3.2 5.4 2002 4.4 6.0 2003 1 4.8 7.0 ________________________ 1 As of July 2003, the latest information available. Source: South Carolina Employment Security Commission, Labor Market Information. -33- 4.5% 4.2 4.0 4.7 5.8 6.2 Transportation Greenville County is a major distribution center for the Southeastern United States. Interstate I-85, a major interstate that originates in Montgomery, Alabama, runs through Atlanta, Georgia, Charlotte, North Carolina, and ends in Richmond, Virginia, runs through Greenville County. Interstate I-26 (which connects Charleston, South Carolina to Asheville, North Carolina) runs a few miles east of Greenville County and is connected to the City of Greenville and Interstate I-85 by Interstate I-385. Greenville County is located almost equidistant between New York and Miami and is positioned on I-85 halfway between Charlotte, North Carolina, and Atlanta, Georgia. Greenville possesses the only continuous six-lane stretch of Interstate 85 in South Carolina. US Highways 25, 29, 123, and 276 traverse Greenville County. South Carolina Highways 81, 253, and 416 connect Greenville County with other major arteries. Interstate 26 provides direct access to South Carolina ports in Charleston, Port Royal, and Georgetown. The “Southern Connector,” which opened in late February 2001, is a four-lane, fully controlled access toll highway covering a distance of approximately 16 miles extending from the intersection of Interstates 85/185 to the intersection of Interstate 385, US 276, and Standing Springs Road. This highway was constructed in accordance with South Carolina Department of Transportation standards for a 70-mile per hour speed limit and will facilitate much easier access from Greenville County to Columbia, South Carolina. Greenville County has traditionally been a rail center owing to its location between Atlanta and rail lines serving the Eastern Seaboard. CSX Railroad and Norfolk Southern Railway provide freight service through rail lines located in Greenville County, and Amtrak provides passenger service. More than 75 motor-freight trucking firms serve the Greenville County area with nearly 50% of them maintaining terminals there. These regional and local motor carriers offer fast, efficient service on long or short hauls. Greenville County has a geographic advantage in its being situated almost midway between New York and the metropolitan Northeast and the rapidly growing areas of the Deep South and Florida. This location provides the area with a large and consistent supply of trucks from numerous specialized motor carriers serving the entire United States, enabling overnight trucking service to all major markets in the Southeastern United States and second-morning delivery to any destination on the East Coast. One-day trucking service reaches over 44% of the United States population and more than 25% of the nation’s manufacturing output. The Greenville-Spartanburg International Airport (“GSP”), which is located approximately 15 minutes from the City of Greenville, offers regularly scheduled commercial airline service through 4 major carriers, Delta Air Lines, US Airways, Continental Airlines and Northwest Airlines, and several regional carriers, for a total of 15 airlines. GSP is one of the most active airports in South Carolina based on scheduled daily flights and seats available. A total of 69 daily departures are offered at GSP. The number of passengers using GSP’s facilities in 2001 was 1,412,567. In 1999, GSP completed a $100 million renovation and expansion, including increasing the runway to 11,000 feet, which is sufficient to meet the landing requirements of any aircraft in service today. Services added at GSP as a result of the 1999 renovation and expansion include a federal customs immigration and agriculture inspection station, permitting international flights to fly directly to GSP to clear customs. GSP also provides cargo and general aviation services. In addition, the City of Greenville has general aviation services through an airport located in downtown Greenville, which hosts business executives, government officials, and tourists traveling by private carrier, as well as Donaldson Center Airbase, which provides military and private service. The Downtown Airport has approximately 230 based aircraft and two full-service fixed base operators, which offer fuel service, flight instruction, air charter service, full FAA-approved repair and maintenance, rental car services, and courtesy cars. Donaldson Center Industrial Air Park was converted in 1963 from an air force base into a “multi-modal” airport industrial park with interstate, highway, and railway access. The Donaldson Center is a jointly owned City and County facility, which is managed by the Donaldson Development Commission. Its mission is to serve industry requiring direct access to airport infrastructure, while also providing an attractive setting for industrial development. It is located two miles south of Interstate 85 on U.S. Highway 25. Donaldson Center has an 8,000-foot by 150-foot concrete runway, which is capable of handling virtually any landing gear configured aircraft. It has a Category I ILS, NDB, and AWOS III weather station. Firmly established as an aircraft maintenance and modification center, the Donaldson Center also serves as a corporate aviation facility with the complete services of a fixed base operator. Aircraft that have used the airport include the DC-9, DC-10, B-727, A-320, C-141, C-5, C-17, the Russian AN-124, and IL 76, and nearly every type of corporate jet. The major aviation tenants located at the Donaldson Center Industrial Air Park are Lockheed Martin Aircraft Center, Stevens Aviation, and the Greenville Technical College Airframe and Powerplant Aircraft Maintenance School. This airfield currently contains 400 acres of undeveloped land for future needs, containing sufficient industrial and aviation land available for any size aircraft manufacturer, aircraft maintenance facilities, or air cargo operations. Hospital Facilities The Greenville Hospital System (“GHS”), a not-for-profit health system, is upstate South Carolina’s most comprehensive healthcare provider and is one of the State’s largest hospital systems. With 1,081 beds, GHS is Greenville County’s second-largest employer, employing more than 7,000 healthcare professionals, including -34- 966 physicians on the medical staff. GHS consists of three acute care hospitals providing inpatient, outpatient, and specialty services throughout Greenville County. GHS ranked in the top 100 integrated healthcare networks in the nation for 2001 and has been recognized as the region’s quality care leader for six consecutive years. The GHS Heart Institute performs more cardiac procedures than any other South Carolina facility. The Women’s Health Institute provides the State’s most comprehensive women’s healthcare services, including infertility research, and the Children’s Hospital features the area’s only Children’s Emergency Center and pediatric ICU, Greenville’s highest level neonatal ICU, and the State’s first children’s outpatient surgery center. GHS also offers the region’s only Level I trauma center and 24-hour Chest Pain Center, along with the only rehab hospital and cancer research institute. In 2000, GHS began a system-wide capacity expansion project slated for completion in 2003. The Greenville Shriners Hospital is a 60-bed hospital providing pediatric orthopedic services at no charge to children from birth to 18 years of age. Additional hospital facilities are provided by the 319-bed Bon Secours St. Francis Health System, composed of St. Francis Hospital and Women’s and Family Hospital, both of which are located in the City of Greenville and operated by the Sisters of Bon Secours. Education The School District is the major provider of primary and secondary education in Greenville County. However, there are 60 private schools also providing primary and secondary education, which have an approximate enrollment of 6,500 students. Four colleges are located in the School District, the largest of which are Greenville Technical College with a 2003-04 enrollment of 11,367 and Bob Jones University with a total 2003-04 enrollment of approximately 3,800. Also located in the School District are Furman University with a total 2003-04 undergraduate enrollment of 2,623 and North Greenville College with a 2003-04 enrollment of approximately 1,600 students. FINANCIAL AND TAX INFORMATION Five Year Summary of General Fund Operations The following table sets forth a summary of the School District’s General Fund operations for the fiscal years ended June 30, 1998 through 2002. The summary should be reviewed together with the School District’s complete audited financial statements for the years ended June 30, 1998 through 2002, including but not limited to the reports of the School District’s independent certified public accountants and the notes to such financial statements. [Remainder of Page Intentionally Left Blank] -35- Five Year Analysis of General Fund Revenues and Expenditures 1998 Revenues: Local Sources: Taxes: Greenville County1 Other Counties Investment Income Receipt of Insurance Proceeds2 Receipt of Legal Settlements2 Other Local Sources Years Ended June 30 (Audited) 1999 2000 2001 2002 $ 76,288,147 2,660,410 3,056,461 $ 89,007,121 --2,621,832 $ 95,516,806 --3,080,556 $110,768,632 --2,203,508 $121,064,035 --932,223 ----973,767 63,408 18,678 1,052,874 ----833,741 ----749,840 ----1,113,836 82,978,785 92,763,913 99,431,103 113,721,980 123,110,094 135,008,778 6,970 145,416,446 23,003 152,370,023 4,679 162,591,471 4,127 161,852,975 4,391 217,994,533 238,203,362 251,805,805 276,317,578 284,967,460 143,995,929 85,041,675 154,801 156,835,149 93,335,624 85,608 161,395,080 96,319,371 117,173 176,865,116 104,594,888 116,868 186,551,556 105,908,825 118,281 --- --- 5,965 210,622 258,564 181,237 166,855 152,097 220,167 1,196,515 229,373,642 250,423,236 257,989,686 282,007,661 294,033,741 (11,379,109) (12,219,874) (6,183,881) (5,690,083) (9,066,281) --196,255 8,455 11,570,272 (1,879,654) --- ------12,366,498 (3,283,995) --- 17,688 70,022 (14,648) 15,750,921 (1,804,552) (922,306) 14,349 25,291 --18,411,350 (2,263,282) (1,386,786) 14,096 ----19,855,666 (3,198,265) --- 9,895,328 9,082,503 13,097,125 14,800,922 16,671,497 Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (1,483,781) (3,137,371) 6,913,244 9,110,839 7,605,216 Fund Balance at July 1 Prior Period Adjustment 16,248,496 (892,000) 13,872,715 --- 10,735,344 --- 17,648,588 --- 26,759,427 --- Beginning of Year as Restated 15,356,496 13,872,715 10,735,344 17,648,588 26,759,427 Total State Sources Federal Sources Total Revenues Expenditures: Current: Instruction Support Services Community Service Debt Service: Interest and Fiscal Charges Intergovernmental Payments to State Department of Education Total Expenditures Revenues Over (Under) Expenditures Other Financing Sources (Uses): Sale of Fixed Assets Receipt of Insurance Proceeds Receipt of Legal Settlements Operating Transfers In Operating Transfers Out Transfer to Component Unit Total Other Financing Sources Fund Balance at June 30 $ 13,872,715 $ 10,735,344 $ 17,648,588 $ 26,759,427 $ 34,364,643 ________________________ 1 Tax revenues for fiscal years 1999 through 2002 from Greenville, Spartanburg, and Laurens Counties are included under the Greenville County heading. 