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05-B Arbitrage Rebate ContractDRAFT J:\Attorney\Lisa\Resolutions\CiJRRENT\First Southwest - Arbitrage Contract Res.wpd July 18, 2002 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS, APPROVING AND AUTHORIZING THE EXECUTION OF AN AGREEMENT FORARBITRAGE REBATE COMPLIANCE SERVICES WITH FIRST SOUTHWEST ASSET MANAGEMENT, INC.; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE SUBJECT; AND DECLARING AN EFFECTIVE DATE. WHEREAS, the City of Paris, in connection with the sale and issuance of certain bonds, notes, certificates, or other tax-exempt obligations, will have the need to determine to what extent, if any, it will be required to rebate investment earnings of the proceeds of the bonds to the United States of America pursuant to the provisions of Section 148(f)(2) of the Internal Revenue Code of 1986; and, WHEREAS, First Southwest Asset Management, Inc. provides professional services necessary to effect such determination, and the City of Paris is desirous of securing the same; and, WHEREAS, the form ofthe Agreement for Arbitrage Rebate Compliance Services, attached hereto as Exhibit A, should, in all things, be approved, and the Mayor should be authorized to execute the same; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS: Section 1. That the findings set out in the preamble to this resolution are hereby in all things approved. Section 2. That the form of the Agreement for Arbitrage Rebate Compliance Services with First Southwest Asset Management, Inc., attached hereto as Exhibit A, for professional services to determine to what extent, if any, the City of Paris will be required to rebate investment earnings of the proceeds of certain bonds, notes, certificates, or other tax-exempt obligations to the United States of America pursuant to the provisions of Section 148(f)(2) of the Internal Revenue Code of 1986, be, and the same is hereby, approved. Section 3. That the Mayor be, and he is hereby, authorized and directed to execute, on behalf of the City of Paris, the Agreement for Arbitrage Rebate Compliance Services with First Southwest Asset Management, Inc., under the terms and conditions and in the form shown in Exhibit A, attached hereto. Section 4. That this resolution shall be effective from and after its date of passage. PASSED AND APPROVED this 12th day of August, 2002. Michael J. Pfiester, Mayor ATTEST: Mattie Cunningham, City Clerk APPROVED AS TO FORM: Larry W. Schenk, City Attorney AGREEMENT FOR ARBITRAGE REBATE COMPLIANCE SERVICES BETWEEN CITI' OF PARIS, TEXAS (Hereinafter Referred to as the "Issuer") AND FIRST SOUTHWEST ASSET MANAGEMENT, INC. (Hereinafter Referred to as "First SouthwesN") It is understood and agreed that the Issuer, in connecrion with the sale and delivery of certain bonds, notes, certificates, or other tax-exempt obligations (the `Bonds"), will have the need to determine to what extent, if any, it will be required to rebate certain investment eamiags (the aznount of such rebate being referred to herein as the `:9rbitrage Amount') from the proceeds of the Bonds to the United States of America pursuant to the provisions of Section 148(f)(2) of the Intemal Revenue Code of 1986, as amended (the "Code"). For purposes of this Agreement, the term "Arbicrage AmounY" includes paymen[s made under the election to pay penalty in lieu of rebate for a qualified cons7uction issue under Section 148(f)(4) of the Code. We aze pleased to submit the following proposal for consideration; and if the proposal is accepted by the Issuer, it shall become the agreement (the "AgreemenP") between the Issuer and First Southwest effective at the date of its acceptance as provided for herein below. This Agreement shall apply to all issues of tax-exempt Bonds delivered subsequent to the effecrive date of the rebate requirements under the Code, except for (i) issues which qualify for exceptions [o [he reba[e requirements in accordance with Section 148 of the Code and related Treasury regulations, or (ii) issues excluded by Ihe Issuer in writing in accordance with the further provisions hereof. Covenants of First Southwest 2. We agree [o provide our professiona( services in determining the Arbitrage Amount with regard to the Bonds. The Issuer will assume and pay the fee of Fust Southwest as such fee is set out in Appendix A attached hereto. First Southwest shall not be responsible for any extraordinary expenses incurred on behalf of Issuer.in connection with providing such pmfessional services, including any costs incident to li[iga[ion, mandamus ac[ion, test case or other similar legal actiocvs. 