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HomeMy WebLinkAboutOrd 365-2008 Authorizing Finance Contract for Police Cars.pdfORDINANCE NO. 3G S 2 ooT AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF ANNA, TEXAS, AUTHORIZING THE EXECUTION AND DELIVERY OF A FINANCE CONTRACT FOR THE ACQUISITION OF POLICE CARS, LEVYING A TAX IN PAYMENT THEREOF, AND ENACTING OTHER PROVISIONS RELATED THERETO WHEREAS, the City is authorized, pursuant to the Public Property Finance Act, Chapter 271, Subchapter A, Local Government Code, as amended (the "Act"), to execute, perform and make payments under a contract for the acquisition of personal property for authorized municipal purposes, or the financing thereof; WHEREAS, this City Council has found and determined that it is necessary and in the best interests of die City to acquire equipment (the "Equipment') as described on Schedule I attached hereto; WHEREAS, Independent Bank, McKinney, Texas (the "Bank"), has offered to provide financing for the acquisition of the Equipment; and WHEREAS, this City Council has found and determined that it is in the best interests of the City to finance the acquisition of the Equipment through the execution and delivery ofa finance contract withthe Bank; Now, therefor BE IT ORDAINED BY THE CITY COUNCIL OF CITY OF ANNA, TEXAS: ARTICLE DEFINITIONS AND OTHER PRELIMINARY MATTERS Section 1.01. Definitions. (a) Unless otherwise expressly provided or unless the context clearly requires otherwise, in this Ordinance the following terms shall have the meanings specified bclow. Acquisition Fund' means the fund established in Section 4.01(a)(6). "Code" means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings and court decisions relating thereto. "Contract Payments" means the payments to be made by the City in payment of the principal and interest due under the Finance Contract. "Finance Contract" means the finance contract, dated as of February 26, 2008, between the City and the Bank pursuant to which the Bank will provide funds to the City for the acquisition of the Equipment. "Interest and Sinking Fund" means the interest and sinking fund established by Section 4,0l(a)(I). "Principal Amount" moans the principal amount set forth in the Finance Contract. (b) The terms defined in the preamble to this Ordinance shall have the meanings assigned to such terms in the preamble. Section 1.02. Findings: Interpretation. (a) Thedeclarations, determinations and findings declared, madeand found in the preamble to this Ordinance are hereby adopted, restated and made a part of the operative provisions hereof. (b) This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein to sustain the validity of this Ordinance. (c) Article and section references shall mean references to articles and sections of this Ordinance unless designated otherwise. ARTICLE II AUTHORIZATION AND GENERAL TERMS AND PROVISIONS OF THE FINANCE CONTRACT Section 201. Authorization. (a) The terms and provisions of the Finance Contract, substantially in the form presented at this meeting, are hereby approved and said Finance Contract is hereby authorized to be executed and delivered in accordance with the Constitution and laws of the State of Texas, including particularly the Act. The Mayor and City Secretary are hereby authorized and directed to execute and attest, respectively, the Finance Contract. (b) All officers of the City are authorized to take such actions and to execute such documents, certificates and receipts as they may deem necessary and appropriate in order to consummate the delivery of the Finance Contract, (c) McCall, Parkhurst & Horton LLT ., is hereby engaged as bond counsel for the City in connection with the authorization and delivery of the Finance Contract. The execution and delivery of an engagement letter between the City and such firm, with respect to such services as bond counsel, is hereby approved with such changes as may be approved by the Mayor and the Mayor is hereby authorized to execute such engagement letter. ARTICLE III SECURITY FOR THE CONTRACT PAYMENTS Section 3.01. Tax Lew for Payment of the Contract Payments. (a) The City Council hereby declares and covenants that it will provide and levy a tax legally and fully sufficient for payment of the Contract Payments, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax in consideration of all other outstanding obligations of the City. -2- (b) In order to provide for the payment of the Contract Payments, being (I) the interest on the outstanding Principal Amount and (it) a sinking fund for payment of the installment amounts of the Principal Amount as they become duo or a sinking fund of two percent per annum (whichever amount is the greater), there is hereby levied for the current year and each succeeding year thereafter, while the Principal Amount or interest thereon remains outstanding and unpaid, a tax within legal limitations on each $100 valuation of taxable property in the City that is sufficient to pay such Contract Payments, full allowance being made for delinquencies and costs of collection. (c) The tax levied by this Section shall be assessed and collected each year and applied to the payment of the Contract Payments, and the tax shall not be diverted to any other purpose. (d) Said ad valorem tax, the collections therefrom, and all amounts on deposit in or required hereby to be deposited to the Interest and Sinking Fund are hereby pledged and committed irrevocably to the payment of the Contract Payments when and as due and payable in accordance with the Finance Contract and this Ordinance. (e) To the extent the City has available funds which may be lawfully used to pay the Contract Payments and such funds are on deposit in the Interest and Sinking Fund in advance of the time when ad valorem taxes are scheduled to be levied for the payment of the Contract Payments, then the amount of ad valorem taxes which otherwise would be required to be levied pursuant to subsection (b) of this Section may be reduced to the extent and by the amount of such funds then on deposit in the Interest and Sinking Fund. (f) Ifthe liens and provisions of this Ordinance shall be released in a manner permitted by Article VI of the Finance Contract, then the collection of such ad valorem tax may be suspended or appropriately reduced, as the facts may permit, and further deposits to the Interest and Sinking Fund may be suspended or appropriately reduced, as the facts may permit. In determining the outstanding Principal Amount, there shall be subtracted the amount thereof that has been prepaid in accordance with the Finance Contract. ARTICLE IV CREATION OF FUNDS AND ACCOUNTS; DEPOSIT OF PROCEEDS; INVESTMENTS Section 401. Creation of Funds. (a) The City hereby establishes the following special funds or accounts: (i) the City of Anna, Texas, 2008 Finance Contract Interest and Sinking Fund (the "Interest and Sinking Fund"); and (it) the City of Anna,Texas, 2008 Finance Contract Acquisition Fund(the"Acquisition Fund") (b) The Interest and Sinking Fund and the Acquisition Fund shall be maintained at an official depository of the City. -3- Section 4.02. Interest and Sinking Fund. (a) The taxes levied under Section 3.01 of this Ordinance shall be deposited to the credit of the Interest and Sinking Fund at such times and in such amounts as necessary for the timely payment of the Contract Payments. (b) Money on deposit in the Interest and Sinking Fund shall be used to pay the Contract Payments as such become due and payable. Section 4.03. Acauisition Fund. (a) Money on deposit in the Acquisition Fund, including investment earnings thereof, shall be used for the acquisition of the Equipment. (b) All amounts remaining in the Acquisition Fund after the acquisition of the Equipment, including investment earnings of the Acquisition Fund, shall be deposited into the Interest and Sinking Fund, unless applicable law permits or authorizes all or any part of such funds to be used for other purposes. Section 4.04. Security of Funds. All moneys on deposit in the funds referred to in this Ordinance shall be secured in the manner and to the fullest extent required by the laws of the State of Texas for the security of public funds, and moneys on deposit in such funds shall be used only for the purposes permitted by this Ordinance. Section 4.05. Deposit of Proceeds. All amounts received on the Closing Date by the City under the Finance Contract shall be deposited to the Acquisition Fund, such moneys to be dedicated and used for the acquisition of the Equipment and costs related thereto. Section 4.06. Investments. (a) Money in the Interest and Sinking Fund and the Acquisition Fund, at the option of the City, may be invested in such securities or obligations as permitted under applicable law. (b) Any securities or obligations in which money is so invested shall be kept and held in trust for the benefn ofthe persons entitled to receive Contract Payments and shall be sold and the proceeds of sale shall be timely applied to the making of all payments required to be made from the fund from which the investment was made. (c) Interest and income derived from investment of any fund created by this Ordinance shall be credited to such fund. -4- ARTICLE V REPRESENTATIONS AND COVENANTS Section 5.0 L Representations and Covenants. (a) The City will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance and in the Finance Contract; the City will promptly pay or cause to be paid the Contract Payments on the dates and at the places and manner prescribed in the Finance Contract; and the City will, at the times and in the manner prescribed by this Ordinance, deposit or cause to be deposited the amounts of money specified by this Ordinance. (b) The City is duly authorized under the laws of the State of Texas to execute and deliver the Finance Contract; all action on its part for execution and delivery of the Finance Contract has been duly and effectively taken; and the Finance Contract is and will be a valid and enforceable obligation of the City in accordance with its terms. (c) The City Council may make any changes in the description of the property listed on Schedule I to this Ordinance or ofany component thereof whenever the City Council deems such changes to be necessary and appropriate and provided that the nature of the property after such changes will constitute qualified property eligible for financing under the Act and such changes shall not adversely affect the tax-exempt status of the Contract Payments. Section 5.02. Covenants Regarding Tax Exemption of Interest Paid Under the Finance Contract. (a) Covenants. The City covenants to take any action necessary to assure, or refrain from any action which would adversely affect, the treatment of the Finance Contract as obligations described in section 103 of the Internal Revenue Code of 1986, as amended (the "Code'), the interest on which is not includable in the "gross income' ofthe holder for purposes of federal income taxation. In furtherance thereof, the City covenants as follows: (1) to take any action to assure that no more than 10 percent of the proceeds of the Finance Contract or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in section 141(b)(6) of the Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the City, with respect to such private business use, do not, under the terms of this Ordinance or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent ofthe debt service on the Finance Contract, in contravention of section 141(b)(2) of the Code; (2) to take any action to assure that in the event that the "private business use' described in subsection (I) hereof exceeds 5 percent of the proceeds of the Finance Contract or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used fora "private business use" which is "related' and not "disproportionate," within the meaning of section 141(b)(3) of the Code, to the governmental use; (3) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Finance Contract (less amounts deposited into a reserve fund, if -5- any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of section 141(c) of the Code; (4) to refrain from taking any action which would otherwise result in the Finance Contract being treated as a "private activity bond" within the meaning of section 141(6) of the Code; (5) to refrain from taking any action that would result in the Finance Contract being"federally guaranteed" within the meaning of section 149(b) of the Code; (6) to refrain from using any portion of the proceeds of the Finance Contract, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Finance Contract, other than investment property acquired with -- (A) proceeds of the Finance Contract invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 90 days or less until such proceeds are needed for the purpose for which the Finance Contract is issued, (B) amounts invested in a bona fide debt service fund, within the meaning of section 1.148-1(b) of the Treasury Regulations, and (C) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Finance Contract; (7) to otherwise restrict the use of the proceeds of the Finance Contract or amounts treated as proceeds of the Finance Contract, as may be necessary, so that the Finance Contract does not otherwise contravene the requirements of section 148 of the Code (relating to arbitrage) and, to the extent applicable, section 149(d) of the Code (relating to advance refundings); and (8) to pay to the United States of America at least once during each five-year period (beginning on the date of delivery of the Finance Contract) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of section 148(f) of the Code and to pay to the United States of America, not later than 60 days after the Finance Contract has been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under section 148(f) of the Code. (b) Rebate Fund. In order to facilitate compliance with the above covenant (8), a "Rebate Fund' is hereby established by the City for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation the bondholders. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. (c) Proceeds. The City understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Finance Contract. It is the understanding of the City that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department ofthc Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Finance Contract, the City will not be required to comply with any covenant contained herein 0 to the extent that such failure to comply, in the opinion of nationally recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Finance Contract under section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Finance Contract, the City agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Finance Contract under section 103 of the Code. In furtherance of such intention, the City hereby authorizes and directs the City Manager to execute any documents, certificates or reports required by the Code and to make such elections, on behalf ofthe City, which may be permitted by the Code as are consistent with the purpose for the issuance of the Finance Contract. (d) Allocation Of. and Limitation On, Expenditures for the Project. The City covenants to account for the expenditure of sale proceeds and investment earnings to be used for the purposes described in Section 1 of this Ordinance (the "Project") on its books and records in accordance with the requirements of the Internal Revenue Code. The City recognizes that in order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures within 18 months of the later of the date that (1) the expenditure is made, or (2) the Project is completed; but in no event later than three years after the date on which the original expenditure is paid. The foregoing notwithstanding, the City recognizes that in order for proceeds to be expended under the Internal Revenue Code, the sale proceeds or investment earnings must be expended no more than 60 days after the earlier of (I) the fifth anniversary of the delivery of the Finance Contract, or (2) the date the Finance Contract is retired. The City agrees to obtain the advice of nationally - recognized bond counsel if such expenditure fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Finance Contract, For purposes hereof, the City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. (e) Disnosjtjon of Project. The City covenants that the property constituting the Project will not be sold or otherwise disposed in a transaction resulting in the receipt by the City of cash or other compensation, unless the City obtains an opinion of nationally -recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Finance Contract. For purposes of the foregoing, the portion of the property comprising personal property and disposed in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation, For purposes hereof, the City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. (f) Desertion as a Oualified Tax -Exempt Obligation. The City hereby designates the Finance Contract as a "qualified tax-exempt obligation" as defined in section 265(b)(3) of the Code. In furtherance of such designation, the City represents, covenants and warrants the following: (a) that during the calendar year in which the Finance Contract is delivered, the City (including any subordinate entities) has not designated nor will designate obligations that when aggregated with the Finance Contract, will result in more than 510,000,000 of "qualified tax-exempt obligations" being issued; (b) that the City reasonably anticipates that the amount of tax-exempt obligations issued, during the calendar year in which the Finance Contract is delivered, by the City (or any subordinate entities) will not exceed $10,000,000; and, (c) that the City will take such action or refrain from such action as necessary, and as more particularly set forth in this Section, hereof, in order that the Finance Contract will not be considered a "private activity bond' within the meaning of section 141 of the Code. [Execution Page Follows] -7- PASSED, APPROVED AND EFFECTIVE this fi"q— 7 ,2i. 1008 . 7 ayor, City of Anna, Texas ATTEST, Cf Secretary, City of Anna, eke—Texas hgmpment 10 ue Acgwrea Description Police Cars FINANCE CONTRACT between . INDEPENDENT BANK McKinney, Texas and CITY OF ANNA, TEXAS Dated February 26, 2008 McCall, Parkhurst &Horton L.L.P. 717 N. Harwood, Suite 900 Dallas, Texas 75201 Table of Contents City of Anna, Texas Finance Contract 2008 Document Number Certified Ordinance Authorizing Issuance of the Finance Contract 1 Finance Contract 2 Corporate Authority Certificate of Bank 3 Closing Certificate 4 Federal Tax Certificate 5 Information Return for Tax -Exempt Government Bond Issues Form 8038-GC, and Transmittal 6 Issuer's Receipt � Bank's Receipt 8 CERTIFICATE FOR ORDINANCE I, the undersigned City Secretary of the City of Anna, Texas, hereby certify as follows: 1. The City Council of said City convened in Regular Session on February 261 2008, at the regular meeting place thereof, and the roll was called of the duly constituted officers and members of said City Council, to -wit: Kenneth L. Pelham, Mayor Billy Deragon, Mayor Pro Tern Keith Green, Deputy Mayor Pro Tern Mike Crist, Councilmember Kevin Anderson, Councilmember John Geren, Councilmember David Crim, Councilmember and all of said persons were present, except for the following: John Geren and David Crim; thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written Ordinance entitled AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF ANNA, TEXAS, AUTHORIZING THE EXECUTION AND DELIVERY OF A FINANCE CONTRACT FOR THE ACQUISITION OF POLICE CARS, LEVYING A TAX IN PAYMENT THEREOF, AND ENACTING OTTER PROVISIONS RELATED THERETO was duly introduced for consideration and passage. It was then duly moved and seconded that said Ordinance be passed; and, after due discussion, said motion, carrying with it the passage of said Ordinance, prevailed and carried by the following vote: AYES: 5 NOES: 0 ABSTENTIONS: 0 2. A true, full and correct copy of the aforesaid Ordinance passed at the meeting described in the above and foregoing paragraph is attached to and follows this Certificate; said Ordinance has been duly recorded in the official minutes of said City Council; the above and foregoing paragraph is a true and correct excerpt from said minutes of said meeting pertaining to the passage of said Ordinance; the persons named in the above and foregoing paragraph, at the time of said meeting and the passage of said Ordinance, were the duly chosen, qualified and acting officers and members of said City Council as indicated therein; each of said officers and members was duly and sufficiently notified officially and personally in advance, of the time, place and purpose of the aforesaid meeting and that said Ordinance would be introduced and considered for passage at said meeting, and each of said officers and members consented in advance to the holding of said meeting for such purpose; and said meeting was open to the public, and public notice of the time, place and purpose of said meeting was given, all as required by Tex. Gov't Code Ann., ch. 551. SIGNED AND SEALED this � �unbo Secretary, City of Anna, Texas =[CITY SEAL] ORDINANCE N0.365-2008 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF ANNA, TEXAS, AUTHORIZING THE EXECUTION AND DELIVERY OF A FINANCE CONTRACT FOR THE ACQUISITION OF POLICE CARS, LEVYING A TAX IN PAYMENT THEREOF, AND ENACTING OTHER PROVISIONS RELATED THERETO WHEREAS, the City is authorized, pursuant to the Public Property Finance Act, Chapter 271, Subchapter A, Local Government Code, as amended (the "Act"), to execute, perform and make payments under a contract for the acquisition of personal property for authorized municipal purposes, or the financing thereof; WHEREAS, this City Council has found and determined that it is necessary and in the best interests of the City to acquire equipment (the "Equipment") as described on Schedule I attached hereto; WHEREAS, Independent Bank, McKinney, Texas (the "Bank"), has offered to provide financing for the acquisition of the Equipment; and WHEREAS, this City Council has found and determined that it is in the best interests of the City to finance the acquisition of the Equipment through the execution and delivery of a finance contract withthe Bank; Now, therefor BE IT ORDAINED BY THE CITY COUNCIL OF CITY OF ANNA, TEXAS: ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Section 1.01. Definitions. (a) Unless otherwise expressly provided or unless the context clearly requires otherwise, in this Ordinance the following terms shall have the meanings speced below: "Acquisition Fund" means the fund established in Section 4.01(a)(ii). "Code" means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings and court decisions relating thereto. "Contract Payments" means the payments to be made by the City in payment of the principal and interest due under the Finance Contract. "Finance Contract" means the finance contract, dated as of February 26, 2008, between the City and the Bank pursuant to which the Bank will provide funds to the City for the acquisition of the Equipment. "Interest and Sinking Fund" means the interest and sinking fund established by Section 4.01(a)(I). "Principal Amount" means the principal amount set forth in the Finance Contract. (b) The terms defined in the preamble to this Ordinance shall have the meanings assigned to such terms in the preamble. Section 1.02. Findings; Interpretation. (a) The declarations, determinations and findings declared, made and all in the preamble to this Ordinance are hereby adopted, restated and made a part of the operative provisions hereof. (b) This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein to sustain the validity of this Ordinance. (c) Article and section references shall mean references to articles and sections of this Ordinance unless designated otherwise. ARTICLE II AUTHORIZATION AND GENERAL TERMS AND PROVISIONS OF THE FINANCE CONTRACT Section 2.01. Authorization. (a) The terms and provisions of the Finance Contract, substantially in the form presented at this meeting, are hereby approved and said Finance Contract is hereby authorized to be executed and delivered in accordance with the Constitution and laws of the State of Texas, including particularly the Act. The Mayor and City Secretary are hereby authorized and directed to execute and attest, respectively, the Finance Contract. (b) All officers of the City are authorized to take such actions and to execute such documents, certificates and receipts as they may deem necessary and appropriate in order to consummate the delivery of the Finance Contract. (c) McCall, Parkhurst &Horton L.L.P., is hereby engaged as bond counsel for the City in connection with the authorization and delivery of the Finance Contract. The execution and delivery of an engagement letter between the City and such firm, with respect to such services as bond counsel, is hereby approved with such changes as may be approved by the Mayor and the Mayor is hereby authorized to execute such engagement letter. ARTICLE III SECURITY FOR THE CONTRACT PAYMENTS Section 3.01. Tax Levy for Payment of the Contract Pavirients. (a) The