1993-153- - J:\WPDOCS\ORD\SOUTHWEST.ORD
ORDINANCE NO. J
AN ORDINANCE AUTHORIZING THE CITY MANAGER TO EXECUTE AN AGREEMENT
WITH FIRST SOUTHWEST COMPANY FOR PROFESSIONAL SERVICES IN ACCOR-
DANCE WITH THE PROVISIONS OF STATE LAW EXEMPTING SUCH SERVICES FROM
REQUIREMENTS OF COMPETITIVE BIDS; PROVIDING FOR THE EXPENDITURE OF
FUNDS THEREFOR; AND PROVIDING AN EFFECTIVE DATE.
THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS:
SECTION I. That the City Manager is authorized to execute a
professional services contract between the City of Denton and First
Southwest Company relating to arbitrage rebate services, under the
terms and conditions of the contract attached hereto and made a
part hereof.
SECTION II. That the City Council hereby authorizes the
expenditure of funds in the manner and amount as specified in the
contract.
SECTION III. That this ordinance shall become effective
immediately upon its passage and approval.
PASSED AND APPROVED this the day of
1993.
ATTEST:
JENNIFER WALTERS, CITY SECRETARY
CASTLEBERRY,
BY: ►
0
APP OVED AS TO LEGAL FORM:
DEBRA A. DRAYOVITCH, CITY ATTORNEY
see
n
BY:
/I c
PROPOSAL AND AGREEMENT
FOR
ARBITRAGE REBATE COMPLIANCE SERVICES
BY AND BETWEEN
CITY OF DENTON, TEXAS
(Hereinafter Referred to as the "Issuer")
AND
FIRST SOUTHWEST COMPANY
It is understood and agreed that the Issuer, in connection with the sale and delivery of
certain obligations as listed in Appendix A attached hereto (the "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 Obligations to the United States of America (hereinafter referred to as
"Rebatable Arbitrage") pursuant to the provisions of Section 148(f)(2) of the Internal Revenue
Code of 1986 (the "Code"). We have been requested to provide professional services to the
Issuer as such services may be necessary to effect this determination and we are pleased to
submit the following proposal for consideration. This proposal, if accepted by the Issuer, shall
become the agreement (the "Agreement") between the Issuer and First Southwest Company
effective at the date of its acceptance as provided for herein below.
1. This Agreement shall apply to the Obligations described in Appendix A
attached hereto during the period in which this Agreement shall be effective.
Provisions of First Southwest Company
2. We agree to provide our professional services and our facilities in the
creation and maintenance of records useful to or necessary in the determination of
Rebatable Arbitrage with regard to the Obligations. The Issuer will assume and pay the
fee of First Southwest Company as such fee is set out in Appendix A attached hereto.
First Southwest Company shall not be responsible for any extraordinary expenses
incurred in connection with providing such professional services, including any costs
incident to litigation, mandamus action, test case or other similar legal actions; unless
First Southwest Company is a party to such litigation and a claim is asserted against First
Southwest Company for work performed under this Agreement.
3. We agree to perform the following duties in connection with providing
arbitrage investment rebate services:
a. To cooperate fully with the Issuer in reviewing the schedule of
investments made by the Issuer with (i) proceeds from the Obligations, and (ii)
proceeds of other funds of the Issuer which, under Regulations Section 1.148 or
Temporary Regulations Section 1.103-15AT(b)(6) or any successor regulations
thereto, are subject to the rebate requirements of the Code;
b. To perform, or cause to be performed, calculations no less
frequently than twice a year, consistent with the Code and the regulations
promulgated thereunder, regarding the amounts of Rebatable Arbitrage from the
investment of funds subject to the requirements of Section 148(f)(2) of the Code;
C. To assist the Issuer in preparing schedules, records or other
information necessary to enable First Southwest Company to perform the rebate
calculations as set forth in this Agreement;
d. To provide a report to the Issuer specifying the amount of
Rebatable Arbitrage based upon the investment schedule, the calculations of bond
yield and investment yield, and other information deemed relevant by First
Southwest Company.
