GM-14-07-10-051 Form No. 148(fj;Revd I/30/03
AGREEMENT FOR
ARBITRAGE REBATE COMPLIANCE SERVICES
BETWEFIV
BRUSHY CREEK REGIONAL UTILITY AUTHORITY,INC.
(H¢r¢iaaft¢r Referred to as the"Issuer'
AND
FII2ST SOUTHWEST ASSET MANAGEMENT,ING
(II¢r¢maft¢r Referred to as"First Southwest")
$91,180,000 BRUSRY CREEK REGIONAL UTILITY AUTHORITY,INC_—CITY OF LEANDEA,TEXAS,
CONTRACT REVENUE BONDS BRUSHY CREEK REGIONAL WATER 8c TREATMENT DISTRIBUTION
PROJECT),SERIES 2009
$24,970,000 BRUSHY CREEK REGIONAL UTII.ITY AUTHOI21'I'Y,INC.—CITY OF CEDAR PAIIIC,TEXAS,
CONTRACT REVENUE BONDS(BRUSHY CREEK REGIONAL WATER 8e TREATMENT DISTRBIUTION
PROJECT),SERIES 2009
$65,870,000 BRUSHY CREEK REGIONAL UTII.ITY AUTHORITY,INC.—CITY OF ROUND ROCK,TEXAS,
CONTRACT REVENUE BONDS BRUSHY CREEK REGIONAL WATER Be TREATMENT DISTRIBUTION
PROJECT),SERIES 2009
It is understood and agreed the[the Issuer, in correction with the sale and delivery of certain bonds, notes, certificates, or
other tax-exempt obligations, indicated above (the"ObllgnHons'�, will haves the nand to determine[o what extent, if any, it
will be required to rebate certain investment earnings (the amount of such robate boring referred to herein as the'Arbitrage
AmoursP') from the proceeds of the Obligations [o Hae United States of America pursuant to Ura provisions of Section
348(i)(2) of the Internal Aewvue Coda of 1986, as amended (the "Code'. For putposes of this Agreement, the term
"Arbitrage Amount"includes payments made under Hue election to pay penalty in lieu of rebate for a qualified convtruction
issue under Section 148(f)C4)of the Coda.
We arc pleased to submit Hae following proposal for consideration; and if the proposal is a rxptad by the Issuer, it shall
become the agmement (the `S4gra¢naersY') between Hua Issuer evd Firs[ Southwest effedive at the date of its acceptance as
provided for heroin below.
1. This Agreement shall apply only to Hua Obligations,to the extent that the Obiigatlons do not qualify for excaptiovs to
Ura mbate requireaaants in accordance with Sectiov 148 of the Code and related Treasury regulations.
Covevante of First Southwest
2. We agree to provide our profeasiona3 services in de[ermixdng the Arbitrage Amount with regard to the Obligations.
The Issuer will assume and pay the Fee of First Southwest as such E e is net out in Appendix A attached hereto. First
Southwest shall not be responsible For any extraordinary expenses is urred on behalF of Issaaer in coraaection with
providing such professional services, including any costs incident to litigation,mandamus acfion, [est case or other
similar legal actions.
3. We agree to perForm the Following dutles in correction with providing arbitrage rebate compliance services:
a. To cooperate Fully with the Issuer in wing Ura schedule of investments made by the Issuer with (i)
proceeds from Hae Obligadotss, and (ii)tprocaada of other fiords of the Issuer which, under Treasury
Regulations Section 1.148, or any successor regulations thereto, are subject to the rebam mquiremmta of
the Code;
b. To per£ortn,or cause to be performed,consistent wiHa Hae Code and the regulations promulgated Uveruundar,
calculations to determine Ura Arbitrage Amount under Section 148(£)(2)of the Codc,and
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c. To provide a report to the Issuer specifying the Arbitrage Amount based sspon the investment schedule, the
calculations of bond yield and investment yield,and other ir[fonaarion deemed relevant by First Southwest.
Ea unde:rtaldng to provide the services set forth in paragraph 2 and this paragraph 3,First Southwest does
nota any responsibility For any record retention requtrernents which the Issuer may have under the
Codeaor other applicable laws, it being understood that the Issuer shall remain responsible for comptiance
with any such record retention requirements.