City Council hereby declares and covenants that it will provide and levy a tax legally and fully sufficient for payment of the Contract Payments, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax in consideration of all other outstanding obligations of the City. -2- (b) In order to provide for the payment of the Contract Payments, being (I) the interest on the outstanding Principal Amount and (ii) a sinking fund for payment of the installment amounts of the Principal Amount as they become due or a sinking fund of two percent per annum (whichever amount is the greater), there is hereby levied for the current year and each succeeding year thereafter, while the Principal Amount or interest thereon remains outstanding and unpaid, a tax within legal limitations on each $100 valuation of taxable property in the City that is sufficient to pay such Contract Payments, full allowance being made for delinquencies and costs of collection. (c) The tax levied by this Section shall be assessed and collected each year and applied to the payment of the Contract Payments, and the tax shall not be diverted to any other purpose. (d) Said ad valorem tax, the collections therefrom, and all amounts on deposit in or required hereby to be deposited to the Interest and Sinking Fund are hereby pledged and committed irrevocably to the payment of the Contract Payments when and as due and payable in accordance with the Finance Contract and this Ordinance. (e) To the extent the City has available funds which may be lawfully used to pay the Contract Payments and such funds are on deposit in the Interest and Sinking Fund in advance of the time when ad valorem taxes are scheduled to be levied for the payment of the Contract Payments, then the amount of ad valorem taxes which otherwise would be required to be levied pursuant to subsection (b) of this Section may be reduced to the extent and by the amount of such funds then on deposit in the Interest and Sinking Fund. (f) If the liens and provisions of this Ordinance shall be released in a manner permitted by Article VI of the Finance Contract, then the collection of such ad valorem tax may be suspended or appropriately reduced, as the facts may permit, and further deposits to the Interest and Sinking Fund may be suspended or appropriately reduced, as the facts may permit. In determining the outstanding Principal Amount, there shall be subtracted the amount thereof that has been prepaid in accordance with the Finance Contract. ARTICLE IV CREATION OF FUNDS AND ACCOUNTS; DEPOSIT OF PROCEEDS; INVESTMENTS Section 4.01. Creation of Funds. (a) The City hereby establishes the following special funds or accounts: (i) the City of Anna, Texas, 2008 Finance Contract Interest and Sinking Fund (the "Interest and Sinking Fund"); and (ii) the City of Anna, Texas, 2008 Finance Contract Acquisition Fund (the "Acquisition Fund"). (b) The Interest and Sinking Fund and the Acquisition Fund shall be maintained at an official depository of the City. -3- Section 4.02. Interest and Sinking Fund. (a) The taxes levied under Section 3.01 of this Ordinance shall be deposited to the credit of the Interest and Sinking Fund at such times and in such amounts as necessary for the timely payment of the Contract Payments. (b) Money on deposit in the Interest and Sinking Fund shall be used to pay the Contract Payments as such become due and payable. Section 4.03. Acquisition Fund. (a) Money on deposit in the Acquisition Fund, including investment earnings thereof, shall be used For the acquisition of the Equipment. (b) All amounts remaining in the Acquisition Fund after the acquisition of the Equipment, including investment earnings of the Acquisition Fund, shall be deposited into the Interest and Sinking Fund, unless applicable law permits or authorizes all or any part of such funds to be used for other purposes. Section 4.04. Security of Funds. All moneys on deposit in the funds referred to in this Ordinance shall be secured in the manner and to the fullest extent required by the laws of the State of Texas for the security of public funds, and moneys on deposit in such funds shall be used only for the purposes permitted by this Ordinance. Section 4.05. Deposit of Proceeds. All amounts received on the Closing Date by the City under the Finance Contract shall be deposited to the Acquisition Fund, such moneys to be dedicated and used for the acquisition of the Equipment and costs related thereto. Section 4.06. Investments. (a) Money in the Interest and Sinking Fund and the Acquisition Fund, at the option of the City, may be invested in such securities or obligations as permitted under applicable law. (b) Any securities or obligations in which money is so invested shall be kept and held intrust for the benefit of the persons entitled to receive Contract Payments and shall be sold and the proceeds of sale shall be timely applied to the making of all payments required to be made from the fund from which the investment was made. (c) Interest and income derived from investment of any fund created by this Ordinance shall be credited to such fund. -4- ARTICLE V REPRESENTATIONS AND COVENANTS Section 5.01. Representations and Covenants. (a) The City will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance and in the Finance Contract; the City will promptly pay or cause to be paid the Contract Payments on the dates and at the places and manner prescribed in the Finance Contract; and the City will, at the times and in the manner prescribed by this Ordinance, deposit or cause to be deposited the amounts of money specified by this Ordinance. (b) The City is duly authorized under the laws of the State of Texas to execute and deliver the Finance Contract; all action on its part for execution and delivery of the Finance Contract has been duly and effectively taken; and the Finance Contract is and will be a valid and enforceable obligation of the City in accordance with its terms. (c) The City Council may make any changes in the description of the property listed on Schedule I to this Ordinance or of any component thereof whenever the City Council deems such changes to be necessary and appropriate and provided that the nature of the property after such changes will constitute qualified property eligible for financing under the Act and such changes shall not adversely affect the tax-exempt status of the Contract Payments. Section 5.02. Covenants Regarding Tax Exemption of Interest Paid Under the Finance Contract. (a) Covenants. The City covenants to take any action necessary to assure, or refrain from any action which would adversely affect, the treatment of the Finance Contract as obligations described in section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the City covenants as follows: (1) to take any action to assure that no more than 10 percent of the proceeds of the Finance Contract or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in section 141(b)(6) of the Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the City, with respect to such private business use, do not, under the terms of this Ordinance or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Finance Contract, in contravention of section 141(b)(2) of the Code; (2) to take any action to assure that in the event that the "private business use" described in subsection (1) hereof exceeds 5 percent of the proceeds of the Finance Contract or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of section 141(b)(3) of the Code, to the governmental use; (3) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Finance Contract (less amounts deposited into a reserve fund, if -5- any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of section 141(c) of the Code; (4) to refrain from taking any action which would otherwise result in the Finance Contract being treated as a "private activity bond" within the meaning of section 141(b) of the Code; (5) to refrain from taking any action that would result in the Finance Contract being "federally guaranteed" within the meaning of section 149(b) of the Code; (6) to refrain from using any portion of the proceeds of the Finance Contract, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Finance Contract, other than investment property acquired with -- (A) proceeds of the Finance Contract invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 90 days or less until such proceeds are needed for the purpose for which the Finance Contract is issued, (B) amounts invested in a bona fide debt service fund, within the meaning of section 1.148-1(b) of the Treasury Regulations, and (C) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Finance Contract; (7) to otherwise restrict the use of the proceeds of the Finance Contract or amounts treated as proceeds of the Finance Contract, as may be necessary, so that the Finance Contract does not otherwise contravene the requirements of section 148 of the Code (relating to arbitrage) and, to the extent applicable, section 149(d) of the Code (relating to advance refundings); and (8) to pay to the United States of America at least once during each five-year period (beginning on the date of delivery of the Finance Contract) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of section 148(f) of the Code and to pay to the United States of America, not later than 60 days after the Finance Contract has been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under section 148(f) of the Code. (b) Rebate Fund. In order to facilitate compliance with the above covenant (8), a "Rebate Fund" is hereby established by the City for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation the bondholders. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. (c) Proceeds. The City understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Finance Contract. It is the understanding of the City that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Finance Contract, the City will not be required to comply with any covenant contained herein -6- to the extent that such failure to comply, in the opinion of nationally recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Finance Contract under section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Finance Contract, the City agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Finance Contract under section 103 of the Code. In furtherance of such intention, the City hereby authorizes and directs the City Manager to execute any documents, certificates or reports required by the Code and to make such elections, on behalf ofthe City, which may be permitted by the Code as are consistent with the purpose for the issuance of the Finance Contract. (d) Allocation Of and Limitation On, Expenditures for the Project. The City covenants to account for the expenditure of sale proceeds and investment earnings to be used for the Equipment described in Schedule I of this Ordinance (the "Project") on its books and records in accordance with the requirements of the Internal Revenue Code. The City recognizes that in order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures within 18 months ofthe later ofthe date that (1) the expenditure is made, or (2) the Project is completed; but in no event later than three years after the date on which the original expenditure is paid. The foregoing notwithstanding, the City recognizes that in order for proceeds to be expended under the Internal Revenue Code, the sale proceeds or investment earnings must be expended no more than 60 days after the earlier of (1) the fifth anniversary of the delivery of the Finance Contract, or (2) the date the Finance Contract is retired. The City agrees to obtain the advice of nationally - recognized bond counsel if such expenditure fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Finance Contract. For purposes hereof, the City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. (e) Disposition of Project. The City covenants that the property constituting the Project will not be sold or otherwise disposed in a transaction resulting in the receipt by the City of cash or other compensation, unless the City obtains an opinion of nationally -recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Finance Contract. For purposes of the foregoing, the portion of the property comprising personal property and disposed in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation. For purposes hereof, the City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. (f) Designation as a Qualified Tax -Exempt Obligation. The City hereby designates the Finance Contract as a "qualifiedtax-exempt obligation" as defined in section 265(b)(3) of the Code. In furtherance of such designation, the City represents, covenants and warrants the following: (a) that during the calendar year in which the Finance Contract is delivered, the City (including any subordinate entities) has not designated nor will designate obligations that when aggregated with the Finance Contract, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued; (b) that the City reasonably anticipates that the amount of tax-exempt obligations issued, during the calendar year in which the Finance Contract is delivered, by the City (or any subordinate entities) will not exceed $10,000,000; and, (c) that the City will take such action or refrain from such action as necessary, and as more particularly set forth in this Section, hereof, in order that the Finance Contract will not be considered a "private activity bond" within the meaning of section 141 of the Code. [Execution Page Follows] -7- PASSED, APPROVED AND EFFECTIVE this ATTEST: City of Anna, Texas City of Anna, Texas 1�TEX1P v SCHBDULEI Equipment To Be Acquired, Description Police Cars FINANCE CONTRACT between INDEPENDENT BANK McKinney, Texas CITY OF ANNA, TEXAS Dated February 26, 2008 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 1.01. Definitions..................................................... 