Provisions of Issuer
4. In connection with the performance of the aforesaid duties, the Issuer
agrees to the following:
a. That First Southwest Company will be compensated for the
performance of services with respect to calculating and advising the Issuer of the
amount of Rebatable Arbitrage in accordance with the schedule set forth in
Appendix A attached hereto.
b. That the Issuer will provide First Southwest Company, and First
Southwest Company shall be entitled to rely upon, all information regarding the
issuance of the Obligations and the investment of the proceeds therefrom, and any
other information necessary in connection with calculating the amount of
Rebatable Arbitrage. In particular, the Issuer shall furnish to First Southwest
Company the information set forth in Appendix B attached hereto.
C. That the Issuer will inform First Southwest Company of the
retirement, prior to the scheduled maturity, of any Obligations included under the
scope of this Agreement within 30 days of such retirement. This notification is
required to provide sufficient time to comply with Section 1. 148-1 (b)(3)(H) of the
arbitrage regulations which requires final payment of any Rebatable Arbitrage
within 60 days of the final retirement of the Obligations.
2
5. In providing the services set forth in this Agreement, it is agreed that First
Southwest Company shall not incur any liability for any error of judgment made in good
faith by a responsible officer or officers thereof, unless it shall be proved that such error
of judgment was a result of the negligence or willful misconduct of said officer or
officers. First Southwest Company shall only be liable for penalty and interest resulting
from such error of judgment.
6. The fee and expenses due to First Southwest Company in providing
arbitrage investment rebate services shall be calculated in accordance with Appendix A
attached hereto. The fees will be payable annually upon delivery of the report prepared
by First Southwest Company for each Obligation during the term of the Agreement
unless terminated earlier.
Obligations Issued Subsequent to Initial Contract
7. The services contracted for under this Agreement will automatically extend
to any additional financing obligations (including financing lease obligations) issued
during the stated term of this Agreement, if such obligations are subject to the rebate
requirements under Section 148(f)(2) of the Code. In connection with extending the
scope of this Agreement to additional financing obligations, the Issuer agrees to the
following:
a. The Issuer will notify First Southwest Company of any financing
obligations (including financing lease obligations) issued by the Issuer during any
calendar year of this Agreement, and will provide First Southwest Company with
such information regarding such other obligations as First Southwest Company
deems necessary in connection with its performance of the arbitrage rebate
services contracted for hereunder.
b. At the option of the Issuer, any additional financing obligations
issued subsequent to the execution of this Agreement may be excluded from the
services provided for herein. The Issuer must notify First Southwest Company
in writing of their intent to exclude any specific financing obligations from the
scope of this Agreement.
Election to Pay Penalty in Lieu of Rebate
8. The services contracted for under this Agreement will automatically extend
to any additional financing obligations issued during the stated term of this Agreement,
if an election was made (prior to delivery of the Obligations) to pay penalty in lieu of
rebate for a qualified construction bond issue under Section 148(f)(2) of the Code. In
connection with extending the scope of this Agreement to include computations of
penalty, the Issuer agrees to the following:
3
a. The Issuer will notify First Southwest Company of any financing
obligations issued by the Issuer during any calendar year of this Agreement for
which a penalty election was made. The Issuer will provide First Southwest
Company with such information regarding the investment and expenditure of such
obligations as First Southwest Company deems necessary in connection with its
performance of the penalty calculation services contracted for hereunder.
b. At the option of the Issuer, any additional financing obligations
issued subsequent to the execution of this Agreement may be excluded from the
services provided for herein. The Issuer must notify First Southwest Company
in writing of their intent to exclude any specific financing obligations from the
scope of this Agreement.
Effective Dates of Agreement
9. This Agreement shall become effective at the date of acceptance by the
Issuer as set out herein below and remain in effect thereafter, provided, however, that
this Agreement may be terminated with or without cause by the Issuer or First Southwest
Company upon thirty (30) days' written notice. In the event of such termination, it is
understood and agreed that only the amounts due to First Southwest Company for
services provided and expenses incurred to and including the date of termination will be
due and payable. No penalty will be assessed for termination of this Agreement. In the
event this Agreement is terminated prior to its stated term, all records provided to First
Southwest Company with respect to the investment of monies by the Issuer shall be
returned to the Issuer as soon as practicable. In addition, the parties hereto agree that
upon termination of this Agreement First Southwest Company shall have no continuing
obligation to the Issuer regarding any service contemplated herein.