2 Receipt of insurance proceeds and receipt of legal settlements are listed under Other Financing Sources for fiscal years 1998, 2000, 2001, and 2002. -36- Budget Procedure and Accounting Policies The Board of Trustees of the School District is responsible for adopting a budget for the School District prior to the beginning of each fiscal year. Under Article X, Section 7 of the South Carolina Constitution, the Board of Trustees is required to adopt a budget with sufficient income to meet its estimated expenses, and if such expenses for any year shall exceed the income, the Board of Trustees is required to provide for levying a tax in the ensuing year sufficient, with all other sources of income, to pay the deficiency in the preceding year, together with the estimated expenses for the ensuing year. The School District is subject to a statutory millage limit on the amount of ad valorem taxes it may annually levy to fund operations. See “FINANCIAL AND TAX INFORMATION - Limitation on Annual Tax Levy” herein. In the fall of each year, the School District begins its budget process for the fiscal year beginning the following July 1. After the School District’s budget committee reviews all requests and allocation requirements and related revenue, it presents a tentative proposed budget to the Superintendent for review and adjustment. The Superintendent presents the resulting proposed budget to the Board of Trustees, which reviews it in a series of workshops and makes any additions or deletions it deems necessary. The final budget is adopted by the Board of Trustees for all funds except certain fiduciary funds, prior to July 1 of each year. The School District is not responsible for budgeting, levying, or collecting taxes for debt service on general obligation bond anticipation notes or general obligation bonds. Under State law, the auditors of the counties in which the School District is located are required to levy and the treasurers of those counties are required to collect sufficient taxes to provide for the payment of the principal of and interest on all general obligation bond anticipation notes and general obligation bonds and to provide for such sinking fund as may be necessary therefor. In September 1984, the Board of Trustees adopted a policy that requires that any general fund monies remaining unspent at the end of a fiscal year be placed in a special reserve fund equal to five percent of budgeted revenues. Funds in this special reserve fund would not be made available except by majority vote of the full board, and if so used, would have to be replaced through budgeting revenues to exceed expenditures by at least one percent until the five-percent level is reattained. General Fund Budget Summary Budget Fund Balance at July 1 Revenues: Local Sources State Sources Transfers Total Revenues Expenditures: Instruction Auxiliary Services-Schools Auxiliary Services-District Administration-School Administration-District Operation and Maintenance Total Expenditures Transfers Total Expenditures and Transfers Changes in Fund Balance Fund Balance at June 30 ________________________ 1 Unaudited. Years Ended June 30 2003 Actual 1 2004 Budget $ 28,047,577 $ 34,364,643 $ 29,333,027 124,174,900 173,710,109 19,906,859 317,791,868 127,661,036 160,451,445 20,384,411 308,496,892 129,803,759 158,686,405 19,502,351 307,992,515 200,279,888 26,014,803 20,387,191 22,321,784 1,898,342 43,220,071 314,122,079 3,669,789 317,791,868 --$ 28,047,577 193,439,470 25,315,750 18,305,924 23,990,533 1,541,053 47,118,572 309,711,302 3,816,292 313,527,594 --$ 29,333,027 192,097,596 23,559,042 17,218,804 23,679,935 2,900,574 44,579,995 304,035,946 3,956,569 307,992,515 --$ 29,333,027 -37- Revenues The unaudited financial information for the School District for fiscal year 2003 indicates that 56% of general fund revenues came from the State of South Carolina (the “State”) and 44% came from local sources. Revenues from the State. The largest source of operating revenues for the School District is the State. These revenues come in the form of general fund revenues, which are available for general operating expenses of the School District, and special revenues, which are available for use only in connection with specific programs. The School District also receives school building funds from the State. See “FINANCIAL AND TAX INFORMATION - Building Aid” herein. During the years shown below, the School District received the following amounts as general fund revenues and special revenues from the State. Fiscal Year 1998 1999 2000 2001 2002 2003 1 ______________________ 1 Unaudited General Fund Revenues Special Revenues Total $135,008,778 145,416,446 152,370,023 162,591,471 161,852,975 159,374,399 $29,356,635 31,177,464 37,455,477 48,483,446 49,980,117 56,811,791 $164,365,413 176,593,910 189,825,500 211,074,917 211,833,092 216,186,190 The School District, as described below under the heading “Revenues from Ad Valorem Taxes,” receives revenues from the State to replace ad valorem tax revenue losses resulting from Homestead Exemptions. Appropriations made by the State are monitored against income throughout the fiscal year by the State Budget and Control Board. If State revenues are below budget estimates, the Budget and Control Board has the authority to reduce appropriations by amounts sufficient to maintain a balanced budget for the State. Fiscal Year 2003 State Budget Reductions. In November 2002, the South Carolina Board of Economic Advisors determined that revenues to support the State budget were down by 5%. As a result, the South Carolina Budget and Control Board ordered a 5% reduction in revenues allocations to State agencies and school districts. The reduction in allocated revenues to the School District was $7.9 million. At the time, the School District also reduced its estimate of local vehicle tax revenue by $750,000 and reduced the amount of a budgeted transfer from a special revenue project. As a result of these reductions, the aggregate reduction in budgeted revenues equaled $8,847,448. To address this revenue reduction, the School District transferred $3.38 million in salary and fringe benefit expenditures to special revenue projects. The School District, however, recognized increases in expenditures of $3.36 million to cover additional teachers and additional allocations to charter schools, resulting from enrollment increases. Due to the offsetting nature of these transactions, the School District designated $8.8 million of its general fund reserves to fund the revenue reduction, leaving a general fund balance equal to 8% of total revenues. In February 2003, the South Carolina Board of Economic Advisors reduced its estimated State tax collections for the remainder of fiscal year 2003 by $120 million. As a result, the South Carolina Budget and Control Board ordered another reduction in revenue allocations to State agencies and school districts. The impact of these State reductions on the School District was $5.5 million. The School District used a combination of revenue transfers, expenditure reductions and fund balance designations to address the $5.5 million reduction, including a hiring freeze on all School District level non-school based vacancies, a 50% reduction of the remaining balances for non-school based administrative accounts and for school based instructional supplies, designating $2 million of its general fund reserves, leaving a general fund balance of 7.25% of total revenues. Fiscal Year 2004 State Budget Reductions. When developing its general fund budget for fiscal year 2004, the School District considered the fiscal year 2003 reductions in State revenue and assumed that these reductions would continue in fiscal year 2004. On account of the expected additional reduction in State revenue, combined with required budget increases to fund utilities, increases in personnel due to projected student growth, State mandated teacher raises, and increases in State health insurance costs, the School District initially planned for a gross $28.1 million reduction in current expenditures, with no millage increase. During the budget process, the School District identified the cuts necessary to effect the $28.1 million reduction. In June 2003, the State, due to an influx of Federal dollars related to Federal tax cut plan increased the EFA allocations to the School District for fiscal year 2004 by approximately 4.5%. In addition, the Board of Trustees voted to increase local property taxes by the maximum allowable increase of 4 mills. These actions decreased the needed expenditure reductions from $28.1 million to $21 million. The School District -38- implemented the following budget reductions to accomplish the $21 million expenditure reduction: (1) a $4.6 million (17%) reduction in School District level budgets including cutting 75 positions; (2) a $16 million (9%) reduction in school level budgets, the biggest component of which is the reduction of 199 teachers accomplished by increasing average class size by two students; (3) a $332,000 reduction in other expenditures resulting primarily from combining two elementary schools. The School District’s general fund budget for fiscal year 2004 is $307,992,515, and the School District has not designated any of its general fund reserves to fund this budget. EFA. Almost all of the general fund revenues received from the State are paid to the School District under the Education Finance Act of 1977 (the “EFA”). The EFA was enacted in order to implement a basic education program, known as the Foundation Program. The State funds an average of 70% of the cost of the Foundation Program on a statewide basis, using an “index of taxpaying ability” to adjust the required local contribution and State contribution toward the cost of the Foundation Program. During fiscal year 2003, the State share of the Foundation Program for the School District was $91,645,266 or 65% of the total cost, and the School District share was $49,154,734 or 35%. The State share for the Foundation Program is estimated to be approximately $89,625,250 or 75% of the total cost for fiscal year 2004. Listed below are the State contributions to the Foundation Program for the School District for the fiscal years shown. State Contributions to EFA Foundation Program Fiscal Year Amount 1999 2000 2001 2002 2003 1 $88,823,912 93,381,240 96,712,232 92,327,849 89,625,250 ____________________ 1 Unaudited EFA Litigation. On November 1, 1993, 29 small South Carolina school districts brought suit against the State of South Carolina and various state officials in an action styled Allendale School District et al. v. The State of South Carolina, et al. The complaint in this action alleges that the current method of funding school district operations in South Carolina discriminates against the plaintiff school districts. The plaintiffs further allege that they are entitled to various forms of relief, including a declaration that the EFA is unconstitutional as it discriminates against smaller school districts, and a court order requiring the State of South Carolina to revise the present school funding method to remove the discriminatory effects of such method. In September 1996, the trial court ruled against the plaintiffs in this action, and the plaintiffs appealed. On April 22, 1999, the Supreme Court of South Carolina held that the EFA is constitutional and dismissed several other federal constitutional challenges to the current method of funding school district operations in South Carolina; however, the Court held that the South Carolina Constitution “requires the General Assembly to provide the opportunity for each child to receive a ‘minimally adequate’ education,” which means the ability to read, write, speak English, and to know math, science, history, and vocational skills. The Court remanded the case to the lower court system in South Carolina for determination of whether this standard is met. The trial of this case began in July 2003, and all testimony is expected to be taken in 2003. The School District cannot predict the ultimate outcome of this litigation, or what impact it may ultimately have on public education or the funding thereof in South Carolina. EIA. Almost all of the special revenues received from the State are paid to the School District under the Education Improvement Act of 1984 (the “EIA”). The EIA was enacted to improve the quality of public education in the State through special programs and incentives. The EIA program is funded by a 1¢ increase in the general sales tax. Amounts received by the School District under the EIA are restricted to the programs authorized or mandated by the EIA. Amounts provided to the School District by the State from the EIA for the last five fiscal years are as follows: -39- EIA Funding Amounts Fiscal Year Amount 1999 2000 2001 2002 2003 1 $28,994,526 33,352,198 38,197,740 38,285,901 44,132,125 ____________________ 1 Unaudited Revenues from Ad Valorem Taxes. The second largest source of School District general operating revenues comes from ad valorem taxes paid by taxpayers within the School District. A discussion of general tax information, tax rates, and millage levied upon taxpayers of the School District for School District purposes is presented under the headings “FINANCIAL AND TAX INFORMATION - Property Taxation and Assessment, - Assessed Value, - Limitation on Annual Tax Levy, - Tax Collection