1 Section 1.02. Interpretative Matters ............................................. 2 ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.01. Section 2.02. Representations and Warranties of Bank ............................... 3 Section 3.01. Section 3.02. Section 3.03. Section 3.04. Section 3.05. ARTICLE III THE LOAN; REPAYMENT OF THE LOAN Financing the Loan ............................................... 3 Conditions to Closing ............................................. 3 RepavmentTerms................................................ 4 Prepg3gnent..................................................... 4 Source of Payment ............................................... 4 ARTICLE IV DEFAULT AND REMEDIES Section 4.01. Events of Default ................................................. 5 Section 4.02. Remedies for Default ...........................................:.. 5 Section 4.03. Remedies Not Exclusive ........................................... 5 ARTICLE V DISCHARGE Section 5.01. Discharge by Payment ............................................. 6 ARTICLE VI MODIFICATION OF DOCUMENTS Section 6.01. Amendments Require Written Consent of Parties ......................... 6 i Section 7.01 Section 7.02 Section 7.03 Section 7.04 Section 7.05 Section 7.06 Section 7.07 Section 7.08 Section 7.09 ARTICLE VII MISCELLANEOUS Term of Agreement ............................................... 6 Reports • 6 Notices........................................................ 6 Binding Effect; Assignment; Record of Ownership ........................ 7 Entire Agreement ................................................. 7 Payment of Costs 7 Severability..................................................... 7 Counterparts.................................................... 8 Applicable Law .................................................. 8 ATTACHMENTA ....................................................... A-1 ATTACHMENT B ...... ................................................. B-1 ii FINANCE CONTRACT This FINANCE CONTRACT (the "Finance Contract"), dated as of February 26, 2008, is between Independent Bank, McKinney, Texas (the "Bank"), and CITY OF ANNA, TEXAS (the "City"). WITNESSETH: WHEREAS, the City is authorized, pursuant to the Public Property Finance Act, Chapter 271, Subchapter A, Local Government Code, as amended (the "Act"), to execute, perform and make payments under a contract for the acquisition of personal property for authorized municipal purposes, or the financing thereof, WHEREAS, this City Council has found and determined that it is necessary and in the, best interests of the City to finance the acquisition of equipment described on Attachment A hereto (the "Equipment") through the execution and delivery of this Finance Contract; and WHEREAS, the Bank has offered to provide financing for the acquisition of the Equipment; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration and the mutual benefits, covenants and agreements herein expressed, the Bank and the City agree as follows: ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 1.01. Definitions. The capitalized terms used in this Finance Contract shall have the following respective meanings unless the context otherwise requires: "Business Day" -Any day, other than a Saturday, Sunday, or legal holiday, on tivhich the offices of the Bank are not required or authorized by law or executive order to be closed. "City Documents" -Collectively, this Finance Contract and the Tax Ordinance. "Closing" -The delivery of this Finance Contract and the advancement of the funds by the Bank as described in Section 3.01. "Closing Date" -March 4, 2008, or such other date mutually agreeable to the City and the Bank. "Contract Payments" -The payments required by Section 3.03 to be made by the City in payment of the principal and interest due under this Finance Contract. "Event of Default" -Event of Default shall have the meaning set forth in Section 4.01. "Interest and Sinking Fund" The Interest and Sinking Fund established in the Tax Ordinance. "Payee" The Bank and any other party that has been assigned, transferred or granted rights to payment hereunder in accordance with Section 7.04. 1 "Principal Amount" - The amount specified as such on Attachment B. "State" -The State of Texas. "Tax Ordinance" - Ordinance No. 365-208 of the City, which approves this Finance Contract and levies an annual ad valorem tax in support of the City's obligation to make the Contract Payments required to be paid under this Finance Contract, Section 1.02. Interpretative Matters. (a) Whenever the context requires: (i) references in this Finance Contract of the singular number shall include the plural and vice versa; and (ii) words denoting gender shall be construed to include the masculine, feminine, and neuter. (b) The table of contents and the titles given to any article or section of this Finance Contract are For convenience of reference only and are not intended to modify the meaning of the article or section. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.01. Representations and Warranties of City. The City represents and warrants to the Bank, the following: (a) the City is a duly incorporated home -rule municipality operating and existing under the general laws and Constitution of the State and has full power and authority to execute, deliver, and perform its obligations under the City Documents; (b) the City has duly adopted the Tax Ordinance and has duly authorized the execution and delivery of this Finance Contract and all actions required to perform its obligations thereunder; (c) the Tax Ordinance has not been amended or rescinded, and is in full force and effect; this Finance Contract has been duly executed and delivered by the City; (d) the authorization, execution, delivery, and performance by the City of and compliance with the City Documents are authorized by the general laws of the State and do not violate the Texas Constitution or any general laws of the State nor conflict with the same, or conflict with, or constitute or result in a breach of or default under, any existing court or administrative regulation, rule, decree, or order or any agreement, indenture, mortgage, lease, note, or other instrument by which the City is or may be bound; (e) the City agrees to take such action, or to refrain from such action, as necessary to satisfy the covenants, representations and provisions set forth in Section 5.02 of the Tax Ordinance. Moreover, in the event that the Internal Revenue Code of 1986 (the "Code") is amended, or regulations or rulings are hereafter promulgated which impose additional requirements applicable to the Finance Contract or in the event that it 2 is determined by a court of applicable jurisdiction that this Finance Contract fails to comply with the terms of the Code, then the City agrees to take steps necessary to comply with the requirements of the Code so as to preserve the exemption from federal income taxation of interest paid under this Finance Contract; and (f) there is no action, suit, proceeding, inquiry, or investigation, at law or in equity, or before or by any court, public board, or body, pending or, to the best knowledge of the City, threatened: M challenging the validity of, or seeking to enjoin the performance by the City of its obligations under the City Documents; or (ii) against or affecting the City (nor to the best knowledge of the City is there any basis therefor) wherein an unfavorable decision, ruling, or finding would materially and adversely affect any of the transactions contemplated by the City Documents or might result in any material adverse change in the business, properties, condition, financial or otherwise, or operations of the City. Section 2.02. Representations and Warranties of Bank. The Bank represents and warrants to the City, the following: (a) The Bank is a state banking association duly organized and existing under the banking laws of the State, and has all necessary power and authority to enter into and perform this Finance Contract. (b) The Bank has taken all actions required to authorize and execute this Finance Contract and to perform its obligations hereunder and the execution, delivery and performance by the Bank of and compliance with the provisions of this Finance Contract will not conflict with any existing law, regulation, rule, decree or order or any agreement or other instrument by which the Bank is bound. ARTICLE III THE LOAN; REPAYMENT OF THE LOAN Section 3.01. Financing the Loan. Subject to the terms and conditions set forth in this Finance Contract, including without limitation the conditions set forth in Section 3.027 and for and in consideration of the payment by the City of its obligations under this Finance Contract and the covenants and agreements herein contained, the Bank will, on the Closing Date, advance to and for the sole use and benefit of the City an amount equal to the Principal Amount for the exclusive purpose of providing funds to the City for the acquisition of the Equipment and paying the costs related thereto. Section 3.02. Conditions to Closing. The obligation of the Bank to make the advance pursuant to Section 3.01 hereof shall be subject to the following conditions: (a) The representations of the City shall be true, complete and correct in all material respects on the date hereof and on and as of the Closing Date as if made on the Closing Date; (b) At the time of Closing, the City Documents shall be in full force and effect and shall not have been amended or supplemented except as may have been agreed to in writing by the Bank; (c) The City is not in default with respect to its outstanding obligations including, without limitation, its obligations under the City Documents; and (d) At or prior to the Closing, the Bank shall have received each of the following documents: (i) This Finance Contract executed by the authorized officers of the City, with such changes or amendments as may have been approved by. the Bank; (ii) The Tax Ordinance certified by the City Secretary of the City as having been duly adopted by the City Council ofthe City, with such changes or amendments as may have been approved by the Bank; and (iii) A certificate, dated the Closing Date, executed by the authorized officials ofthe City, to the effect that (A) the representations and warranties of the City contained in this Finance Contract are true and correct on the date hereof and on and as of the Closing Date as if made on the Closing Date; (B) the Tax Ordinance and this Finance Contract are in full force and effect and have not been amended or supplemented except as may have been approved in writing by the Bank; (C) the City is not in default with respect to any of its outstanding obligations; and (D) except as may be described in such certificate, no litigation is pending or, to the best of their knowledge, threatened in any court to restrain or enjoin the execution and delivery of this Finance Contract, or the levy and collection of the ad valorem taxes levied pursuant to the Tax Ordinance or the pledge thereof, or contesting or affecting the adoption and validity of the Tax Ordinance or the authorization, execution and delivery of the City Documents, or contesting the powers of the City Council of the City. Section 3,03. Repayment Terms. (a) The City agrees