Covenants oY the Issuer
4. In connection with the performance v£the aforesaid duties,the Issuer agrees to the following:
a. The fees due to First Southwest in providing arbitrage rebate compliance services shall be calculated in
accordance with Appendix A attached hereto. Tine fees will be payable upon delivery o£the report prepared
by First Southwest for each issue of Obligations during the term o£this Agreement.
b. The Issuer will provide Firs< Southwest all in£ormatiov regarding the issuance o£the Obligations and the
investment of the proceeds therefrom, and nay other irrfbrmation necessary in comtection with calculating
the Arbitrage Amount Firsi Southwest will rely on the in£omaation supplied by the Issuer without inquiry,it
being understood that First Southwest will not conduct an audit or [aloe any other stops to verify the
acevracy or authenticity of the i�'ormatien provided by the Issuer.
c The Issuer will notify First Southwest in wilting of the retire enq prior to the scheduled maturity, of any
Obligations included under the scope o£this Agre ant within 30 days o£such retirement. This notification
required to provide suffiiciest fine to comply with Treasury Regulations Section 1.145-3(g) which
requires{1 payment of any Arbitrage Amount within 60 days o£the final retirement of the Obligations.In
the vent the Issuer £ails io notify First Southwest in a timely mevner as provided hemivabove, First
Southwest shall have no Iitrther obligation or respo�ibility to provide any services under this Agmement
with respect to such retired Obligations.
5. In providing the s net forth in this Agreement,i[is agreed that First Southwest shall not incur any liability£or
any error o£judgmeat made in good Taith by a responsibly officer or officere thereofand,except to the limited oxtent
set forth is this paragraph,shall not incur any liability for any other errors or omissions,unless i[shall be proved that
uch a result o£the Boss negligee willful misconduct of said olTicer or officers. In the
est a paym nt is a eased by the Internal Revenue Service due to an error by First Southwesq the Issuer will be
responsible £or paying the correct Arbitrage Amount and First Southwest's liabi3ity shall not exceed the amount of
any penalty or interest imposed on the Arbitrage Amount as a result o{such error.
Effective Date o£Agreement
6. This Agreement shall become effective at the date of acceptance by the Issuer as set out herein below and remain in
efRct thereafter for a period o£vac (1) c cutive twelve (12) month period from tkve date o£acceptance. The
agreement may be renewed{r£our(4)additional periods o£timq not to� sail twelve(12)months each,provided
both parties agru in writing prior to the expiration o£the existing agreement. This Agreement may be terminated
with or without cause by the Issuer or First Southwest upon thirty(30)days prior written notice to the other party. In
the Quant of such termination,it is understood and agreed [hat oNy the amounts due to First Southwest£or services
provided and extraordinary expanses incurred to and including the date o£termination will be due and payable. No
penalty will ba sed far termination of this Agreement In the rot this Agreement is [emriaated prior fo the
mpletion o£its stated term,all records provided[o First Southwest with respect to the investment o£moffies by the
Ise shall be rammed to the Zasuer as soon as practicable following written request by Issuer. In addition, the
parties hereto agree that,upon temmination of this Agrmment,First Southwest shall hove no continuing obligation to
the Ise regarding any arbitrage rebate related services contemplated herein, regardless o£whether such services
have previously been uvdertelren,completed or performed.
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Acceptance of Agreement
']. "ritis Ageement is submitted in duplicate originals. When a meted by the Issuer in accordance with the terms
hereof, i[, together with Appendix A attached hereto, will c �timta the entire Ageement between the Issuer and
First Southwest £or the purposes and the considetation heroin specified. In order for this Agreement fo become
aflcctive, it must b¢ accepted by the Issuer within sixty(60) days o{the date appearing blow the signature of First
Southwest's authorized representative hereon. After the expiration o£such 60-day period, acceptance by the Issuer
shall o�y become e8cctive upon delivery of written admowledgement and reafErmatien by First Southwest that the
terms and conditions act f rda in this Agreement remain acceptable w First Southwest.
l3¢v¢rning Law
8. This Agreement will be governed by and construed in accordanm with the laws of the State of Texas,wiUtout regard
to its principles of co�licts o£taws.
Acte tante will ated on bo send £ n ecuted co wear.
Respectfirlly submitted,
FIRST SOUTHWEST ASSET MANAGEMENT,1NC.
By�7.�-�����
Hill A.Feinb¢rg,Chairman�Chie£Eer
Date
ISSUER'S ACCEPTANCE CLAUSE
Th^^e above and foregoing is hereby in all things accepted and approved by
E'1�� K/l�--..rtG3�e-F .on this the �G��/—//day o£�_�2��
By /�-i..-. R'S�ae.t�li1
Authorized Representatinve l � � e
Title ��e�� -/� //`-'v'--9--��/G�
Ptinied Name �.L/C CC H.—I ����
eaost-t
APPENDIX A—FEES
The Obligations to ba covered under this contract include only the Obligations dc£cd on the fust page of the Agrcemmt.