Procedure, - Tax Collections for Last Five Years, - Ten Largest Taxpayers, and - Millage History” herein. All of the revenues from ad valorem taxes either are general fund revenues, and, therefore, may be used by the School District on an unrestricted basis, or are collected for the purposes of paying debt service on general obligation bonds of the School District. Listed below for the fiscal years shown are the amounts the School District received as general fund revenues from ad valorem taxes: Fiscal Year Amount 1999 2000 2001 2002 2003 1 $ 89,007,121 95,516,806 110,768,632 121,064,035 122,738,549 ____________________ 1 Unaudited South Carolina law provides property tax relief to owner-occupied residences for a portion of the property taxes levied for the operating budget (exclusive of amounts payable for lease-purchase obligations) of school districts in South Carolina. Under these provisions, the School District will receive funds directly from the State to offset entirely the resulting reduction in ad valorem tax revenues; these funds are now included as State revenues. See the discussion under “FINANCIAL AND TAX INFORMATION - Homestead Exemptions--Property Tax Relief” herein for a description of these provisions. Revenues from Federal Sources. The School District receives a portion of its special revenues from the federal government, including federal grants that are tied to specific uses, such as the school lunch program and aid for the handicapped, vocational education and adult education, and Subchapter I of the Elementary and Secondary Education Block Grant program (PL 97-35), which funds are used to pay operational costs (including teachers’ salaries). These revenues are restricted and must be used for specific programs. Listed below are the amounts the School District has received as special revenues and impact aid from federal sources for the fiscal years shown. Fiscal Year Special Revenues 1999 2000 2001 2002 2003 1 $13,430,896 17,865,872 20,371,343 22,281,539 33,688,151 ____________________ 1 Unaudited -40- Investment Policies The School District holds and invests all operating funds directly. Bond proceeds and tax collections used to pay debt service on bonds are held and invested by the County Treasurer. Pursuant to the South Carolina Code, operating funds may be directly invested by the School District in investments specified in Sections 6-5-10, 6-6-30, and 11-1-60. Bond proceeds and tax collections used to pay debt service on bonds may be directly invested by the County Treasurer in investments specified in Sections 6-5-10, 6-6-30, 11-1-60, and 12-45-220. In both cases, the funds may be invested with the consent of the investor’s governing body, by purchase of participation units in the South Carolina Pooled Investment Fund established under Section 6-6-10 of the South Carolina Code. The South Carolina State Treasurer manages the South Carolina Pooled Investment Fund, which may be comprised of the investments specified in Sections 6-5-10 and 11-9-660. Several of the applicable sections of the South Carolina Code are outlined below. For more detailed information, reference should be made to the specific South Carolina Code section. Section 6-5-10 authorizes the following investments: (1) obligations of the United States and its agencies; (2) general obligations of the State of South Carolina or any of its political units; (3) savings and loan associations to the extent that the same are insured by an agency of the federal government; (4) certificates of deposit that are collaterally secured by securities of the type described in clauses (1) and (2) of this paragraph and held by a third party as escrow agent or custodian; (5) repurchase agreements when collateralized by securities as set forth in this paragraph; and (6) no load open-end or closed-end management type investment companies or investment trusts registered under the Investment Company Act of 1940, as amended, if the particular portfolio of the investment company or investment trust in which the investment is made (i) is limited to obligations described in clauses (1), (2), and (5) of this paragraph, and (ii) has among its objectives the attempt to maintain a constant net asset value of one dollar a share and to that end, values its assets by the amortized cost method. Section 11-1-60 authorizes investments in shares of any federal savings and loan association, FSLIC-insured shares of any South Carolina building and loan association, certain obligations of federal home loan banks, and certain obligations of the Federal Home Loan Bank Board. Section 12-45-220 authorizes the County Treasurer to make all of the investments authorized under Section 6-5-10 as described above, other than those described in clause (5). The Board of Trustees of the School District has provided further direction for the investment of School District funds by means of a policy adopted in March of 1980. Under the School District’s policy, investments are to be made with a primary emphasis on safety of principal as the first criterion of all investments. The School District does not invest or deposit in any institution an amount in excess of 10% of the institution’s total assets. Property Taxation and Assessment Article X, Section 1 of the South Carolina Constitution requires equal and uniform assessments of property throughout the State for the following classes of property and at the following ratios of fair market value of such property: (1) Real and personal property owned by or leased to manufacturers, utilities, and mining operations and used in the conduct of such business - 10.5% of fair market value; (2) Real and personal property owned by or leased to companies primarily engaged in transportation for hire of persons or property and used in the conduct of such business - 9.5% of fair market value; (3) Legal residence and not more than five contiguous acres - 4% of fair market value (if the property owner makes proper application and qualifies); (4) Agricultural real property used for such purposes owned by individuals and certain corporations - 4% of use value (if the property owner makes proper application and qualifies); (5) Agricultural property and timberlands belonging to corporations having more than 10 shareholders - 6% of use value (if property owner makes proper application and qualifies); (6) All other real property - 6% of fair market value; (7) Business inventories - 6% of fair market value (as of 1988, there is available an exemption from taxation of property in this category, hence this item is no longer significant, except that the assessed value of business inventory as of tax year 1987 is taken into account in determining total assessed value for purposes of the bonded debt limit); and -41- (8) (A) Except as set forth in (B) below, all other personal property - 10.5% of fair market value; and (B) Personal motor vehicles (or passenger motor vehicles and pickup trucks) - 10.5% of fair market value, declining by 0.75% in each tax year after 2001 to 6% in 2007 (for fiscal year 2004, the value will be 8.25%, beginning January 1, 2004). The South Carolina Department of Revenue (“DOR”) has been charged with the responsibility of taking steps necessary to ensure equalization of assessments statewide in order that all property is assessed uniformly and equitably throughout the State, and may require reassessment of any part or all of the property within Greenville County. Under law enacted by the South Carolina General Assembly in 1995, every fourth year Greenville County and the State are required to effect an appraisal of all property within Greenville County and to implement that appraisal as a new assessment in the following year. Regulations adopted by DOR prior to the 1995 law also require that a reappraisal program must be instituted by a county if the median appraisal for all property in such county (as a whole or for any class of property) is higher than 105% or lower than 80% of fair market value. Legislation was adopted in 1999, however, which will allow counties to delay for one year the results of reassessment and limit to 15% the amount by which the assessed value of certain property may be increased. The effect of this legislation cannot be predicted at this time. In addition to the new appraisal and reassessment procedures enacted in 1995, the General Assembly imposed a limitation on millage rates for the year in which the reassessment is implemented, referred to as the “rollback millage.” While the law is not entirely clear, rollback millage appears to be that millage rate which after reassessment will produce the same revenues as were produced in the year preceding reassessment. The rollback millage may be increased only by the percentage increase in the consumer price index for the year immediately preceding the year of reassessment and for certain limited purposes, unless approved by a positive majority vote of a taxing entity. Greenville County last completed and implemented a reassessment program for the 2001 tax year (corresponding to the School District’s 2002 fiscal year). The County Assessor appraises and assesses all the real property and mobile homes located within Greenville County and certifies the results to the County Auditor. The County Auditor appraises and assesses all motor vehicles, marine equipment, business personal property, and airplanes. The DOR furnishes guides for use by the counties in the assessment of automobiles, automotive equipment, and certain other classes of property and directly assesses the real and personal property of public utilities and manufacturers and also business equipment. Each year the DOR certifies its assessments to the County Auditor, who prepares assessment summaries from the respective certifications, determines the appropriate millage levies, prepares tax bills, and in September charges the County Treasurer with the collection. South Carolina has no statewide property tax. Homestead Exemptions--Property Tax Relief South Carolina provides, among other exemptions, two exemptions for homesteads. The first is a general exemption from all ad valorem property taxes and applies to the first $50,000 of value of the dwelling place of persons who are over 65 years of age, totally and permanently disabled, or legally blind (the “Homestead Exemption”). The second exemption (the “Property Tax Relief Exemption”) applies only to ad valorem taxes levied for school operating budgets (exclusive of amounts in those budgets for the payment of lease-purchase agreements for capital construction) (the “School Taxes”). The Property Tax Relief Exemption applies to property classified as the legal residence and up to 5 contiguous acres of land when owned by the occupant of such residence. The value of the property exempted pursuant to the Property Tax Relief Exemption is determined each year by a formula that takes into account the amount made available by the General Assembly for such purpose in a State Property Tax Relief Fund and the total School Taxes but for such exemption. In both cases, the revenues that would have been received by various taxing entities but for the exemptions are replaced by funds from the State. In the case of the Homestead Exemption, the State pays each taxing entity the amount to which it is entitled by April 15 of each year from the State’s general fund. In the case of the Property Tax Relief Exemption, the payments are to be made from the State Property Tax Relief Fund and are due by April 15 of each year, but an amount equal to 90% of such payments is required to be paid to the school districts during the last calendar quarter of the calendar year ending prior to such April 15. The funds received by the School District from the State on account of the Homestead Exemption and the Property Tax Relief Exemption was $23,976,434 for fiscal year 1999, $23,826,735 for fiscal year 2000, $26,112,727 for fiscal year 2001, $__________ for fiscal year 2002, and $__________ for fiscal year 2003, and is projected to be $__________ for fiscal year 2004. Assessed Value The assessed value of taxable real and personal property of the School District located in Greenville County for each of the last five tax years is set forth in the following table. These figures represent approximately 97% of the assessed value of the School District (as shown in the table listing the assessed value of Greenville County compared to the total from the other two counties). -42- Greenville County Tax Year Non-Manufacturing Real Personal Manufacturing Real Personal1 Total 1998 $600,502,710 $382,181,711 $66,825,088 $136,624,940 $1,186,134,449 1999 638,197,970 410,997,295 63,866,980 138,158,050 1,251,220,295 2000 673,815,750 409,012,645 59,874,770 127,219,450 1,269,922,615 20012 890,382,570 445,363,322 3 61,114,870 134,679,0304 1,531,539,792 2002 922,851,619 413,994,518 60,332,960 133,969,6834 1,531,148,780 ________________________ 1 Includes assessed value based on Fee-in-Lieu of tax payments of $35,744,950 for the 1998 tax year, $37,952,470 for the 1999 tax year, $39,330,372 for the 2000 tax year, $49,226,790 for the 2001 tax year, and $______ for the 2002 tax year. 2 Reassessment. 