3. We agree to perform the following du[ies in connection with providing arbitcage rebate compliance services: a. To cooperate fully with the Issuer in reviewing the schedule of investments made by the Issuer with (i) proceeds from the Bonda, and (ii) proceeds of other funds of the Issuer which, under Treasury Regulations Sec[ion 1.148, or any successor regulations thereto, are subject to the rebate requirements of the Code; b. To perform, or cause to be performed, consistent with the Code aud the regulations promulgated thereunder, calculations to determine the Arbitrage Amount under Section 148(fl(2) of the Code; and C. To provide a.repoR to the Issuer specifying [he Arbitrage Amount based upon the investment schedule, the calculations of bond yield and investmen[ yield, and other information deemed relevant by Firs[ Southwest. In undertaking to provide the services set forth in paragraph 2 and this paragraph 3, Firs[ Southwest does not assume any responsibility for any record retention requirements which the Issuer may have under the Code or other applicable laws, it being understood that the Issuer shall remain responsible for compliance with any such record retention requirements. EXHIBIT g J Covenants of the Issuer 4. In connection with the perfonnance of the aforesaid duties, the Issuer agrees to the following: a. The fees due to First Southwest in providing arbitrage rebate compHance services shall be calculated in accordance wi[h Appendix A attached hereto. The fees will be payable upon delivery oF the report prepared by First Southwest for each issue of Bonds during the term of this Agreement. b. The Issuer will provide First Southwest a11 information regazding the issuance of the Bonds and the investment of the proceeds therefrom, and any other informauon necessary in connection with calculating the Arbitcage Amount. First Southwest will rely ou the informarion supplied by the Issuer without inquiry, it heing understood that First Sou[hwest will not conduct an audit or take any other steps to verify the acculacy or authenticity of the information provided by the Issuer. c. The Issuer will notify First Southwest in writing of the re[irement, prior to the scheduled ma[urity, of any Bonds included under the scope of this Agreement within 30 days of such retirement. This noti6cation is required to provide sufficient tune to comply with Treasury Regulations Section 1.148-3(g) which requues final paymen[ of any Arbitrage Amount wi[hin 60 days of the fmal retirement of the Bonds. Tn [he event the Issuer fails to notify First Southwest in a[imely manner as provided hereinabove, First Southwest shall have no further obligation or responsibility to provide any services under this Agreement with respect to such retired Bonds. 5. In providing the services set forth in this Agreement, it is agreed that First Southwest shall not incur any liabiliry for any eaor of judgment made in good faith by a responsible officer or officers thereof and, excep[ [o [he limited extent se[ forth in [his paragraph, shall not incur any liability for any other eirors or omissions, unless it shall be proved [hat such emor or omission was a result of the gross negligence or willful misconduct of said officer or officers. In the event a payment is assessed by the Internal Revenue Service due [o an error by First Southwest, the Issuer will be responsible for paying the conect Arbitrage Amount-and First SouthwesPs liability shall not exceed [he amount of any penalty or interes[ imposed on the ArbiVage Amount as a result of such eiror. Bonds Issued Subsequent to Initial Contract 6. The services contracted for under this Agreement will automatically extend to any additional Bonds (including financing lease obligarions) issued during the [erm of this Agreement, if such Bonds are subject to the rebate requirements under Section 148(f)(2) of the Code. In connection with the issuance of additional Bonds, the Issuer agrees to the following: a. The Issuer will notify First Southwest of any tas-ezempt fmancing (including £uiancing lease obligations) issued by the Issuer during any calendaz year of this Agreemen[, and will provide First Southwest with such infoanation regarding such Bonds as First Southwest may request in connection with its performance of the azbitrage rebate services contracted for hereunder. If such no[ice is not provided to First Southwest with regazd to a particular issue, First Southwest shall have no obligation to provide any services hereunder with respect to such issue. b. At the option of ffie Issuer, any additional Bonds [o be issued subsequent to the execution of this Agreemen[ may be excluded from the services provided for herein. In order to exclude an issue, the Issuer must no[ify First Southwest in wri[ing of their intent to exclude any specific Bonds from the scope of this Agreement, which exclusion shall be permanent for the full life of the Bonds; and after receipt of such notice, First Southwest shall have no obligation to provide any services under this Agreement with respect to such excluded Bonds. 