to pay to the Bank in immediately available funds from the sources hereinafter described in Section 3.05 the outstanding Principal Amount and accrued interest thereon on the dates and in the amounts set forth on Attachment B; provided, that in the event the City prepays a portion of the outstanding Principal Amount, the interest payments set forth on Schedule B shall be revised accordingly. Such payments shall be made to the Bank at the address set forth in Section 7.03. (b) Interest on the outstanding Principal Amount shall accrue and shall be calculated at the per annum rate set forth on Attachment B for the actual number of days elapsed on the basis of a 360-day year. (c) Ifthe regularly scheduled due date for a payment hereunder is not a Business Day, the due date for such payment shall be the next succeeding Business Day, and payment made on such succeeding Business Day shall have the same force and effect as if made on the regularly scheduled due date. Section 3.04. Prepayment. The City reserves the right to prepay the outstanding Principal Amount as a whole, or in part, and, if in part, the particular principal installments or portions thereof, to be prepaid shall be selected and designated by the City, at a prepayment price equal to the principal amount to be prepaid plus accrued interest to the date fixed for prepayment. The City shall give 20 days written notice to the Bank of any such prepayment. Such notice shall set forth the date of prepayment and, if less than all of the outstanding Principal Amount is to be prepaid, the amount and principal installments, or portions thereof, to be prepaid. Section 3.05. Source of Payment. (a) The City has provided in the Tax Ordinance for the creation and establishment of an interest and sinking fund (the "Interest and Sinking Fund") as a separate trust fund or account for the payment of the Contract Payments. All ad valorem taxes levied and collected by the City pursuant to the Tax Ordinance shall be deposited into the Interest and Sinking Fund and used solely for the payment of the Contract Payments. All amounts now or at any time hereafter on deposit in the Interest and Sinking Fund, including the investment earnings thereof, are hereby pledged to the payment of the Contract Payments. (b) The City warrants that, by the Tax Ordinance, it has levied an ad valorem tax sufficient in rate and amount, within the limits provided by law, to make the Contract Payments when due and payable under this Finance Contract, ARTICLE IV DEFAULT AND REMEDIES Section 4.01. Events of Default. Each of the following occurrences or events for the purpose ofthis Finance Contract is hereby declared to be an Event of Default: (a) the failure to make payment of principal or interest hereunder when the same becomes due and payable; or (b) default in the performance or observance of any non -monetary covenant, agreement or obligation of the City, the failure to perform which materially, adversely affects the rights of the Bank, including, but not limited to, its prospect or ability to be repaid in accordance with this Finance Contract, and the continuation thereof for a period of 60 days after notice of such default is given by the Bank to the City. Section 4.02. Remedies for Default. Upon the happening of any Event of Default, then and in every case, the Bank may proceed against the City for the purpose of protecting and enforcing its rights under this Finance Contract, by mandamus or other suit, action or special proceeding in equity or at law, in any court of competent jurisdiction, for any relief permitted by law, including the specific performance of any covenantor agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the registered owner hereunder or any combination of such remedies. Section 4.03. Remedies Not Exclusive. (a) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity; provided, however, that notwithstanding any other provision ofthis Finance Contract, the right to accelerate payments due under this Finance Contract shall not be available as a remedy under this Finance Contract. (b) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. (c) By accepting the delivery of this Finance Contract, the Bank agrees that the certifications required to effectuate any covenants or representations contained in this Finance Contract do not and shall never constitute or give rise to a personal or pecuniary liability or charge against the officers, employees or trustees of the City. 5 ARTICLE V DISCHARGE Section 5.01. Discharge by Payment. When all Contract Payments have been paid in full or when the City has made payment to the Bank of the whole amount due or to become due hereunder (including all interest that has accrued or that may accrue to the date of maturity or prepayment, as applicable), the liens of this Finance Contract shall be discharged and released, and the Bank, upon receipt of a written request by the City and the payment by the City of the expenses with respect thereto, shall discharge and release the lien of this Finance Contract and execute and deliver to the City such releases or other instruments as shall be requisite to release the lien hereof. ARTICLE VI MODIFICATION OF DOCUMENTS Section 6.01. Amendments R�uire Written Consent of Parties. This Finance Contract may not be amended without the written consent of the City and the Bank, and the City may not amend the Tax Ordinance without the prior written consent of the Bank. ARTICLE VII MISCELLANEOUS Section 7.01. Term of Agreement. This Finance Contract shall become effective upon the Closing and shall continue in full force and effect until all obligations of the City under this Finance Contract have been fully paid. Section 7.02. Reports. The City agrees to provide to the Bank: (a) A copy of the City's annual audited financial statements within 180 days of the end of each fiscal year or at such time thereafter as such audited fmancial statements are approved by the City Council. (b) A copy of the City's annual budget within 60 days of the City Council's adoption thereof. Section 7.03. Notices. (a) All notices, certificates, or other communications required by or made pursuant to this Finance Contract shall be in writing and given by certified or registered United States mail, return receipt requested, addressed as follows: (i) if to the Bank: Independent Bank P.O. Box 37 Anna, Texas 75409 Attention: Johnny Bratcher r (i1) if to the City: City of Anna 101 North Powell Parkway Anna, Texas 75409-0776 Attention: City Manager () if to any Payee other than the Bank, at the address reported to the City pursuant to Section 7.04. (b) The City, the Bank may designate any further or different addresses to which subsequent notices shall be sent. (c) Except as otherwise provided by this Finance Contract, any communication delivered by mail in compliance with this section is deemed to have been given as of the date of deposit in the mail. (d) A provision of this Finance Contract that provides for a specific method of giving notice or otherwise conflicts with this section supersedes this section to the extent of the conflict. Section 7.04. Binding Effect• Assi�mnent• Record of Ownership. (a) This Finance Contract shall (i) be binding upon the City, its successors and assigns, and (ii) I nure to the benefit of and be enforceable by the Bank and its successors, transferees and assigns; provided that the City may not assign all or any part of this Finance Contract without the prior written consent of the Bank. The Bank may assign, transfer or grant participations in all or any portion of this Finance Contract, or any of its rights or security hereunder; provided that any such assignment, transfer or grant shall: (i) comply with the provisions of subsection (b) of this Section and (ii) shall be made only to a financial institution whose primary business is the lending of money. (b) The Bank and any subsequent Payee shall notify the City of any assignment or transfer pursuant to subsection (a), above, and shall provide the City with the name and address of the person or entity to whom such assignment, transfer or grant is made. (c) The City shall maintain a record of ownership interests in this Finance Contract and the right to receive payment hereunder, including all assignments and transfers made pursuant to subsection (a), above. Section 7.05 . Entire Agreement, The City Documents contain the entire agreement between the parties, and there are no other representations, endorsements, promises, agreements, or understandings, oral or written, express or implied, between the City and the Bank. Section 7.06. Payment of Costs. The City and the Bank shall each shall pay their respective expenses incident to the preparation, execution and delivery of, and performance oftheir respective obligations under, this Finance Contract, including but not limited to fees and expenses of legal counsel. Section 7.07. Severability. If any part of this Finance Contract is ruled invalid or unenforceable by a court of competent jurisdiction, the invalidity or unenforceability thereof shall not affect the remainder of this Finance Contract. 7 Section 7.08, Counterparts, This Finance Contract may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same document. Section 7.09. Applicable Law. This Finance Contract shall be governed in all respects, whether as to validity, construction, performance, or otherwise, by the laws of the State and, if applicable, federal law. (Execution Page Follows) 8 IN WITNESS WHEREOF, the parties hereto have caused this Finance Contract to be executed and attested by their respective duly authorized officers as of the date first above written. ATTEST: Title: ATTEST: By: City Secretary INDEPENDENT BANK Tit CITY OF ANNA, TEXAS By: Mayor [BANK SEAL] [CITY SEAL] IN WITNESS WIEREOF, the parties hereto have caused this Finance Contract to be executed and attested by their respective duly authorized officers as of the date first above written. By: Title: ATTEST: By: Title: CITY OF ANNA, TEXAS Mayor ATTEST: [BANK SEAL] [CITY SEAL] ATTACHMENT A Description of Equipment Police cars A-1 ATTACHMENT B Principal Amount and Repayment Terms Principal Amount: $40,400 Interest Rate: 5.00% Payment Dates and Amortization Schedule Payment Date Principal Interest Total Payment February 21, 2009 $121802,83 $21053467 $14,856.50 February 21, 2010 13,457.48 1,399.02 14,856.50 February 21, 2011 14,139.70 716.80 14,856.50 SIGNATURE IDENTIFICATION AND AUTHORITY CERTIFICATE OF BANK I, the undersigned officer of Independent Bank, McKinney, Texas (the "Bank"), in connection with the execution and delivery of that certain Finance Contract, dated as of February 26, 2008 (the "Finance Contract") between the Bank and the City of Anna, Texas, hereby certify as follows: It . The Bank is a state banking association duly organized under the banking laws of the United States of America and has full power and authority to enter into and perform its obligations under the Finance Contract. 2. The Finance Contract has been duly executed and attested on behalf of the Bank by the following persons who are duly elected or appointed officers of the Bank holding the offices set forth opposite their respective names and specimens of their genuine signatures: Name Office MAN O PM/toms IN WITNESS WHEREOF, the undersigned Bank has caused this certificate to be executed and its seal affixed on this March 19 2008 [BANK SEAL] INDEPENDENT BANK, McKINNEY, TEXAS Title: c. CLOSING CERTIFICATE We, the undersigned, Mayor and City Secretary, respectively, of the City of Anna, Texas (the "City hereby certify the following information: I. General 1.1 This certificate relates to that certain Finance Contract, dated as of February 26, 2008, between the City and Independent Bank, McKinney, Texas (the "Finance Contract"). 1.2 The City is a duly incorporated Home Rule City, having more than 5,000 inhabitants, operating under the Constitution and laws of the State of Texas and the duly adopted Home Rule Charter of the City. 1.3 As of the date hereof, the members of the City Council and certain other officers of the City are as follows: Kenneth L. Pelham, Mayor Billy Deragon, Mayor Pro Tern Keith Green, Deputy Mayor Pro Tem. Mike Crist, Councilmember Kevin Anderson, Councilmember John Geren, Councilmember David Crim, Councilmember Philip Sanders, City Manager Natha Wilkison, City Secretaryw 1.4 The assessed value of property for the purpose of taxation in the City as shown by its official tax rolls for tax year 2007, being its latest approved official assessment rolls, is $.0575, which does not include the amount of any exemptions to which property otherwise subject to taxation was entitled pursuant to applicable provisions of the Constitution and laws of the State of Texas. 