3 Includes Merchants’ Inventory of $26,705,220. 4 As of December 31. Source: Greenville County. Entire School District Tax Year Greenville County Laurens and Spartanburg Counties Total 1998 $1,186,134,449 $34,385,102 $1,220,519,551 1999 1,251,220,295 35,526,846 1,286,747,141 2000 1,269,922,615 37,619,283 1,307,541,898 2001 1,531,539,792 2 37,974,444 1,569,514,236 2002 1 1,531,148,780 42,157,998 1,573,306,778 ________________________ 1 Greenville County as of 12/31/02; Laurens County as of 6/30/03; Spartanburg County as of 12/31/03. 2 Reassessment. Sources: School District, Greenville, Spartanburg, and Laurens Counties’ Auditors. Estimated True Value of Taxable Property Tax levies for a fiscal year are based on the assessed value of property as of December 31 of the preceding year. For example, the 2002 tax year tax bills sent out in September 2002, which funds are used for fiscal year 2003, were based on the assessed value as of December 31, 2001. The 2003 tax year assessed and estimated true value of all taxable property in Greenville County located within the School District as of December 31, 2002, is set forth below: -43- Estimated Assessed Value Classification of Property 1. Real Property (Non-Manufacturing) and Mobile Homes 2. Motor Vehicles2 3. Public Utilities 4. Manufacturing Property (Real and Personal) 5. Watercraft 6. Business Personal - Auditor 7. Business Personal - DOR 8. Aircraft 9. Railroad 10. Merchants Inventory 11. Multi-County Park2 12. Negotiated Fee Payments Total Estimated True Value1 $418,122,760 231,329,945 84,613,310 59,331,200 4,894,682 10,532,682 69,181,990 2,502,110 9,931,740 26,827,600 24,364,650 58,112,473 $6,968,712,667 2,372,614,821 805,841,048 565,059,048 46,615,895 100,311,257 658,876,096 23,829,619 104,544,632 281,689,800 272,565,144 553,452,124 $999,745,142 $12,754,112,151 ________________________ 1 Some variance may be the result of daily fluctuations in various categories including Motor Vehicles. 2 Calculated at 10.5% assessed value ratio. Source: Greenville County Auditor. Payments in Lieu of Taxes South Carolina has adopted an array of property tax inducements and incentives to promote investment in the State. Qualifying investments of $5 million or more may be negotiated for payments in lieu of taxes for a period of 20 years based on assessment ratios of as little as 6% and using millage rates that are either pre-set or change every fifth year. Certain of those projects may also design a payment schedule so long as the present value of the payments under the schedule are equal to the present value of the payments that would have been made without the schedule. The State also provides an even more generous inducement for projects creating at least 200 new jobs and providing new invested capital of not less than $200 million and a total investment of not less than $400 million. These projects may be negotiated for payments based on assessment ratios of as low as 4% and for a term of 30 years. There are elaborate provisions respecting the distribution of payments in lieu of taxes to entities having taxing jurisdiction at the location of the investment that, for the most part, result in an allocation of revenues proportional to the amounts that would have been received by the taxing entities if the payments were taxes. There is a method for capturing payments in lieu of taxes to provide infrastructure to support economic development activities. Several of the largest taxpayers in Greenville County pay a “fee-in-lieu” of taxes with respect to new manufacturing projects. The beneficiaries of these payments include General Electric Corporation, Fiber Webb BBA Nonwoven Corporation, Mita, Delta Mills, Kemet, BMW, Milliken, Pierburg, Caterpillar, Drive Automotive, Fabri-Kal, Milliken Sommer, Stueken, Michelin, Mitsubishi Chemical Corp., 3M Corporation, BP Amoco Polymers, Inc., and Sodetal, and each year new fee-in-lieu arrangements are made with other new manufacturing investments. Mechanically, a county takes legal title to the project and negotiates with the user the details of the fee under the terms of a lease. While a county controls the negotiations, there are several limits: 1. Gross revenues of a school district in which a project is located in any year such fee is paid may not be less than gross revenues of the school district in the year before the first year for which such fee is paid. 2. In negotiating the fee, the parties must assume that the formulas for the distribution of State aid at the time of the execution of the agreement will remain unchanged for the duration of the agreement. 3. Except for property located in a multi-county industrial park, distribution of the payment in lieu of taxes on the project must be made in the same manner and proportion that the millage levied for school and other purposes would be distributed if the property were taxable. Counties participating in multi-county industrial parks may alter the distribution of fees in lieu of taxes paid in respect of property located in the park. Millage rates must be determined for school and other purposes as if the property were taxable. The effect is that, notwithstanding the fixed payments by the industry, the School District’s share of these payments will vary in each year in accordance with the ratio its millage rates for that year bear to the total millage that would -44- otherwise apply to the property. Projects on which these payments in lieu of taxes are made are considered taxable property at the level of the negotiated payment for purposes of calculating bonded indebtedness limits and for purposes of computing the index of taxpaying ability pursuant to the South Carolina Education Financing Act. From the date of execution of the lease agreement, the lessee of the project has not more than five years in which to meet the required minimum investment level. If this requirement is not timely met, all property financed under the lease agreement reverts retroactively to the tax treatment otherwise applicable to such property. Limitation on Annual Tax Levy In accordance with Act No. 602 of the Acts and Joint Resolutions of the General Assembly of the State of South Carolina for 1992, the Board of Trustees has the authority to increase the taxes levied in any year to fund operations of up to four mills over the prior year in response to inflation and changes in funding requirements or availability. Any increases over the amounts provided by Act No. 602 would require either voter approval in a referendum in the School District or additional legislation. A referendum to allow for an increase of 9.9 mills over and above this four-mill limit was held on May 19, 2001, but the voters of the School District rejected this millage increase by more than a two-thirds margin. In 1997, the General Assembly of the State of South Carolina adopted legislation that, among other things, restricts the ability of school districts to increase the millage rates imposed for general operating purposes for a fiscal year above the rate imposed for the prior fiscal year, as increased by the increase in the consumer price index during that period. This millage rate increase limitation, however, may be suspended and the millage rate increased (1) in response to a disaster declared by the Governor, (2) to offset a prior year’s deficit, or (3) to meet the minimum required local EFA inflation factor (as projected by the State Budget and Control Board) and the EIA per pupil maintenance effort. In addition, this millage rate increase limitation can be overridden by a positive majority vote of a taxing entity at a specially-called meeting held, after public notice, solely for the purpose of taking a vote to increase the millage rate. This legislation expressly states that it does not affect millage levied to pay bonded indebtedness. It also does not amend any caps or limitations on operational millage rates in special existing laws. This legislation is not expected to affect the School District’s operations in the current fiscal year, but its impact on future years cannot be predicted. Tax Collection Procedure In the School District, taxes are levied for county and school purposes by the respective auditors of Greenville, Spartanburg, and Laurens Counties as a single tax bill, which must be paid in full by the individual taxpayer. Tax collections for the School District by Laurens and Spartanburg Counties are remitted to Greenville County. Real and personal property taxes in each of the counties are due on or before January 15 of each year with the exception of taxes on motor vehicles. All personal property taxes on motor vehicles are due on or before the last day of the month in which the license tag for each such motor vehicle expires. If property taxes, other than taxes on motor vehicles, are not paid on or before January 16, a penalty of 3% is added; if not paid by February 1, an additional penalty of 7% is added; if not paid on or before March 17, an additional penalty of 5% is added and taxes go into execution. Taxes on motor vehicles are subject to similar penalties measured from the due date thereof. Unpaid taxes, both real and personal, constitute a first lien against the property. The tax collector is empowered to seize and sell so much of the defaulting taxpayer’s estate, real, personal, or both, as may be sufficient to satisfy the taxes. -45- Tax Collections for Last Five Years Approximately 98% of the taxes the School District receives comes from property taxable in Greenville County. Property taxable in Spartanburg and Laurens Counties provide the remaining 2%. The following table shows School District taxes levied (adjusted to include additions, abatements, and nulla bonae) for the portion of the School District located in Greenville County, taxes collected as of June 30 of the year following the year in which the levy was made, and the amount of delinquent taxes collected for the fiscal years shown. Delinquent taxes include taxes levied in prior years but collected in the year shown. Fiscal Year Adjusted Tax Levy1 Current Taxes Collected2 Current Percentage Collected 1999 $157,000,463 $147,163,462 93.73% 2000 173,000,000 159,160,000 92.00 2001 186,396,580 166,058,976 89.09 2002 203,419,878 192,395,919 94.58 2003 ________________________ 1 Includes “Property Tax Relief” moneys. 2 Includes taxes levied for Debt Service and Operational purposes. Source: Greenville County Treasurer. Delinquent Taxes Collected2 $ 7,575,466 10,380,000 15,388,324 15,663,448 Total Percentage Collected 98.56% 98.00 97.34 102.28 The following table compares general fund tax revenues received by the School District from Greenville County with the general fund tax revenues received from Spartanburg and Laurens Counties for the fiscal years shown. Fiscal Year Greenville County Other Counties 1999 $109,638,714 2000 118,152,067 2001 128,535,970 2002 145,830,757 2003 ________________________ Source: Greenville County Treasurer. $2,952,725 3,129,432 1,777,710 2,413,925 -46- Total $112,591,439 121,281,499 130,313,680 148,244,682 Ten Largest Taxpayers The ten largest taxpayers in the School District, the estimated assessed value for the taxable property located within Greenville County of each of these taxpayers, and the amount of fiscal year 2003 School District taxes (for both operational and debt service purposes) paid by each of these taxpayers for taxable property in Greenville County and the percentage of the School District taxes paid for taxable property in Greenville County to total School District taxes levied (for both operational and debt service purposes) in the School District are shown below. Taxpayer Assessed Valuation School District Taxes Paid1 Duke Power BellSouth Telecom Cryovac, Inc. Michelin North America Piedmont Natural Gas Simon Haywood LLC Charter Communications Verdae Properties Inc. Cellco Partnership Hitachi Electric $30,721,910 21,863,140 11,390,740 6,724,680 6,003,690 4,814,030 4,425,460 4,076,630 4,048,260 3,613,360 $4,339,506 3,093,498 1,595,843 942,128 841,117 674,446 620,007 571,116 567,161 506,274 Totals $97,681,900 ________________________ 1 Includes Fee-in-Lieu of tax payments. Source: Greenville County Auditor. $13,751,096 % of Adjusted Tax Levy Millage History All residents of the School District pay property taxes to their respective counties and to the School District. Presented below is the millage history for School District taxes broken down into Operations and Debt Service for the past five fiscal years and the current fiscal year. Operations1 Debt Service 1999 2000 2001 2002 2003 95.1 39.5 99.1 42.5 103.1 42.5 96.4 42.5 97.6 42.5 Total 134.6 141.6 145.6 138.9 140.1 ________________________ 1 See “FINANCIAL AND TAX INFORMATION - Limitation on Annual Tax Levy” herein. 