The fee£or any Obligatlorrs under this contract shell ody be payable i£a computation is required under Sectlon 148(f)(2)o£the
Code.In 0re event that any of Ove Obligations,fall within an exclusion to the computation requirement as defined by Section 148
o£the Coda or related regulations and ne calcu/adores were required by First Southwest ro make that demrmination,no fee will be
charged for uch i For example, certain obligation are excluded fiom the rebate computation regviremmt if the proceeds
are sprat within specific time periods.In the event a particular issue o£Obligatrons fiIISlls ilre exclusion requirements o£the Code
or related regulations, the specified fes will be waived by First Southwest if no calculations were requved m make the
determination.
First Southwest's fee for arbitrage rebate services is based upon a Fixed atmual fee per is e.Tha rmual{ee is charged based
upon the number of years that proceeds Deist subject to rebate from the delivery date of the issue to the computation date.
First Southwest's fees are payable upon delivery o£the report. The fust report will be made following one year fivm the date o£
delivery o£the ObligaHovs and on each computation date thereafter during the term o£the Agreement The fees for compumtiona
o£the Arbitrage Amount which encompas r less, than one Computation Year shall be prorated m reflect the longer,or
shorter,Period of woric performed during that Pcried.
Descri Von Mnuat Fee
ANNUAL FEE $1 080•
COMPREHENSl!SARBZTR.9GE COMPLIANCE SERVICES INCL tJDE:
• Commingled Fends Analysis�Calculatlovs
• Spending Exception Analysis�Calculations
• Yield Restriction Analysis�Calculations
(for yield restricted Project Funds,Reserve Funds,Escrow Funds,etc.)
• Parity Reserve Fund Allocations
• Trans£d Proceeds Calculatiorts
Universal Cap Calculatrorts
. Debt Service Fund Calculaflons(including earxvngs test when required)
. Preparation o£ell Required IRS Paperwork£or Making a Rebate Payment/Yield Reduction INCLUDED
Paymevt
. Retention of Records Provided for Arbitrage Computations
. IRS Audit Assistance
. Delivery o£Rebate Calculation Each Year That Meets the Timing Requircmmts o£dre Assdit
Schedule
• On-Site Meetings,as Appropriate,to Discuss Calculation Results/Subsequent Plarurvtg Items
• IRS Refuvd Request—Update calculatiov,prepare refund request package,avd assist issuer as
necessary in respondivg m subsequent IRS Information Requests
'kOUR STANDARD FEE FOR MUNICIPAL ISSUERS SUCH AS THE UTH.ITY IS $1,200.00 PER ISSUE PER
BOND YEAR. HOWEVER.,WE PROPOSE A REDUCTION OF 10^/•FOA BOND PROCEEDS BEING HELD IN
TEXSTAR PARTICIPANT SERVICES. IN ADDITION, WE PROPOSE TO CAP THE INITIAL FIVE-YEAR
CALCULATION AT $3,600.00_ FEES FOR SUBSEQUENT YEAR'S CALCULATIONS WOULD BE BASED
UPON OUR REDUCED STANDARD FEE OF 1,080_00.
saysw
E]�LANATION OF TERMS:
a. Computation Year: A"Compuxtion YeaY'represents a on¢year period fi-om the delivery data o{the issue to the date
that is o calendar year after the delivery date, and eacfi subsequent one-year period thereafter. Therefore, iF a
calculation is required that w re then me " mpuxtion year;' the amaual Fce is multiplied by the number of
mputatiov year:; contained is the oalculation being perFomred. Z{a calcularion includes a portion of fl computation
year,i.e.,if the calculation includes 1 %campuxtion years,then the base£ee will be multiplied by 1.5.
b. Electro�c Data Submission: The data should be provided electrotaically in MS Excel or ASCII text file(comma
delimited text preFerred) with the date, description, dollar amount, and en activity wde (i£not in debit and credit
Format)on the same line in the file.
c. Variable/E"loativg Ra[¢Bond Zasuea: Special services are also required to perForm the arbitrage rebate calculations
for variable rat¢bonds. A bond i ariable rata bond i£the interest rate paid on the bond is dependent upon m
index which is subject to changes subsequent to the i o£the bonds. The computational requirements of a
dable rat¢issue aro rapier than those e£a{cd rate issue and,accordingly,require significantly mor¢lien
m calwlate. Th¢ additional c mplexity is primarily related to thc computation of the bond yield, which must be
calculated o "bond yeaY' basis. Additionally, Hue regulations provide certain flexibility in computing the bond
yield and detP�••+��n[he arbitrage amount over the first IRS reporting period; consequently, increased calculations
ars required to determine which bond rield calculavon produces the lowest arbitrage amount.
d. Cvanrntngled Fvnd Allocations: By de£anition, a commingled fiend is ¢ that contain either proceeds of more
than one bond issue or proceeds o£a bond issue and non-bond proceeds (i.a., r es)sof$25,000 o more. The
arbitrage regulations, while permitting the covnxningting of fiends, regm ¢that the proceeds o£the bond issue(a) be
"carved out"£or purposes of detevnin:ng the arbitrage amount Additionally, interest earnings must be allocated to
the portion of the commingled £end that rcpresmts procmda of the issues) in qucatiov. Pennitxd"safe-harbor"
methods(tha[is,methods that are outlined in the arbitrage regulations and,a ordivgiy,carrot be questioned by the
IRS under audit), exist £or allocating ezpenditutcs and interest ¢timings to i soca in a commingled £end. First
Southwest uses one of the applicable saf-harbor methods when doing thea¢calculations.