1.5 Neither the corporate existence nor boundaries of the City nor the title of its present officers to their respective offices is being contested, and no authority or proceedings for the issuance of the Finance Contract have been repealed, revoked, or rescinded. 1.6. .The representations and warranties of the City contained in the Finance Contract are true and correct on the date hereof and on and as of the Closing Date as if made on the Closing Date 1.7. The ordinance ofthe City Council authorizing and approving the Finance Contract and levying a tax in payment thereof (the "Tax Ordinance") and the Finance Contract are in full force and effect and have not been amended or supplemented except as may have been approved in writing by the Bank. 1.8. The City is not in default with respect to any of its outstanding obligations. 1.9. No litigation is pending or, to the best of our knowledge, threatened in any court to restrain NC. or enjoin the execution and delivery of the Finance Contract, or the levy and collection of the ad valorem taxes levied pursuant to the Tax Ordinance or the pledge thereof, or contesting or affecting the adoption and validity of the Tax Ordinance or the authorization, execution and delivery of the Tax Ordinance or the Finance Contract, or contesting the powers of the City Council of the City. 1.10. The undersigned Mayor and City Secretary officially executed and signed the Finance Contract and at the time we so executed and signed the Finance Contract we were, and at the time of executing this certificate we are, the duly chosen, qualified, and acting officers indicated herein and authorized to execute the same. [Execution Page Follows] EXECUTED AND DELIVERED ON Manual Si5riatu1es STATE OF TEXAS COUNTY OF COLLIN March I9, 2008 Official Titles Mayor, City of Anna, Texas ,� City Secretary, City of Anna, Texas ACKNOWLEDGMENT 0 BEFORE ME, the undersigned authority, on this day personally appeared Shirley Spellerberg and Connie Bell, Mayor and City Secretary, respectively, of the City of Anna, Texas, known to me to be the persons and officers whose names are subscribed to the foregoing instrument and acknowledged to me that they executed the same in my presence for the purposes and consideration therein expressed and in the respective capacities therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE this r= day of , W08. Q 2o�,R�°�����, RIANA WFilTh�IR� NI'� Fy MY GpMMisSIQN EXRIRES 9TP oF``}P JUNE 28, 2010 Notary Public, State of Texas FEDERAL TAX CERTIFICATE 1. In General. 1.1. The undersigned is the City Manager of the City of Anna, Texas (the "Issuer"). 1,2. This Certificate is executed for the purpose of establishing the reasonable expectations of the Issuer as to future events regarding the Issuer's Finance Contract, dated as of February 26, 2008, between the Issuer and the Bank (hereinafter defined) (the "Finance Contract"). The Finance Contract is being issued pursuant to an ordinance of the Issuer (the "Ordinance") adopted on the date of sale of the Finance Contract. The Ordinance is incorporated herein by reference. 1.3. To the best ofthe undersigned's knowledge, information and belief, the expectations contained in this Certificate are reasonable. 1.4. The undersigned is an officer of the Issuer delegated with the responsibility of issuing and delivering the Finance Contract. 1.5. The undersigned is not aware of any facts or circumstances that would cause him to question the accuracy of the representations made by Independent Bank, McKinney, Texas (the "Purchaser") in Section 5 of this Certificate. 2. The Purpose of the Finance Contract and Useful Lives of Projects. 2.1. The Finance Contract is being issued pursuant to the Ordinance (a) to provide for the payment of costs of issuing the Finance Contract, and (b) to acquire police cars (the "Projects"). 2.2. The Issuer expects that the aggregate useful lives of the Projects exceed 3 years from the later A the date the Projects are placed in service or Lite date on which the Finance Contract is issued. 2.3. All earnings, such as interest and dividends, received from the investment of the proceeds of the Finance Contract during the period of acquisition ofthe Projects and not used to pay interest on the Finance Contract, will be used to pay the costs of the Projects, unless required to be rebated and paid to the United States in accordance with section 148(f) of the Internal Revenue Code of 1986 (the "Code"). The proceeds of the Finance Contract, together with any investment earnings thereon, are expected not to exceed the amount necessary for the governmental purpose of the Finance Contract. 3. Expenditure of Finance Contract Proceeds and Use of Protects. 3.1. The Issuer will incur, within six months after the date of issue of the Finance Contract, a binding obligation to commence the Projects by entering into contracts for the acquisition ofthe Projects with the amount to be paid under such contracts to be in excess of five percent of the proceeds which are estimated to be used for the cost of the Projects. 3.2. After entering into binding obligations, acquisition of the Projects will proceed promptly with due diligence to completion. 3.3. All original proceeds derived fromthe sale ofthe Finance Contractto be appliedto the Projects and all investment earnings thereon (other than any amounts required to be rebated to the United States JC. pursuant to section 148(f) of the Code) will be expended for the Projects no later than a date which is three years after the date of issue of the Finance Contract. 3.4. The Ordinance provides that allocations of proceeds to expenditures for the Projects are expected not to be later than 18 months after the later of the date of the expenditure or the date that the Projects are placed in service, but, in any event, not longer than 60 days after the earlier of five years of the date hereof or the date the Finance Contract is retired. 3.5 . The Issuer will not invest the proceeds prior to such expenditure in any guaranteed investment contract or other non -purpose investment with a substantially guaranteed yield for a period equal to or greater than four years. 3.6. Other than members of the general public, the Issuer expects that throughout the lesser of the term of the Finance Contract, or the useful lives of the Projects, the only user of the Projects will be the Issuer or the Issuer's employees and agents. The Issuer will be the manager of the Projects. In no event will the proceeds of the Finance Contract or facilities financed therewith be used for private business use in an amount greater than $15 million. 3.7. Except as stated below, the Issuer expects not to sell or otherwise dispose of property constituting the Projects prior to the earlier of the end of such property's useful life or the final maturity of the Finance Contract. The Ordinance provides that the Issuer will not sell or otherwise dispose of the Projects unless the Issuer receives an opinion of nationally -recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Finance Contract. 3.8. For purposes of Section 3.7 hereof, the Issuer has not included the portion of the Projects comprised of personal property that is disposed in the ordinary course at a price that is expected to be less than 25 percent of the original purchase price. The Issuer, upon any disposition of such property, will transfer the receipts from the disposition of such property to the general operating fund and expend such receipts within six months for other governmental programs. 4. Interest and Sinking Fund. 4.1. A separate and special Interest and Sinking Fund has been created and established solely to pay the principal of and interest on the Finance Contract, with a portion of the Interest and Sinking Fund constituting a bona fide debt service fund for the Finance Contract, and money deposited into the Interest and Sinking Fund for the Finance Contract will not be invested at a yield higher than the yield on the Finance Contract, except during the thirteen month period beginning on the date of each such deposit of money, and the amounts received from the investment of money in the Interest and Sinking Fund will not be invested at a yield higher than the yield on the Finance Contract, except during the one year period beginning on the date of receipt of such amounts; provided, however, and except that, if any money so deposited, and any amounts received from the investment thereof, are accumulated in the Interest and Sinking Fund and remain on hand in the Interest and Sinking Fund after thirteen months from the date of deposit of any such money or one year after the receipt of any such amounts from the investment thereof, such money and amounts, to the extent of an aggregate not exceeding the lesser of five percent of the proceeds of the Finance Contract or $100,000 will not be subject to investment yield restrictions, and shall constitute a separate portion of the Interest and Sinking Fund. 2 4.2. It is expected that a portion of the Interest and Sinking Fund will be used primarily to achieve a proper matching of revenues collected for the Finance Contract and debt service on the Finance Contract within each bond year, and it is expected that such portion of the Interest and Sinking Fund will be depleted once a year on a first -in - first -out basis, except for a possible carryover amount which will not exceed the greater of one year's earnings on such fund or 1/12 of annual debt service payable from such fund, but any money and amounts which may be accumulated in the Interest and Sinking Fund, to constitute a debt service reserve fund for the Finance Contract as described in Section 4.1, above, shall constitute a separate portion of the Interest and Sinking Fund, and will not be depleted annually, and will not be subject to yield restrictions; provided that in no event will such debt service reserve fund portion of the Interest and Sinking Fund ever exceed the lesser of five percent of the proceeds of the Finance Contract or $100,000 0 5. Yield. The Finance Contract has been the subject of a bona fide initial offering to the Purchaser who is acquiring as a member of the public and not for the present purposes of resale at a purchase price of 100 percent of the stated principal amount thereof. 6. Invested Sinking Fund Proceeds Replacement Proceeds. 6.1. The Issuer has, in addition to the moneys received from the sale of the Finance Contract, certain other moneys that are invested in various funds which are pledged for various purposes. These other funds are not available to accomplish the purposes described in Section 2 of this Certificate. 6.2. Other than the Interest and Sinking Fund, there are, and will be, no other funds or accounts established, or to be established, by or on behalf of the Issuer (a) which are reasonably expected to be used, or to generate earnings to be used, to pay debt service on the Finance Contract, or (b) which are reserved or pledged as collateral for payment of debt service on the Finance Contract and for which there is reasonable assurance that amounts therein will be available to pay such debt service if the Issuer encounters financial difficulties. Accordingly, there are no other amounts constituting "gross proceeds" of the Finance Contract, within the meaning of section 148 of the Code. 7. Other Obligations. There are no other obligations of the Issuer that (a) are sold at substantially the same time as the Finance Contract, i.e., within 15 days of the date of sale of the Finance Contract, (b) are sold pursuant to a common plan of financing with the Finance Contract, and (c) will be payable from the same source of funds as the Finance Contract. 