2 Preliminary. Source: Greenville County Auditor. 20042 101.6 42.5 144.1 Building Aid The State in the past funded a portion of the cost of constructing new buildings, making capital repairs and renovations to existing buildings, and other improvements. The State allocated to each school district the sum of $30 per pupil for grades 1-12 and $15 per kindergarten pupil on an annual basis. For fiscal year 2001, the sum of $1,173,585 was set aside for the School District. However, during the budget process at the state level for fiscal year 2002, this source of funds was eliminated from the budget. Accordingly, for fiscal year 2002, the School District is projected to receive no funding from this source. [UPDATE] -47- The following table shows the general school building funds and EIA Building Aid Program funds received or expected to be received by the School District in the years indicated. Fiscal Year 1999 2000 2001 2002 2003 2004 General Building Funds $1,294,614 1,334,994 1,173,585 677,955 ----- EIA Building Funds $ --1,051,406 --18,995 ----- South Carolina Educational Assistance Endowment Fund In 1995, the South Carolina General Assembly enacted provisions to establish an Educational Assistance Endowment Fund to be funded initially from revenues derived from the extension of operations of a low-level nuclear waste disposal facility located in Barnwell, South Carolina. Seventy percent of the funds deposited to the Endowment are required to be used for Public School Facilities Improvement with the balance being applied to Higher Education Scholarship Grants. The Endowment is to be managed so that its programs will be permanently funded from the amounts deposited therein. Funds must be used for permanent school instructional facilities and fixed equipment, but school districts may use their allocations for debt service related to school facility financings once all construction and renovation needs identified in a school district’s facility improvement plan have been met. Annual allocations may be accumulated for up to seventy-two months. The amount made available to school districts for facilities needs is to be divided and allocated on four factors: (1) thirty-five percent is to be allocated according to population, using weighted per pupil units; (2) thirty-five percent is to be allocated according to the preceding year’s EFA formula; (3) fifteen percent is to be allocated based on a standardized assessment of needs based on a uniform estimate of costs; and (4) fifteen percent is to be allocated based on the efforts of school districts to meet their facilities needs, measured by their prior five-years’ performance. A school district’s allocation is the sum of these four amounts. The establishment of the Endowment and its operations were expected to have a significant impact on the funding of school building construction in South Carolina and the degree of reliance on local property taxes as a means of funding those improvements. The School District was allocated $2,732,589 under this program during fiscal year 1999, $2,413,860 during fiscal year 2000, $688,194 during fiscal year 2001, $2,890,553 during fiscal year 2002, and $1,453,790 during fiscal year 2003. State School Facilities Bonds In 1999, the State School Facilities Bond Act was enacted, providing for the issuance of $750,000,000 in general obligation bonds of the State to provide funds to local school districts. The first series of bonds was issued in the first half of calendar year 2000 in the amount of $250,000,000, and the second series of bonds in the same amount was issued in early 2001. The Act provides that all of the bonds are to be issued within four years of enactment. The funds are to be allocated to individual school districts under rules developed by the State Department of Education in accordance with the formula described herein under “FINANCIAL AND TAX INFORMATION - South Carolina Educational Assistance Endowment Fund.” The School District received $63,932,856 in funds under this program during fiscal year 2002. Fringe Benefits, Retirement, and Health Insurance The School District contributes to the South Carolina Retirement System (the “System”), a cost-sharing, multipleemployer, defined benefit pension plan. The System provides both retirement and death benefits on an employee and employer contribution basis. Member employees currently contribute 6% of their annual compensation. Employer contribution is 10.85% of the total membership’s annual compensation, and the entire cost of group life insurance for covered employees is included at the rate of 0.15%. Total employer retirement contributions to the System paid on behalf of the School District amounted to $23,741,361 for the fiscal year ended June 30, 2001, $24,335,900 for the fiscal year ended June 30, 2002, and $25,412,280 (unaudited) for the fiscal year ended June 30, 2003, and are estimated to be $25,793,500 for the fiscal year ending June 30, 2004, based on an employer contribution rate of 11%. -48- The School District also provides comprehensive group health insurance through the State Employees Group Plan administered by Blue Cross-Blue Shield of South Carolina, Companion Choices, Cigna POS, and Upstate Partners. Employees are eligible for the State of South Carolina Dental Program administered by Harrington Benefit Services. The School District also offers a cancer policy, a term basic, optional, and dependent life insurance policy, an accidental death and dismemberment policy, and a supplemental hospital plan. Employer’s contributions are made on behalf of the employees at fixed rates. Health and dental insurance contributions to the System paid on behalf of the employees totaled $21,001,310 for the fiscal year ended June 30, 2001, $23,146,279 for the fiscal year ended June 30, 2002, and $24,325,500 (unaudited) for the fiscal year ended June 30, 2003, and are expected to be $26,750,000 (based on a 20% increase) for the fiscal year ending June 30, 2004. The School District has paid all required contributions for fringe benefits and insurance as they have come due, and there are no liabilities for underfunding of such benefits. Liability Insurance Subject to specific immunity set forth in the South Carolina Tort Claims Act, local governments including the School District are liable for damages not to exceed $250,000 per incident/person and $500,000 per occurrence/aggregate. These limitations were raised to $300,000 and $600,000, respectively, for causes of action occurring on and after July 1, 1998. No punitive or exemplary damages are permitted under the Tort Claims Act. Insurance protection to units of local government is provided from either the South Carolina Insurance Reserve Fund established by the State Budget and Control Board, private carriers, self-insurance, or pooled self-insurance funds. The School District currently maintains liability insurance coverage with St. Paul Mercury Insurance Company. In the opinion of the Superintendent, the amount of liability coverage maintained by the School District is sufficient to provide protection against any loss arising under the Tort Claims Act. In the opinion of legal counsel for the School District, there is no litigation pending or threatened against the School District that is not adequately insured by such coverage. Effective July 1, 2001, the School District self-insured its workers’ compensation program. DEBT STRUCTURE Legal Debt Limit of the School District The School District is authorized by law to incur general obligation indebtedness and may also contract for the acquisition of capital assets through lease-purchase agreements subject to annual appropriation termination clauses. The School District has issued general obligation bonded indebtedness as described below. Payment on debt service of the School District’s obligations is handled by the Greenville County Treasurer. The School District has a limit on the amount of general obligation debt it may incur from and after November 30, 1982, equal to 8% of the assessed valuation of property within its jurisdiction. Indebtedness outstanding on November 30, 1982, and any refunding thereof, and any indebtedness approved in a referendum or any refunding thereof is excluded from the limit. Also excluded from the debt limit is debt issued in anticipation of the collection of ad valorem taxes. -49- The School District’s general obligation bonded debt limitation as of September 15, 2003, is computed below: Assessed Value1 $1,573,306,778 x 8% 125,864,542 70,000,0002 Constitutional Debt Limit Outstanding Debt Subject to Limit General Obligation Debt Available Without Referendum $ 55,864,542 ________________________ 1 As of December 31, 2002; includes Merchants’ Inventory in the amount of $26,827,600. 2 This debt matures by June 1, 2004. See “DEBT STRUCTURE - Outstanding Indebtedness and - Composite Debt Service” herein. Outstanding Indebtedness The following table gives specific information concerning all general obligation debt of the School District outstanding as of September 15, 2003. Date of Issue Date of Final Maturity Original Amount Issued Amount Outstanding as of September 15, 2003 9/11/2003 6/1/2004 $70,000,000 $70,000,000 Composite Debt Service The following table sets forth the debt service requirements as of September 15, 2003, for all outstanding general obligation indebtedness of the School District. Fiscal Year Ending June 30 Principal 2004 $70,000,000 Interest Total General Obligation Debt Service Non-Voted General Obligation Debt Capacity1 $3,033,333.33 $73,033,333.33 $125,864,542 ________________________ 1 Principal amount of general obligation debt that can be issued without a referendum under the School District’s 8 percent debt limitation. Legal Debt Limit of Counties, Incorporated Municipalities, and Special Purpose Districts Under the provisions of Article X, Section 14 of the South Carolina Constitution, each county, incorporated municipality, and special purpose district may, in such manner and upon such terms and conditions as the General Assembly shall prescribe by general law, incur general obligation debt authorized by a majority vote of the qualified electors thereof voting in a referendum, without limitation as to amount, and incur, without an election, general obligation debt (in addition to bonded indebtedness existing on November 30, 1977, and bonded indebtedness authorized by a majority vote of qualified electors) in an amount not exceeding 8% of the assessed value of all taxable property therein. Overlapping Debt The following table sets forth the assessed value as of December 31, 2002 (or some other date as indicated) of all taxable property in each political subdivision having outstanding general obligation debt that overlaps the School District, either in whole or in part; the total amount of general obligation indebtedness of each such political subdivision that was outstanding after August 1, 2003; and the percentage of each political subdivision’s assessed value within the School District to that political subdivision’s total assessed value. -50- Estimated Assessed Value Within the School District General Obligation Indebtedness % of Entity’s Total Assessed Value Located in the School District Political Subdivision Counties: Greenville County1 $1,531,148,780 $47,973,571 100.00% Laurens County2, 10 22,477,317 12,397,584 14.20 Spartanburg County9 19,680,681 49,880,000 Incorporated Municipalities: Greenville3 13,815,000 100.00 Greer (Portion in School District)4 3,810,000 100.00 Mauldin 3,230,000 100.00 Simpsonville5 2,920,000 100.00 Special Purpose Districts: Berea Public Service District 830,000 100.00 Boiling Springs Fire District 949,446 100.00 Gantt Fire, Sewer, and Police District 2,236,938 100.00 Greenville Recreation District6 245,000 100.00 Greenville Memorial Auditorium District7 10,910,000 100.00 Laurens County Health Care System10 22,237,232 14,860,000 14.20 Pelham-Batesville Fire District 1,101,544 Startex-Jackson-Wellford-Duncan Water District9 3,300,000 2.02 Wade Hampton Fire and Sewer District 124,809 100.00 Special Tax/Fire Districts: Belevedere Fire District 83,854 Glassy Mountain Fire District8 30,000 100.00 Mauldin Fire District8 210,000 100.00 South Greenville Fire District 590,000 100.00 Tigerville Fire District8 283,571 100.00 Upper Paris Mountain Special Tax District8 40,000 100.00 ________________________ 1 Excludes Certificates of Participation in the amount of $45,700,000. The above totals for Greenville County include bonds outstanding for the following special taxing districts: $30,000 for the Glassy Mountain Fire District; $210,000 for the Mauldin Fire District; $283,571 for the Tigerville Fire District; $40,000 for the Upper Paris Mountain Fire District. 