2 Effective Date of Agreement 7. This Agreement shall bewme effective at the date of acceptance by the Issuer as set out herein below and remain in effect thereafter for a period of five (5) years from the date of acceptance, provided, however, that this Agreement may be terminated with or without cause by the Issuer or First Squthwest upon thirty (30) days' written notice ro the other party. In We event of such termination, it is understood and agreed that only tlie amounts due to First Southwest for services provided and extraordinary expenses incwred to and including the date of termination will be due and payable. No penalty will be assessed for [ermination of tlus Agceemen[. In the event this Agreement is terminated prior to the completion of iu stated tecm, all records provided to First Southwest with respect to the investment of monies by the Issuer shall be retumed to the Tssuer as soon as ptacticable following written request thereFor by Issuer. In addition, the parties hereto agree that, upon teratination of this Agreement, First Southwest shall have no continuing o6ligation to the Issuer regarding any services contemplated herein, regazdless of whe[her such services have previously been undertaken, completed or performed. Acceptance of Agreement 8. This Agreement is submitted in duplicate originals. When accepted by the Issuer, it, together with Appendix A attacLed hereto, will consti[ute the entire Agreement between the Issuer and First Southwest for the purposes and the considera[ion herein specified. Governing Law 9. This Agreement will be governed by and consvued in accordance with the laws of the State of Texas, without regard to its principles of conflicts of laws. Accevtance will be indicated on both copies and the retum of one executed coov to First Southwest. Respectfully submitted, FIRST WEST ASSET AGEMENT, INC. B Au[ho ed Representative Printed Name: Randee R. Wilson Da[e-I I i(o 1SSUER'S ACCEPTANCE CLAUSE The above and foregoing is hereby in all thittgs accepted and approved by on this the By- Authorized Representative day of Tide Printed Name APPENDiX A-FEES The Bonds to be covered initially under this conhact include all issues of tac-exempt bonds delivered subsequent to the effective dates of the rebate requuements, under the Code, except for issues which qualify for exceptions to the rebate requiremenu in accordance with Section 148 of the Code and celated Treasury regulations. The fee for each of tUe Bonds included in this contract shall be: Description Annual Fees Per Issue Per Computation Year (1) Base Fee Per Computation Year: $2,000 Additional Charges for Special Services Related to: Debt Service Reserve Funds $500 Commingled Funds $500 Transferred Proceeds $T0 Debt Service Fund Residual Calculations (Excess Tax Collections) $500 $100,000 Test for Debt Service Funds $500 Variable/Floating Rate Bond Issue $1,000 Yield Restriction Analysis/Yield Reduction Computation $500 Premium for Quick Turnaround (Preliminary or Final Numbers within 21 days or less) $500 Preparation of IRS Refund Request (2) Commercial Paper: Per allxated issue to perform azbitrage rebate computatioa $4•000 Penalty Calculations: Semiannual fee for each issue of Bonds re azcUess of issue size. $1,000 (1) A"Computation Yeu" represenu a one yeaz period from the delivery date of the issue to the date that is one calendar year after the delivery date, and each subsequent one-year period thereafrer. Therefore, if a calculation is required that covers more than one "computation year," the annua( fee is multiplied by the number of computation yeazs contained in the calculation being performed. For example, if the first calculation performed for an issue covers tluee computation years, the fee for that calculation would be t6ree times the annual fees stated above. (2) Fee based upon complexities involved and estimated time to complete request. EXPLANATION OF AD.iUSTMENTS TO BASE FEE Debt Service Reserve Funds. The authorizing dceuments for many revenue bond issues require that a separate fund be established (the "Reserve Fund") inro which either hond proceeds or revenues are deposited in an amount equal to some designated level, such as average annual deht service on all pariry bonds. This Reserve Fund is established for the benefit of the bondholders as additional sewrity for payment on the debt. In most instances, the balance in the Reserve Fund remains stable throughout [he life of the bond issue. Reserve Funds, whether funded with bond prceeeds or revenues, must be included in any calculations of rebate. 