4
Acceptance of Agreement
10. This Agreement is submitted in duplicate originals. When accepted by the
Issuer, it, together with Appendices A and B attached hereto, will constitute the entire
Agreement between the Issuer and First Southwest Company for the purposes and the
consideration herein specified.
Acceptance will be indicated on both conies and the return of one executed copy to First
Southwest Company.
Respectfully submitted,
FIRST SOUTHWEST COMPANY
Authorized Representative
g-30 _TT
5
PLEASE CHOOSE AND EXECUTE THE APPROPRIATE OPTION
ACCEPTANCE CLAUSE
Acceptance Not Requiring Board Approval:
The above and foregoing is hereby in all things accepted and approved by the
on this the
(Issuer's Name)
19
By
Authorized Representative
Title
Acceptance Requiring Board Approval:
day of
The above and foregoing is hereby in all things accepted and approved by the
7ow&tC.L , on this the 31 e day of
(X°suer's Name) 046Aow
19 pursuant to the provisions of Re&@h*iea No.0 passed and
approv by the Members of the on
6
APPENDIX A
FEES
The Obligations to be initially covered under this contract are:
Closing
Date
Description
Maximum
Annual Fee
01/22/87
$500,000 Certificates of Obligation, Series 1987
$2,000
02/24/87
$17,485,000 Utility System Refunding, Series 1987
$2,000
05/26/87
$3,500,000 General Obligation, Series 1987
$2,000
03/08/88
$3,600,000 General Obligation, Series 1988
$2,000
09/06/88
$3,500,000 Utility System Revenue, Series 1988
$2,000
02/21/89
$3,615,000 General Obligation, Series 1989
$2,000
11/29/89
$20,000,000 Utility System Revenue, Series 1989
$2,000
11/29/89
$1,550,000 Certificates of Obligation, Series 1989A
$2,000
04/07/92
$1,325,000 Certificates of Obligation, Series 1992
$2,000
04/07/92
$2,630,000 General Obligation, Series 1992
$2,000
04/07/92
$4,500,000 Utility System Revenue, Series 1992
$2,000
02/23/93
$1,450,000 Certificates of Obligation, Series 1993
$2,000
04/20/93
$2,975,000 General Obligation, Series 1993
$2,000
[0:4:/2:0:/9:3::
$6,575,000 Utility System Revenue, Series 1993
$2,000
As funds are expended and the time required to complete the annual computations decreases,
First Southwest Company agrees to adjust the annual fee as follows:
7
Description
Annual Fee
Electronic
Data Transfer
Reduction
Minimum
Transactions
Reduction (1)
Construction and Reserve Fund
$2,000
($500)
($500)
Construction Fund only
$2,000
($500)
($500)
Reserve Fund only
$1,000
($250)
$0
All Funds spent - reports issued
$250
$0
$0
All Funds spent - no reports issued
$0
$0
$0
(1) Fee reduction for annual calculations which involve ten (10) or fewer investment
transactions per issue.
The fees for the above-captioned Obligations will only be payable if a computation is required
under Section 148(f)(2) of the Internal Revenue Code of 1986, as amended. In the event that
any of the above-captioned Obligations, or any other Obligations added subsequent to the date
of this Agreement, comply with an exclusion to the computation requirement as defined by
Section 148 of the Internal Revenue Code or related regulations, the specified fee will be waived
by First Southwest Company.
For example, certain obligations are excluded from the rebate computation requirement if the
proceeds are spent within specific time periods. In the event one of the above-captioned
Obligations fulfill the exclusion requirements of the Internal Revenue Code or related
regulations, the specified fee will be waived by First Southwest Company.
The fee for Arbitrage Rebate Compliance Services of any additional obligations to be added to
this contract shall be:
$2,000 for each issue of General Obligation or Revenue bonds, regardless of issue size;
$2,500 for each issue of Variable/Floating Rate bonds, regardless of issue size.