2 Includes $1,133,644 issued by Laurens County for the Laurens County Fire Protection District. 3 Excludes Tax Increment Bonds in the amount of $29,590,000. 4 Excludes Tax Anticipation Notes in the amount of $1,900,000 and Tax Increment Bonds in the amount of $880,000. 5 Excludes Certificates of Participation in the amount of $4,335,000. 6 Excludes General Obligation Bonds in the amount of $1,800,000 anticipated to be issued August 21, 2003. 7 Excludes Certificates of Participation in the amount of $42,065,000. 8 Included in Greenville County debt. 9 Value as of 12/31/03. 10 Value as of 6/30/03. Source: City, County, and School District officials; South Carolina Municipal Council. NOTE: The above figures do not include installment debt (except as otherwise noted), tax increment debt, revenue bonds, bond anticipation notes, or tax anticipation notes. Miscellaneous Debt Information The School District has not defaulted in the payment of principal or interest, or in any other material respect, with respect to any of its securities at any time within the last 25 years, nor has the School District within such time issued any refunding bonds for the purpose of preventing a default in the payment of principal or interest on any of its securities then outstanding. The School District has not used the proceeds of any bonds or other securities (other than tax anticipation notes) for current operating expenses at any time within the last 25 years. -51- LEGAL MATTERS Pending Litigation The School District, like other similar bodies, is subject to a variety of suits and proceedings arising in the ordinary conduct of its affairs. The School District, after reviewing the current status of all pending and threatened litigation with its counsel, C. Wade Cleveland, Esquire, believes that, while the outcome of litigation cannot be predicted, the final settlement of all lawsuits and proceedings that have been filed and of any actions or claims pending or threatened against the School District or its officials in such capacity are adequately covered by insurance or self-insurance reserves maintained by the School District or will not have a material adverse effect upon the financial position or results of operations of the School District. There is no litigation now pending or, to the knowledge of the Issuer or the School District, threatened that restrains or enjoins the issuance or delivery of the Series 2003 Bonds, the provision of the security for the payment of the Series 2003 Bonds, or the use of the proceeds of the Series 2003 Bonds or that questions or contests the validity of the Series 2003 Bonds or the proceedings and authority under which they are to be issued. Neither the creation, organization, or existence of the Issuer or the School District, nor the title of the present members or other officials of the Issuer or the School District to their respective offices, is being contested or questioned. There is no litigation pending or, to the knowledge of the Issuer, threatened that in any manner questions the right of the Issuer to enter into the Trust Agreement, the Base Lease, or the Facilities Agreement or to secure the Series 2003 Bonds in the manner provided in the Trust Agreement. No litigation and no proceedings are pending against the School District or its officials, or to their knowledge are threatened, that would affect the sale of the Series 2003 Bonds, the security therefor, or the ability of the School District to enter into and perform its obligations under the Facilities Agreement or the Base Lease. Settled Litigation On August 20, 2001, Edward D. Sloan, Jr., individually and as a taxpayer of the School District and on behalf of others similarly situated, filed suit in the Court of Common Pleas of Greenville County, South Carolina against the School District and the Issuer and their respective Chairmen. Mr. Sloan alleged in his Complaint, among other things, that (1) the Issuer is the alter ego of the School District, and, as a consequence, (a) the Prior Bonds are subject to the School District’s constitutional debt limitation contained in Article X, Section 15(6) of the South Carolina Constitution, and (b) the Issuer is subject to the requirements of the South Carolina Freedom of Information Act and all other laws that apply to the School District, including the School District’s Procurement Code, and (2) the Facilities Agreement constitutes a “financing agreement” within the meaning and intent of Section 11-27-110 of the South Carolina Code. Mr. Sloan prayed in his Complaint for a Declaratory Judgment in his favor that would find, among other things, (1) the Issuer is the alter ego of the School District, (2) the Prior Bonds are invalid because they are in excess of the School District’s constitutional debt limitation contained in Article X, Section 15(6) of the South Carolina Constitution, (3) the Facilities Agreement is invalid because it violates the limitations placed on “financing agreements” by Section 11-27-110 of the South Carolina Code, and (4) the Issuer is subject to all of the laws of South Carolina that are applicable to the School District, including the South Carolina Freedom of Information Act and the School District’s Procurement Code. Article X, Section 15(6) of the South Carolina Constitution provides that the School District may not incur “general obligation debt” in excess of 8 percent of the assessed value of taxable property within the School District, unless such general obligation debt is authorized by a majority of the voters of the School District voting in a referendum thereon. If the Series 2003 Bonds and the Prior Bonds were determined to be subject to this constitutional debt limitation, their issuance would cause the School District to exceed this 8 percent constitutional debt limitation. Section 11-27-110 of the South Carolina Code provides that the School District may not enter into a “financing agreement” if the principal balance of such financing agreement, when added to the outstanding amount of all other such financing agreements and the outstanding amount of bonded indebtedness the School District incurred without a referendum, exceeds 8 percent of the assessed value of taxable property within the School District, unless such financing agreement is approved by a majority of the voters of the School District voting in a referendum thereon. If the Facilities Agreement were determined to constitute a “financing agreement” within the meaning of Section 11-27-110 of the South Carolina Code, its execution would cause the School District to exceed this 8 percent statutory limitation on financing agreements. Section 11-27-110 of the South Carolina Code defines a “financing agreement” to mean any contract under the terms of which the School District acquires the use of an asset and that provides: -52- (a) for payments to be made in more than one fiscal year, whether by the stated term of the contract or under any renewal provisions, optional or otherwise; (b) that the payments thereunder are divided into principal and interest components or which contain any reference to any portion of any payment under the agreement being treated as interest; and (c) that title to the asset will be in the name of or be transferred to the School District if all payments scheduled or provided for in the financing agreement are made. The Circuit Court Judge ruled on December 7, 2001, in response to the parties’ motions for summary judgment, that as a matter of law (1) the Issuer is not the alter ego of the School District, (2) the Prior Bonds do not violate the School District’s constitutional debt limitation contained in Article X, Section 15(6) of the South Carolina Constitution, because (a) the Issuer is not the alter ego of the School District and (b) the Prior Bonds do not constitute “general obligation debt” within the meaning of this constitutional provision, (3) the Facilities Agreement does not constitute a “financing agreement” within the meaning of Section 11-27-110 of the South Carolina Code and accordingly is not subject to the limitations placed on “financing agreements” by Section 11-27-110 of the South Carolina Code, because neither (b) nor (c) of the three elements of the definition of “financing agreement” are met, and (4) the Issuer is subject to the South Carolina Freedom of Information Act but is not subject to the School District’s Procurement Code. On January 4, 2002, Mr. Sloan appealed the order of the Circuit Court Judge to the Court of Appeals of South Carolina, and on February 5, 2002, the Supreme Court of South Carolina took jurisdiction of this appeal pursuant to a motion filed by the School District to transfer jurisdiction to the Supreme Court to hear the case. Subsequently, the parties agreed to settle the case and jointly moved before the Supreme Court on a Joint Motion for an Order approving the settlement terms and dismissing the appeal with prejudice. The Supreme Court issued an Order on February 20, 2002, granting the foregoing Joint Motion of the parties, prior to the issuance of the Prior Bonds on March 25, 2002. Mr. Sloan agreed to the dismissal in consideration of, among other things, the Issuer's agreement that it would comply with the School District's Procurement Code. The Project Manager had previously agreed in the Project Agreement to comply with the School District's Procurement Code in performing any procurement activities as agent of the Issuer or the School District in connection with the Capital Projects. Although the Issuer and the School District intend to assert, if another taxpayer lawsuit is filed, that the order of the Circuit Court Judge described above will preclude any other taxpayer of the School District from challenging the validity of the Series 2003 Bonds or the Facilities Agreement, no assurance can be given that this order (1) will prevent any taxpayer, other than Mr. Sloan, from filing suit in the future against the same defendants and asserting the same claims or (2) will bind a future court hearing such claims to reach the same legal conclusions. If another taxpayer were to file a lawsuit against the Issuer and the School District on issues similar to those brought by Mr. Sloan, the Issuer and the School District intend to assert that the judgment and settlement in the case initiated by Mr. Sloan, who brought his suit as a citizen, resident, taxpayer, and registered-elector of Greenville County, South Carolina and the School District, and on behalf of others similarly situated, will be binding upon all taxpayers similarly situated as identical parties, insofar as to bar such taxpayers from maintaining a subsequent similar proceeding under the doctrine of res judicata. In light of the paucity of precedent, however, it is possible (1) that resolution of Mr. Sloan’s case may not prevent any other taxpayer from filing suit in the future against the same defendants and asserting the