2. Commingled Fund Allocations. By definition, a commingled fund means that the proceeds of any particular bond issue have been deposited in a fund that contains amounts that aze not part of that bond issue. I[ is common for issuers to commingle bond proceeds with either operating revenues or other bond proceeds. The ubitrage regulations, while 4 permitting the commingling of tunds, require that bond proceeds be `carved-out" for purposes of calculating rebate. Interest must be allocated to the portion of the commingled Tund tha[ represents bond proceeds of [he issue in question. 3. Transferred Proceeds Calcularions. When a bond issue is refmanced (refunded) by another issue, special services relating to "transferred proceeds" calculations may bave to be performed. ~Under the regulations, when proceeds of a refunding issue aze used to pay principal on a prior issue, a pro rata portion of the refunded bond proceeds are treated as "transferred" ro the refunding issue. Although no funds aze physically transferred from one issue to another, it is often necessary to perform these calculations for rebate purposes. 4. Debt Service Fund Residual Calcularions. Because tax rates aze established using an eslimated collection percentage, the balance in the debt service fund (often referred to as the Interest & Sinking Fund) may exceed the aznount necessary to pay the current yeaz's debt service requirements. Any such excess amounts in a debt service fund must be treated as a"reserve fund," thereby subjecting the excess balance to the rebate requirements. To the extent that any amounts deposited in the debt service fund remain for more than thirteen months on a first-in, fust-out 6asis, tha[ excess is classified as a"reserve fund portion" un[il used for payment of debt service. Special services are requued ro complete these debt service fund residual calculations. Variable/Floating Rate Bond Issues. Special services are also required to perform the azbiuage rebate calculations for variable ra[e bonds. A bond is a variable rate bond if [he interest rate paid on the bond is dependent upon an index which is subject to changes subsequent to the issuance of the bonds. The computational requirements of a variable rate issue are more complex than those of a fixed rate issue and, accordingly, require signiFicantly more time ro calculate. For example, it is necessary to evaluate both a five-year yield as well as one-year yield increments [o determine which yield is most beneficial to the issuer. 6. Yield Restriction Analysis/Yield Reduction Computations. The Code provides that proceeds of a bond issue may not be invested above the yield on the bond unless an applicab(e exception applies which provides a temporary period during which prceeeds are not yield restricted. First Southwest provides analysis to determine the aznount of proceeds which must be yield restricted and provides computations ro verify that the proceeds have been properly restricted. In addition, the 1993 Treasury Regulations provide that a yield reduction payment may be made in lieu of yield restricting prceeeds. First Southwest will provide [he necessary computations to determine the amount of yield reduction payment which must be made. The fee for any Bonds under this contract shall only be payable if a computation is required under Section 148(f)(2) of the Code. In the event that any of the Bonds, fall within an exclusion to the computation requirement as defined by Section 148 of the Code or related regulations and no calculations were required by Ficst Southwest to make that detetxnination, no fee will be charged for such issue. For example, certain bonds are excluded from the rebate computation requirement if [he proceeds are spent within specific tune periods. In the event a particulaz issue af Bonds fulfills the exclusion requiremenLS oF the Code or related regulations, the specified fee will be waived by Fiist Southwest if no calculations were required to make [he deteanination. Recogni2ing that computational complexities are reduced when all or the majority of [he gtoss proceeds of an issue ue expended, it is Fust SouthwesYs policy to reduce fees to the following levels, as appropriate: Per issue fees for each circumstance i[emized below shall be: ❑ Proceeds expended in prior yeaz. Liability updated and report issued. $500 ❑ Debt Service Residual Calculation only. $1,250 ❑ Reserve Fund calculation only. $1,250 ❑ Escrow Fund only. $500 ❑ Rebate Fund only. $500 ❑ Yield RestricriodYield Reduction Computation only. $2,000 First SouthwesYs Fees are payable upon delivery of the repoR prepared by Ficst Southwest, the 5rst report to be made following one year from the date of delivery of the Bonds and on each computation date thereafter during the tean of the Agreement. The fees for compuhtions of the tlrbihage Amount wluch encompass more, or less, than one Computadon Yeaz o£ investment ~ da[a performed during the same computafion period shall be prornted to reflect the longer, or shor[er, period of work performed during that period. S:UtEBATESFiAREd\CONl'RACf%00mbeR.doc 6