¢. Debt S¢rvic¢ Reserve Funds: The authorazirag documents £or aiauy revenue bond issues requve that a separate
fiend b¢ established (the"Reacrve Fund") into which either bond proceeds or revenues are deposited iv rat
equal to s c dcaigvaxd level, such as a rage annual debt service on ell parity bonds. This Reservcn Fund i
establshed £or the bcve£at o£Hue bondholders es additional security for payment on the debt Ea most cases, Han
balmce is the Reserve Fund remains stable throssghout the liFe o£the bond issue. Reserve Funds, whether fimdcd
with bond proceeds or revenues,must be included in all rebate calculations.
Debt Service Fund Calculations:Issuers are required under the rogula[iona to analyze the in esxd balances in their
debt service funds annually to determine whether the fend depletes as required during the year and is, there£ore,
"bona fide"(i.e.,potentially exempt from rebate in chat year).It is not uncommon for surplus balances to develop m
the deb[service fund that services m issuer's tax supported debt,particularly du¢to timing diff rancea o£whea tha
fimda were due to be collected versus when[he £vvds ween actually collecxd. Fust Southwest perFomis this Formal
analysis of the debt service fund end,should it be determined that a surplus balance exists in the£end during a given
year,allocates the surplus balance among the various issues servaced by tha fiend in a manner that is acceptable under
IRS review.
g. Earnings T¢at For Debt Service Funds: Certain types o£bond ieaues require an additional level of analysis£or the
debts ¢ fiend, ¢ m i£thc fiend dcpletea a requared under Hae regulations and is "bona £de." For short-term,
fixed rat¢ i , private activity i and variable rate issues, the regulations require that en"¢am:�s test"b¢
performed an a borne fide debt service fiend to determine iF the interest earnings reached$100,000 during the year.In
whet¢ the earnings r ach or exceed thc $100;000 threshold, the entire fund (not jus[ the surplus or residual
portion)is subject to rebate
h. Transferred Prore¢ds Calnuladone: When a bond iss refinanced(refivaded)by mother issue,special services
relating m"transferred proceeds"catculatiozis may need toabe perfomaed.Under the regulations,when proceeds of a
refimding issue are used to retire principal o£a prior i a pro-rata portion o£Hae unspent proceeds o£the prior
issue becomes subject to rebax md/or yield restriction as trays£arred proceeds o£the ret trading issue.The refimding
issue esaentialty"adopts" tha nspmt proceeds o£Hae prior issue for purposes of Hie arbitrage calculations. Thea¢
calculations are requ:rcd under thc regulations to c me that issuers continue to exercise due diligence to complex
the projcct(a)£or which thc prior bonds were issued.
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t. Uvlversal Cap: Currant regulation provide a vemll limitation on the am uvt o£gross proceeds allocable to a
issue. Simply stated,the value o{investments allocated m an issue cannot exceed the value of all outstanding bands
of the issues. Fora mplq this simafion cev occur if as issuer en unters significant coastnactioa delays o curets
into litigatlon with as ovtmetor. I[ may telco months v ce years to resolve the problems and begin or ume
spandivg the bond proceeds;however,during this time the debt service payments era still being paid,including any
achcduled principal payments. Thus, it's possible£or the value o£the investments purchased with bond proceeds to
ced the valve o£the bonds outstanding. Ea such cases,a"de-allocation"of proceeds may be required to comply
with the litnitation rules outlined in the regulaHona.
j. Yleld Restridlon Analysis/Yield Reduction Computation: Tha II2S strongly encourages issuers to spend tlac
procceds o£each bond issue as quicldy es possible to achieve the goveaxmaental purpose for which the bonds were
issued. Certain typos o£proceeds can qualify fora "temporary period," during which rima the proceeds may be
invastad at a yield higher tkaan the yield on the bonds without jeopardizing the tax-exempt stems of the issues. The
most common temporary period ie the three-year temporary period£or capital project promeda.After the end of the
temporary period, the proceeds must be yield restricted or the issuer must rerstit dte appropriate yield reduction
payment when due. First Southwest performs a comprehensive yield restriction analysis when appropriate £or all
ues having proceeds remaining at the end o£the applicable temporary period and also calculates the amount o£the
yield reduction payment due to the IRS.
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