same claims and (2) that a future court may determine that such claims are not barred by res judicata. See Appendix C hereto for the proposed form of Bond Counsel’s unqualified approving legal opinion, which states, among other things and subject to customary exceptions, that the Series 2003 Bonds are legal, valid, and binding limited obligations of the Issuer and that the Facilities Agreement constitutes a valid and binding obligation of the School District and the Issuer, enforceable in accordance with its terms. It should be noted that it is not possible to predict with certainty the outcome of any litigation. In the event that a taxpayer, other than Mr. Sloan, were to file a complaint in an appropriate court asserting the same or similar claims as described above, or challenging the validity and enforceability of the Series 2003 Bonds or the Facilities Agreement, there is no guarantee or certainty that such claims would be prohibited from being brought or that the outcome of any such future claims or litigation would result in favor of the Issuer and the School District or that a court would reach the same conclusion that the court reached in the above-described litigation. The opinion of Bond Counsel to be delivered upon the issuance and delivery of the Series 2003 Bonds does not guarantee the outcome of any such future claims or litigation. If subsequent plaintiffs were to ultimately prevail in a court of final jurisdiction on claims that the Series 2003 Bonds or the Facilities Agreement were not valid and enforceable obligations of the Issuer or the School District, there can be no assurance given that the owners of the Series 2003 Bonds will receive any payment of principal of or interest on the Series 2003 Bonds, or that any of the proceeds of the Series 2003 Bonds may be -53- reclaimed or otherwise made available for payment of the Series 2003 Bonds, or if payment is made that the portion of such payment attributable to interest will not be included in gross income under the Tax Code. Opinion of Attorney General The Office of the Attorney General of the State of South Carolina issued a letter dated November 13, 2000, in which it concluded that the Facilities Agreement is not a “financing agreement” within the literal meaning of Section 11-27-110 of the South Carolina Code, but cautioned that a court could reach a contrary conclusion by applying the broader intent (rather than the literal language) of the statute to the Facilities Agreement and recommended that a prudent course of action would be to obtain court approval of the Facilities Agreement. Opinion of Bond Counsel Legal matters incident to the authorization, validity, and issuance of the Series 2003 Bonds are subject to the unqualified approving opinion of McGuireWoods LLP, Columbia, South Carolina, Bond Counsel, whose opinion will be available at the time of delivery of the Series 2003 Bonds. It is anticipated that the approving opinion will be in substantially the form attached hereto as Appendix C. The opinions to be delivered concurrently with the delivery of the Series 2003 Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of parties to the transaction, nor does the rendering of the opinion guarantee the outcome of any legal dispute that may arise out of the transaction or subsequent to the transaction. In addition, and as is stated in the form of the approving opinion of Bond Counsel, the rights of the registered owners of the Series 2003 Bonds and the enforceability of the Series 2003 Bonds, the Trust Agreement, the Facilities Agreement, and the Base Lease may be subject to, among other things, judicial discretion and to bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors’ rights generally and by equitable principles, whether considered at law or in equity. Federal Tax Treatment. In the opinion of Bond Counsel, to be delivered at the time of the original issuance of the Series 2003 Bonds, under existing laws, interest on the Series 2003 Bonds is excludable from gross income of a recipient thereof for federal income tax purposes. Bond Counsel is further of the opinion that interest on the Series 2003 Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations under the Internal Revenue Code of 1986, as amended (the “Code”); however, interest on the Series 2003 Bonds will be taken into account in determining adjusted current earnings of certain corporations (as defined for federal income tax purposes) and such corporations are required to include in the calculation of alternative minimum taxable income 75% of the excess of such corporation’s adjusted current earnings over its alternative minimum taxable income (determined without regard to this adjustment and prior to reduction for certain net operating losses). The Code imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal tax purposes of interest on obligations, such as the Series 2003 Bonds. Bond Counsel’s opinion is given in reliance on certifications by representatives of the Issuer and the School District as to certain facts material to the opinion and the requirements of the Code. The Issuer and the School District have covenanted in the resolutions authorizing the issuance and delivery of the Series 2003 Bonds to comply with certain guidelines designed to assure that interest on the Series 2003 Bonds will not become includable in gross income of the recipients thereof for federal income tax purposes. Failure to comply with these covenants may result in interest on the Series 2003 Bonds being included in gross income from the date of issue of the Series 2003 Bonds. The opinion of Bond Counsel assumes compliance with these covenants. No other opinion is expressed by Bond Counsel regarding the federal tax consequences of the ownership of or the receipt or accrual of interest on the Series 2003 Bonds. Although Bond Counsel has rendered an opinion that interest on the Series 2003 Bonds is excludable from gross income for federal tax purposes, prospective purchasers of the Series 2003 Bonds should be aware that ownership of the Series 2003 Bonds and the accrual or receipt of interest on the Series 2003 Bonds may result in collateral federal income tax consequences to certain taxpayers, some of which are described below under “LEGAL MATTERS - Collateral Federal Tax Consequences.” The extent of these other tax consequences will depend upon the recipient’s particular tax status or other items of income or deduction. Purchasers of the Series 2003 Bonds, particularly purchasers that are corporations (including Subchapter S corporations and foreign corporations operating branches in the United States subject to the branch profits tax), property or casualty insurance companies, banks, thrifts, or other financial institutions, recipients of Social Security or Railroad Retirement benefits, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Series 2003 Bonds, are advised to consult their tax advisors as to the collateral tax consequences of purchasing or holding the Series 2003 Bonds. Bond Counsel expresses no opinion regarding any such consequences. -54- State Tax Treatment. In the opinion of Bond Counsel, to be delivered at the time of the original issuance of the Series 2003 Bonds, under existing laws, interest on the Series 2003 Bonds is exempt from all State of South Carolina, county, municipal, school district, and all other taxes and assessments, direct or indirect, general or special, whether imposed for the purpose of general revenue or otherwise, except inheritance, estate, or transfer taxes, provided that the interest thereon may be includable for certain franchise fees or taxes. General. Investors should consult their own tax advisors concerning the tax implications of holding and disposing of the Series 2003 Bonds under applicable federal, state, or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. Original Issue Discount and Premium Original Issue Discount. In the opinion of Bond Counsel, under existing law, the original issue discount in the selling price of each Series 2003 Bond maturing on December 1, ____ and thereafter (each, an “OID Bond”), to the extent properly allocable to each owner of such OID Bond, is excludable from gross income for federal income tax purposes with respect to such owner. The original issue discount is the excess of the stated redemption price at maturity of such OID Bond over the initial offering price to the public, excluding underwriters and other intermediaries, at which price a substantial amount of the OID Bonds of such maturity were sold. Under Section 1288 of the Code, original issue discount on tax-exempt OID Bonds accrues on a compounded basis. The amount of original issue discount that accrues to an owner of an OID Bond during any accrual period generally equals (1) the issue price of such OID Bond plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (2) the yield to maturity of such OID Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), less (3) any interest payable with respect to such OID Bond during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excludable from gross income for federal income tax purposes, and will increase the owner’s tax basis in such OID Bond. Any gain realized by an owner from a sale, exchange, payment, or redemption of an OID Bond will be treated as gain from the sale or exchange of such OID Bond. Prospective purchasers of the Series 2003 Bonds should consult their own tax advisors with respect to the determination for federal income tax purposes of original issue discount accrued with respect to such Series 2003 Bonds as of any date, with respect to the accrual of original issue discount for such Series 2003 Bonds purchased in the secondary market, and with respect to the state and local tax consequences of owning such Series 2003 Bonds. Original Issue Premium. The initial public offering prices of the Series 2003 Bonds maturing on December 1, ____, December 1, ____, through December 1, ____, inclusive, and December 1, ____, through December 1, ____, inclusive (each, a “Premium Bond”), are greater than the amounts payable at maturity. An amount equal to the excess of the initial public offering price of a Premium Bond over its stated redemption price at maturity constitutes original issue premium and is amortized using constant yield principles, based on the owner’s yield to maturity. As original issue premium is amortized, the owner’s basis in such Premium 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 Premium Bond prior to its maturity. Even though the owner’s basis is reduced, no federal income tax deduction is allowed. Owners of Premium Bonds should consult their personal tax advisors with respect to the determination and treatment of original issue premium for federal income tax purposes and with respect to state and local tax consequences of holding Premium Bonds. Collateral Federal Tax Consequences Ownership or transfer of, or the accrual or receipt of interest on, the Series 2003 Bonds may result in collateral federal, state, or local tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with excess net passive income, individual recipients of social security or railroad retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers who may be eligible for the federal earned income tax credit, and taxpayers subject to franchise, estate, inheritance, gift, or capital gains taxes. Prospective purchasers of the Series 2003 Bonds should consult their tax advisors as to any such possible collateral tax consequences. Except to the extent covered in its legal opinion, Bond Counsel expresses no opinion regarding any collateral tax consequences. Prospective purchasers of the Series 2003 Bonds should consult their own tax advisors as to the status of interest on the Series 2003 Bonds under the tax laws of any state other than the State of South Carolina. Proposed legislation is considered from time to time by the United States Congress that, if enacted, would affect the tax consequences of owning -55- obligations such as the Series 2003 Bonds. Accordingly, prospective purchasers of the Series 2003 Bonds should be aware that future legislation may have an adverse effect on the tax consequences of owning the Series 2003 Bonds. Closing Certificates At closing of the sale of the Series 2003 Bonds by the Underwriter, the Issuer and the School District will each deliver to the Underwriter a certificate (1) that no litigation is pending or threatened against it that would have a material effect on the issuance or validity of the Series 2003 Bonds or the security for the Series 2003 Bonds or on its financial condition, and (2) that the information contained in this Official Statement relating to it does not contain any misstatement of a material fact and does not omit to state any material fact necessary to make the statements herein contained, in light of the circumstances under which they were made, not misleading. MISCELLANEOUS Ratings Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., have assigned ratings of “A1” and “AA-,” respectively, to the Series 2003 Bonds. The ratings reflect only the respective views of the rating agencies, and an explanation of the significance of each rating may be obtained from the rating agency furnishing such rating at the following addresses: Moody’s Investors Service, Inc., 99 Church Street, New York, New York 10007 and Standard & Poor’s Ratings Services, 55 Water Street, New York, New York 10041. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies, and assumptions of its own. There is no assurance that either or both of such ratings will remain unchanged for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agency furnishing the same, if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the liquidity and market price of the Series 2003 Bonds. Underwriting The Series 2003 Bonds will be purchased for re-offering at negotiated sale by the Underwriter from the Issuer at an aggregate purchase price of __________ percent of the principal amount of the Series 2003 Bonds plus accrued interest to the date of delivery. The Underwriter has entered into a Bond Purchase Agreement, which provides that the Underwriter will purchase all of the Series 2003 Bonds, if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2003 Bonds will be subject to various conditions contained in the Bond Purchase Agreement. The Underwriter intends to offer the Series 2003 Bonds to the public initially at the offering prices set forth on the cover page of this Official Statement, which offering prices may subsequently be changed from time to time by the Underwriter without any requirement of prior notice. The Underwriter has reserved the right to permit other securities dealers who are members of the National Association of Securities Dealers, Inc. to assist in selling the Series 2003 Bonds. The Underwriter may offer and sell the Series 2003 Bonds to certain dealers (including dealers depositing Series 2003 Bonds into investment trusts) at prices lower than the public offering prices set forth on the cover page of this Official Statement or otherwise allow concessions to such dealers who may re-allow concessions to other dealers. Any discounts or commissions that may be received by such dealers in connection with the sale of the Series 2003 Bonds will be deducted from the Underwriter’s underwriting profits. Financial Advisor The School District has employed A.G. Edwards & Sons, Inc., Atlanta, Georgia, as its Financial Advisor in connection with the issuance of the Series 2003 Bonds. Independent Auditors The general purpose financial statements of the School District as of June 30, 2002, and for the year then ended, attached hereto as Appendix A, have been audited by Greene, Finney & Horton, LLP, Greenville, South Carolina, independent certified public accountants, to the extent and for the period indicated in its report thereon, which appears in Appendix A. Such financial statements have been included herein in reliance upon the report of Greene, Finney & Horton, LLP. Pending Legislation Section 11-27-110(C) of the South Carolina Code presently provides that if the School District has outstanding any “financing agreement” on the date of issuance of any bonded indebtedness it may incur without a referendum (such as -56- general obligation bonds issued under its 8 percent constitutional debt limit), the amount of all such bonded indebtedness, when added to the principal balance of all “financing agreements” (within the meaning of such code section), must not exceed the School District’s 8 percent constitutional debt limitation unless such bonded indebtedness is approved by a majority of the voters of the School District voting in a referendum thereon. On March 21, 2001, Bill Number 3759 was introduced in the South Carolina House of Representatives and expired upon the adjournment of the 114th Session of the General Assembly on June 6, 2002. Bill Number 3759 would have amended the definition of “financing agreement” as used in Section 11-27-110(C) of the South Carolina Code in a manner that would cause the Facilities Agreement to be construed as a “financing agreement” within the meaning of Section 11-27-110(C) of the South Carolina Code. On August 22, 2001, Bill Number 782 was introduced in the South Carolina Senate and expired upon the adjournment of the 114th Session of the General Assembly on June 6, 2002. On August 27, 2001, a companion bill, Bill Number 4530, was introduced in the South Carolina House of Representatives and expired upon the adjournment of the 114th Session of the General Assembly on June 6, 2002. Bill Number 782 and Bill Number 4530 would have counted the principal amount of the Series 2003 Bonds in measuring the amount of debt outstanding against the School District’s 8 percent constitutional debt limitation. On March 27, 2003, Bill Number 3888 was introduced in the South Carolina House of Representatives and is presently pending in its Ways and Means Committee. If adopted in its present form, Bill Number 3888 may be construed to count the principal amount of the Series 2003 Bonds in measuring the amount of debt outstanding against the School District’s 8 percent constitutional debt limitation. As discussed in “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2003 BONDS - Source of Base Payments” herein, all payments by the School District to the Issuer pursuant to the Facilities Agreement are subject to and dependent on annual appropriations being made from time to time by the School District. The School District has covenanted and agreed in the Facilities Agreement to exercise its best efforts to issue its general obligation debt from time to time to provide funds to make Base Payments when due. The School District has also covenanted in the Facilities Agreement to take all steps necessary to maintain its capacity to issue general obligation debt that does not require voter approval, in amounts and at times sufficient to make Base Payments when due. If any of the pending legislation described above were to become law in its present form or if similar legislation were to be enacted in the future, the School District could be prevented from issuing its general obligation debt to fund Base Payments, notwithstanding its covenant contained in the Facilities Agreement to exercise its best efforts to issue such general obligation debt. The School District believes, however, based on the advice of counsel, that a court would likely determine that this legislation as applied to the School District may violate the provisions of the United States and South Carolina Constitutions that prohibit the South Carolina General Assembly from passing any law impairing the obligation of contracts. In addition, the School District expects, based upon, among other things, press reports quoting the Speaker of the South Carolina House of Representatives (who resides in the School District), that its plan to incur general obligation debt in the future to fund Base Payments will be “grandfathered” from the application of this pending legislation, if such pending legislation is enacted into law. Additional Information Use of the words “shall,” “must,” or “will” in this Official Statement in summaries of documents or laws to describe future events or continuing obligations is not intended as a representation that such event will occur or obligation will be fulfilled but only that the document or law contemplates or requires such event to occur or obligation to be fulfilled. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates or matters of opinion will be realized. Neither this Official Statement nor any statement that may have been made orally or in writing is to be construed as a contract with the owners of the Series 2003 Bonds. -57- RESPONSIBILITY FOR OFFICIAL STATEMENT The execution and delivery of this Official Statement, and its distribution and use by the Underwriter, have been duly authorized and approved by the Issuer and the School District. The contents of this Official Statement are the responsibility of the School District, except that the Issuer is responsible for the statements contained under the captions “THE ISSUER” and “PLAN OF FINANCING” and the information with respect to the Issuer appearing under the caption “LEGAL MATTERS - Pending Litigation and - Settled Litigation” herein, and, with the exception of the foregoing information for which the Issuer is responsible, the Issuer makes no representation as to the accuracy or completeness of any information contained herein. BUILDING EQUITY SOONER FOR TOMORROW (BEST) By: /s/ President THE SCHOOL DISTRICT OF GREENVILLE COUNTY, SOUTH CAROLINA By: /s/ Chair, Board of Trustees -58- APPENDIX A FISCAL YEAR 2002 FINANCIAL STATEMENTS OF THE SCHOOL DISTRICT The general purpose financial statements of the School District as of June 30, 2002, and for the year then ended, included as this Appendix A, have been audited by Greene, Finney & Horton, LLP, Greenville, South Carolina, independent certified public accountants, to the extent and for the period indicated in its report thereon, which appears in this Appendix A. Such financial statements have been included herein in reliance upon the report of Greene, Finney & Horton, LLP. [Remainder of Page Intentionally Left Blank] APPENDIX B DEFINITIONS AND SUMMARIES OF PRINCIPAL DOCUMENTS This Appendix B has been prepared by McGuireWoods LLP, Columbia, South Carolina, Bond Counsel. [Remainder of Page Intentionally Left Blank] APPENDIX C PROPOSED FORM OF LEGAL OPINION The proposed form of Legal Opinion included as this Appendix C has been prepared by McGuireWoods LLP, Columbia, South Carolina, Bond Counsel, and is substantially the form to be given in connection with the delivery of the Series 2003 Bonds. [Remainder of Page Intentionally Left Blank] SUMMARY OF CONTENTS 1 Page Introduction ............................................................ The Issuer ............................................................... The Series 2003 Bonds .......................................... Plan of Financing ................................................... Security and Sources of Payment for the Series 2003 Bonds ................................. The School District ................................................ Economic Characteristics ....................................... Financial and Tax Information ............................... Debt Structure ........................................................ Legal Matters ......................................................... Miscellaneous......................................................... Responsibility for Official Statement .................... Appendix A: Fiscal Year 2002 Financial Statements of the School District .............. A-1 Appendix B: Definitions and Summaries of Principal Documents ...........B-1 Appendix C: Proposed Form of Legal Opinion ......................C-1 $_______________* BUILDING EQUITY SOONER FOR TOMORROW (BEST) (SOUTH CAROLINA) Installment Purchase Revenue Bonds (The School District of Greenville County, South Carolina Project), Series 2003 OFFICIAL STATEMENT [DAC LOGO] No dealer, broker, salesman, or other person has been authorized to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations should not be relied upon as having been authorized by the Issuer, the School District, or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2003 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. The delivery of this Official Statement at any time does not imply that the information herein is correct as of any time subsequent to its date. 1 See detailed “TABLE OF CONTENTS” on pages (i) to (iii). UBS Financial Services Inc. Dated: ________, 2003 *Preliminary; subject to change.

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