The above fees are payable annually upon delivery of the report prepared by First
Southwest Company, commencing one year after the date of delivery of the Obligations and on
each computation date thereafter during the term of the Agreement, unless terminated earlier.
The fees for computations of Rebatable Arbitrage which encompass more, or less, than one full
year of investment data performed during the same computation period shall be prorated to
reflect the longer, or shorter, period of work performed during that period.
The fee for Arbitrage Penalty Calculation Services contracted for under this Agreement shall be:
$1,000 semiannually for each issue of bonds, regardless of the type of issue.
8
APPENDIX B
INFORMATION REQUIRED TO PERFORM
REBATE COMPUTATIONS
The following information must be provided for each bond issue requiring an arbitrage rebate
calculation. Most of this information can be accumulated at the time the bonds are issued and
sent to First Southwest Company as part of the delivery of the bonds. We recommend that
information related to investment activity be forwarded on a periodic basis. This will allow First
Southwest Company to enter and review the investment detail in advance of the computation date
required under federal law. In this manner, the time required to complete the computation and
issue the related report can be reduced.
For each bond issue, please obtain the following information to be sent to First Southwest
Company:
Copy of Official Statement for the issue. If no Official Statement is prepared on the issue,
a copy of the bond resolution, indenture, ordinance or similar official transcript describing the
issue will be needed.
Copy of Winning Bid Form and Underwriter's Certificate as to Yields. This information
is only required when the bond issue was sold on a competitive basis. If the sale was
negotiated, the Final Official Statement normally provides the information required to properly
compute the arbitrage yield. If the issue was sold competitively, the winning bid form and
underwriter's certificate are needed to obtain information regarding the interest rates and initial
offering yields to the public.
Copy of Form 8038 (Informational Tax Form). This form is normally prepared by bond
counsel as part of the closing documents. A copy of this form must accompany any rebate
payments filed with the Internal Revenue Service.
Description of Funds created for the bond issue. To ensure that we have properly addressed
the distribution of all funds and the related arbitrage requirements, it is useful for us to obtain
a description of the various funds created by the bond issue. In the official documents
supporting the issuance of the bonds (e.g., Official Statement), there is normally a narrative
section outlining the funds for which bond proceeds and other monies may be deposited.
Copy of "No-Arbitrage Certificate." This certificate, although frequently called by another
name, describes the federal tax law requirements the Issuer must follow to comply with various
arbitrage laws. This document permits us to evaluate the specific tax compliance requirements
established by Bond Counsel at the time the bonds were issued.
9
Investment transaction information. The computation of the rebate amount for excess
investment earnings requires very detailed investment records. In order for us to compute the
rebate amount, it is necessary that you forward investment information which includes the
following data:
• Source of funds for purchasing the investment (e.g. Construction Fund, Reserve
Fund, Debt Service Fund),
• Description of security purchased,
• Date purchased,
• Maturity date,
• Maturity value of security (par value/face value),
• Purchase price of security showing both the cost of principal as well as any
accred interest paid,
• Coupon rate (Interest rate) and frequency of interest receipts,
• Yield to maturity (required for discount securities),
• Sale date, if sold prior to maturity,
• Sales price of both principal and interest, if sold prior to maturity.
The best documentation available for the information listed above are copies of the actual trade
confirmations provided when the security is purchased or sold. The trade confirmation should
contain all of the information we will require and should be the only documentation you would
have to provide us. If trade confirmations are not available, or are too cumbersome to
accumulate, your internal investment records would be sufficient for our purposes as long as the
information described above can be obtained from'your records.
Bank Statements for Interest-Bearing Checking Account. In many situations, an
interest-bearing checking account is used to hold maturing investments and miscellaneous fund
balances until the proceeds are either reinvested or used on a specific project. The rebate
computation requires that all funds related to a bond issue be tracked. It will be necessary
therefore, for us to obtain the monthly bank statements related to any interest-bearing checking
account in which bond proceeds or related funds were deposited.
If you have questions as to what would be the best source of information in your situation,
please do not hesitate to contact us.
10