8. Federal Tax Audit Responsibilities, The Issuer acknowledges that in the event of an examination by the Internal Revenue Service (the "Service") to determine compliance of the Finance Contract with the provisions of the Code as they relate to tax-exempt obligations, the Issuer will respond, and will direct its agents and assigns to respond, in a c%ommercially reasonable manner to any inquiries from the Service in connection with such an examination. The Issuer understands and agrees that the examination maybe subject to public disclosure under applicable Texas law. 3 9. Record Retention, The Issuer has covenanted in the Ordinance that it will comply with the requirements of the Code relating to the exclusion of the interest on the Finance Contract under section 103 of the Code. The Service has determined that certain materials, records and information should be retained by the issuers of tax-exempt obligations for the purpose of enabling the Service to confirm the exclusion of the interest on such obligations under section 103 of the Code. ACCORDINGLY, THE ISSUER SHALL TAKE STEPS TO ENSURE THAT ALL MATERIALS, RECORDS AND INFORMATION NECESSARY TO CONFIRM THE EXCLUSION OF THE INTEREST ON THE FINANCE CONTRACT UNDER SECTION 103 OF THE CODE ARE RETAINED FOR THE PERIOD BEGINNING ON THE ISSUE DATE OF THE FINANCE CONTRACT AND ENDING THREE YEARS AFTER THE DATE THE FINANCE CONTRACT IS RETIRED. The Issuer acknowledges receipt of the letter attached hereto as Exhibit "B" which, in part, discusses specific guidance by the Service with respect to the retention of records relating to tax-exempt bond transaction. The Issuer also acknowledges that the letter does not constitute an opinion of Bond Counsel as to the proper record retention policy applicable to any specific transaction. 10. Rebate to United States. The Issuer has covenanted in the Ordinance that it will comply with the requirements of the Code, including section 148(f) ofthe Code, relating to the required rebate to the United States. Specifically, the Issuer will take steps to ensure that all earnings on gross proceeds of the Finance Contract in excess of the yield on the Finance Contract required to be rebated to the United States will be timely paid to the United States. The Issuer acknowledges receipt of the memorandum attached hereto as Exhibit "A" which discusses regulations promulgated pursuant to section 148(f) of the Code. This memorandum does not constitute an opinion of Bond Counsel as to the proper federal tax or accounting treatment of any specific transaction. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] 0 DATED: March 199 2008 CITY OF ANNA, TEXAS By: The undersigned represents that, to the best of the undersigned's knowledge, information and belief, the representations contained in Section 5 of this Federal Tax Certificate are accurate. I Exhibit "A" LAW OFFICES MCCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 1800 ONE AMERICAN CENTER AUSTIN, TEXAS 78701.3248 TELEPHONE: (512) 478.3805 FACSIMILE: (512) 472.0871 717 NORTH HARWOOD NINTH FLOOR DALLAS, TEXAS 75201.6587 TELEPHONE: (214) 7549200 FACSIMILE: (214) 754.9250 January 1, 2006 700 N. ST. MARY'S STREET 1525 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205.3503 TELEPHONE: (210) 225-2800 FACSIMILE: (210) 225.2984 ARBITRAGE REBATE REGULATIONS© The arbitrage rebate requirements set forth in section 148(f) of the Internal Revenue Code of 1986 (the "Code") generally provide that in order for interest on any issue of bonds' to be excluded from gross income (Le., tax-exempt) the issuer must rebate to the United States the sum of, (1) the excess of the amount earned on all "nonpurpose investments" acquired with "gross proceeds" of the issue over the amount which would have been earned if such investments had been invested at a yield equal to the yield on the issue, and (2) the earnings on such excess earnings. On June 18, 1993, the U.S. Treasury Department promulgated regulations relating to the computation of arbitrage rebate and the rebate exceptions. These regulations, which replace the previously -published regulations promulgated on May 15, 1989, and on May 18, 1992, are effective for bonds issued after June 30, 1993, This memorandum was prepared by McCall, Parkhurst & Horton L.L.P. and provides a general discussion of these arbitrage rebate regulations. This memorandum does not otherwise discuss the general arbitrage regulations, other than as they may incidentally relate to rebate. This memorandum also does not attempt to provide an exhaustive discussion of the arbitrage rebate regulations and should not be considered advice with respect to the arbitrage rebate requirements as applied to any individual or governmental unit or any specific transaction. Any tax advice contained in this memorandum is of a general nature and is not intended to be used, and should not be used, by any person to avoid penalties under the Code. McCall, Parkhurst &Horton L.L.P. remains available to provide legal advice to issuers with respect to the provisions of these tax regulations but recommends that issuers seek competent financial and accounting assistance in calculating the amount of such issuer's rebate liability under section 148(f) of the Code and in making elections to apply the rebate exceptions. 1 In this memorandum the word "bond" is defined to include any bond, note, certificate, financing lease or other obligation of an issuer. Copyright 2006 by Harold T. Flanagan, McCall, Parkhurst &Horton L.L.P. All rights reserved. Effective Dates The regulations promulgated on June 18,1993, generally applyto bonds delivered after June 30, 1993, although they do permit an issuer to elect to apply the rules to bonds issued prior to that date. The temporary regulations adopted by the U.S. Treasury Department in 1989 and 1992 incorporated the same effective dates which generally apply for purposes of section 148(f) of the Code. As such, the previous versions of the rebate regulations generally applied to bonds issued between August 1986 and June 30, 1993 (or, with an election, to bonds issued prior to August 15, 1993). The statutory provisions of section 148(f) of the Code, other than the exception for construction issues, apply to all bonds issued after August 15, 1986, (for private activity bonds) and August 31, 1986, (for governmental public purpose bonds). The statutory exception to rebate applicable for construction issues generally applies if such issue is delivered after December 19, 1989. The regulations provide numerous transitional rules for bonds sold priorto July 1, 1993. Moreover, since, under prior law, rules were previously published with respect to industrial development bonds and mortgage revenue bonds, the transitional rules contained in these regulations permit an issuer to elect to apply certain of these rules for computing rebate on pre- 1986 bonds. The regulations provide for numerous elections which would permit an issuer to apply the rules (other than 18-month spending exception) to bonds which were issued prior to July 1, 1993 and remain outstanding on June 30, 1993. Due to the complexity of the regulations, it is impossible to discuss in this memorandum- all circumstances for which specific elections are provided. If an issuer prefers to use these final version of rebate regulations in lieu of the computational method stated under prior law (e.g., due to prior redemption) or the regulations, please contact McCall, Parkhurst & Horton L.L.P. for advice as to the availability of such options. Future Value Computation Method The regulations employ an actuarial method for computing the rebate amount based on the future value of the investment receipts (i.e., earnings) and payments. The rebate method employs a two-step computation to determine the amount of the rebate payment. First, the issuer determines the bond yield. Second, the issuer determines the arbitrage rebate amount. The regulations require that the computations be made at the end of each five-year period and upon final maturity of the issue (the "computation dates"). THE FINAL MATURITY DATE WILL ACCELERATE IN CIRCUMSTANCES IN WHICH THE BONDS ARE OPTIONALLY REDEEMED PRIOR TO MATURITY. AS SUCH, IF BONDS ARE REFUNDED OR OTHERWISE REDEEMED, THE REBATE MAY BE DUE EARLIER THAN INITIALLY PROJECTED. In orderto accommodate accurate record -keeping and to assure that sufficient amounts will be available for the payment of arbitrage rebate liability, however, we recommend that the computations be performed at least annually. Please refer to other materials provided by McCall, Parkhurst & Horton L.L.P. relating to federal tax rules regarding record retention. Under the future value method, the amount of rebate is determined by compounding the aggregate earnings on all the investments from the date of receipt by the issuer to the computation date. Similarly, a payment for an investment is future valued from the date that the payment is made to the computation date. The receipts and payments are future valued at a discount rate equal to the yield on the bonds. The rebatable arbitrage, as of any McCall, Parkhurst &Horton L.L.P. -Page 2 computation date, is equal to the excess of the (1) future value of all receipts from investments (i.e., earnings), over (2) the future value of all payments. The following example is provided in the regulations to illustrate how arbitrage rebate is computed under the future value method for a fixed -yield bond: "On January 1, 1994, City A issues a fixed yield issue and invests all the sale proceeds of the issue ($49 million). There are no other gross proceeds. The issue has a yield of 7.0000 percent per year compounded semiannually (computed on a 30 day month/360 day year basis). City A receives amounts from the investment and immediately expends them for the governmental purpose of the issue as follows: Date Amount 2/1/1994 $ 31000,000 4/1/1994 51000,000 6/1 /1994 14,000,000 9/1 /1994 20,000,000 7/1 /1995 10,000,000 City A selects a bond year ending on January 1, and thus the first required computation date is January 1, 1999, The rebate amount as of this date is computed by determining the future value of the receipts and the payments for the investment. The compounding interval is each &month (or shorter) period and the 30 day month/360 day year basis .is used because these conventions were used to compute yield on the issue. The future value of these amounts, plus the computation credit, as of January 1, 1999, is: Date Receipts (Payments). 01/1/1994 ($49,000,000) 02/1 /1994 3,000,000 04/1 /1994 51000,000 06/1 /1994 14,000,000 09/1 /1994 20,0001000 01 /1 /1995 (11000) 07/1/1995 10,000,000 01 /1 /1996 (11000) Rebate amount (01/01/1999) General Method for Computing Yield on Bonds FY (7.0000 percent) ($69,119,339) 4,207,602 62932,715 1911902277 261947,162 (11317) 121722,793 (1,229) In general, the term "yield," with respect to a bond, means the discount rate that when used in computing the present value of all unconditionally due payments of principal and interest and all of the payments for a qualified guarantee produces an amount equal to the issue price of the bond. The term "issue price" has the same meaning as provided in sections McCall, Parkhurst &Horton L.L.P. -Page 3 1273 and 1274 of the Code. That is, if bonds are publicly offered (i.e., sold by the issuer to a bond house, broker or similar person acting in the capacity of underwriter or wholesaler), the issue price of each bond is determined on the basis of the initial offering price to the public (not to the aforementioned intermediaries) at which price a substantial amount of such bond was sold to the public (not to the aforementioned intermediaries). The "issue price" is separately determined for each bond (i.e., maturity) comprising an issue. The regulations also provide varying periods for computing yield on the bonds depending on the method by which the interest payment is determined. Thus, for example, yield on an issue of bonds sold with variable interest rates (i.e., interest rates which are reset periodically based on changes in market) is computed separately for each annual period ending on the first anniversary of the delivery date that the issue is outstanding. In effect, yield on a variable yield issue is determined on each computation date by "looking back" at the interest payments for such period. The regulations, however, permit an issuer of a variable -yield issue to elect to compute the yield for annual periods ending on any date in order to permit a matching of such yield to the expenditure of the proceeds. Any such election must be made in writing, is irrevocable, and must be made no later than the earlier of (1) the fifth anniversary date, or (2) the final maturity date. Yield on a fixed interest rate issue (i.e., an issue of bonds the interest rate on which is determined as of the date of the issue) is computed over the entire term of the issue. Issuers of fixed -yield issues generally use the yield computed as of the date of issue for all rebate computations. Such yield on fixed -yield issues generally is recomputed only if (1) the issue is sold at a substantial premium, may be retired within five years of the date of delivery, and such date is earlier than its scheduled maturity date, or (2) the issue is a stepped -coupon bond. In such cases, the regulations require the issuer to recompute the yield on such issues by taking into account the early retirement value of the bonds. Similarly, recomputation may occur in circumstances in which the issuer or bondholder modify or waive certain terms of, or rights with respect to, the issue or in sophisticated hedging transactions. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL PARKHURST & HORTON L.L.P. TO A nnRFSs THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. For purposes of determining the principal or redemption payments on a bond, different rules are used for fixed-rate and variable -rate bonds. The payment is computed separately on each maturity of bonds rather than on the issue as a whole. In certain circumstances, the yield on the bond is determined by assuming that principal on the bond is paid as scheduled and that the bond is retired on the final maturity date for the stated retirement price. For bonds subject to early redemption or stepped -coupon bonds, described above, or for bonds subject to mandatory early redemption, the yield is computed assuming the bonds are paid on the early redemption date for an amount equal to their value. Premiums paid to guarantee the payment of debt service on bonds are taken into account in computing the yield on the bond. Payments for guarantees are taken into account by treating such premiums as the payment of interest on the bonds. This treatment, in effect, raises the yield on the bond, thereby permitting the issuer to recover such fee with excess earnings. McCall, Parkhurst &Horton L.L.P. -Page 4 The guarantee must bean unconditional obligation of the guarantor enforceable bythe bondholder for the payment of principal or interest on the bond or the tender price of a tender bond. The guarantee may be in the form of an insurance policy, surety bond, irrevocable letter or line of credit, or standby purchase agreement. Importantly, the guarantor must be legally entitled to full reimbursement for any payment made on the guarantee either immediately or upon commercially reasonable repayment terms. The guarantor may not be a co -obligor of the bonds or a user of more than 10 percent of the proceeds of the bonds. Payments for the guarantee may not exceed a reasonable charge for the transfer of credit risk. This reasonable charge requirement is not satisfied unless it is reasonably expected that the guarantee will result in a net present value savings on the bond (i.e., the premium does not exceed the present value of the interest savings resulting by virtue of the guarantee). If the guarantee is entered into after June 14, 1989, then any fees charged for the nonguarantee services must be separately stated or the guarantee fee is not recoverable. The regulations also treat certain "hedging" transactions in a manner similarto qualified guarantees. "Hedges" are contracts, e.g., interest rate swaps, futures contracts or options, which are intended to reduce the risk of interest rate fluctuations. Hedges and other financial derivatives are sophisticated and ever -evolving financial products with which a memorandum, such as this, can not readily deal. IN SUCH CIRCUMSTANCES ISSUERS ARE ADVISED TO CONSULT McCALL PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. Earnings on Nonpurpose Investments The arbitrage rebate provisions apply only to the receipts from the investment of "gross proceeds" in "nonpurpose investments." Forthis purpose, nonpurpose investments are stock, bonds or other obligations acquired with the gross proceeds of the bonds for the period prior to the expenditure of the gross proceeds for the ultimate purpose. For example, investments deposited to construction funds, reserve funds (including surplus taxes or revenues deposited to sinking funds) or other similar funds are nonpurpose investments. Such investments include only those which are acquired with "gross proceeds." For this purpose, the term "gross proceeds includes original proceeds received from the sale of the bonds, investment earnings from the investment of such original proceeds, amounts pledged to the payment of debt service on the bonds or amounts actually used to pay debt service on the bonds. The regulations do not provide a sufficient amount of guidance to include an exhaustive list of "gross proceeds" for this purpose; however, it can be assumed that "gross proceeds" represent all amounts received from the sale of bonds, amounts earned as a result of such sale or amounts (including taxes and revenues) which are used to pay, or secure the payment of, debt service for the bonds. The total amount of "gross proceeds" allocated to a bond generally can not exceed the outstanding principal amount of the bonds. The regulations provide that an investment is allocated to an issue for the period (1) that begins on the date gross proceeds are used to acquire the investment, and (2) that ends on the date such investment ceases to be allocated to the issue. In general, proceeds are allocated to a bond issue until expended for the ultimate purpose forwhich the bond was issued or for which such proceeds are received (e.g., construction of a bondAnanced facility or payment of debt service on the bonds). Deposit of gross proceeds to the general fund of the McCall, Parkhurst &Horton L.L.P. -Page 5 issuer (or other fund in which they are commingled with revenues or taxes) does not eliminate or ameliorate the Issuer's obligation to compute rebate in most cases. As such, proceeds commingled with the general revenues of the issuer are not "freed -up" from the rebate obligation. An exception to this commingling limitation for bonds, other than private activity bonds, permits "investment earnings" (but not sale proceeds or other types of gross proceeds) to be considered spent when deposited to a commingled fund if those amounts are reasonably expected to be spent within six months. Other than for these amounts, issuers may consider segregating investments in orderto more easily compute the amount of such arbitrage earnings by not having to allocate investments. Special rules are provided for purposes of advance refundings. These rules are too complex to discuss in this memorandum. Essentially, the rules relating to refundings, however, do not require that amounts deposited to the escrow fund to defease the prior obligations of the issuer be subject to arbitrage rebate to the extent that the investments deposited to the escrow fund do not have a yield in excess of the yield on the bonds. Any loss resulting from the I nvestment of proceeds in an escrow fund below the yield on the bonds, however, may be recovered by combining those investments with investments deposited to other funds, e.g., reserve or construction funds. The arbitrage regulations also provide an exception to the arbitrage limitations for the investment of bond proceeds in tax-exempt obligations. As such, investment of proceeds in tax exempt bonds eliminates the Issuer's rebate obligation. A caveat; this exception does not apply to gross proceeds derived allocable to a bond, which is not subject to the alternative minimum tax under section 57(a)(5) of the Code, if invested in tax-exempt bonds subject to the alternative minimum tax, Le.," private activity bonds." Such "AMT-subject" investment is treated as a taxable investment and must comply with the arbitrage rules, including rebate. Earnings from these tax-exempt investments are subject to arbitrage restrictions, including rebate. Similarly, the investment of gross proceeds in certain tax-exempt mutual funds are treated as a direct investment in the tax-exempt obligations deposited in such fund. While issuers may invest in such funds for purposes of avoiding arbitrage rebate, they should be aware that if "private activity bonds" are included in the fund then a portion of the earnings will be subject to arbitrage rebate. Issuers should be prudent in assuring that the funds do not contain private activity bonds. The arbitrage regulations provide a number of instances in which earnings will be iI puted to nonpurpose investments. Receipts generally will be imputed to investments that do not bear interest at an arm's-length (i.e., market) interest rate. As such, the regulations adopt a "market price" rule. In effect, this rule prohibits an issuer from investing bond proceeds in investments at a price which is higher than the market price of comparable obligations, in order to reduce the yield. Special rules are included for determining the market price for investment contracts, certificates of deposit and certain U.S. Treasury obligations. For example, to establish the fair market value of investment contracts a bidding process between three qualified bidders must be used. The fair market value of certificates of deposit which bear a fixed interest rate and are subject to an early withdrawal penalty is its purchase price if that price is not less than the yield on comparable U.S. Treasury obligations and is the highest yield available from the institution. In any event, a basic "common sense" rule -of -thumb that can be used to determine whether a fair market value has been paid is to ask whether the general McCall, Parkhurst &Horton L.L.P. -Page 6 funds of the issuer would be invested at the same yield or at a higher yield. An exception to this market price rule is available for United States Treasury Obligations - State or Local Government Series in which case the purchase price is always the market price. Reimbursement Cl"d Working Capital The regulations provide rules for purposes of determining whether gross proceeds are used for working capital and, if so, at what times those proceeds are considered spent. In general, working capital financings are subject to many of the same rules that have existed since the midA 970s. For example, the regulations generally continue the 13-month temporary period. By adopting a "proceeds -spent -last" rule, the regulations also generally require that an issuer actually incur a deficit (i.e., expenditures must exceed receipts) for the computation period (which generally corresponds to the issuer's fiscal year). Also, the regulations continue to permit an operating reserve, but unlike prior regulations the amount of such reserve may not exceed five percent of the issuer's actual working capital expenditures for the prior fiscal year. Another change made by the regulations is that the issuer may not finance the operating reserve with proceeds of a tax-exempt obligation. Importantly, the regulations contain rules for determining whether proceeds used to reimburse an issuer for costs paid prior to the date of issue of the obligation, in fact, are considered spent at the time of reimbursement. These rules apply to an issuer who uses general revenues for the payment of all or a portion of the costs of a project then uses the proceeds of the bonds to reimburse those general revenues. Failure to complywith these rules would result in the proceeds continuing to be subject to federal income tax restrictions, including rebate. To qualify for reimbursement, a cost must be described in an expression (e.g., resolution, legislative authorization) evidencing the issuer's intent to reimburse which is made no later than 60 days after the payment of the cost. Reimbursement must occur no later than 18 months after the later of (1) the date the cost is paid or (2) the date the project is placed in service. Except for projects requiring an extended construction period or small issuers, in no event can a cost be reimbursed more than three years after the cost is paid. Reimbursement generally is not permitted forworking capital; only capital costs, grants and loans may be reimbursed. Moreover, certain anti -abuse rules apply to prevent issuers from avoiding the limitations on refundings. IN CASES INVOLVING WORKING CAPITAL OR REIMBURSEMENT, ISSUERS ARE ADVISED TO CONTACT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION. Rebate Payments Rebate payments generally are due 60 days after each installment computation date. The interim computation dates occur each fifth anniversary of the issue date. The final computation date is on the latest of (1) the date 60 days after the date the issue of bonds is no longer outstanding, (2) the date eight months after the date of issue for certain short-term obligations (i.e., obligations retired within three years), or (3) the date the issuer no longer reasonably expects any spending exception, discussed below, to apply to the issue. On such McCall, Parkhurst &Horton L.L.P. -Page 7 payment dates, other than the final payment date, an issuer is required to pay 90 percent of the rebatable arbitrage to the United States. On the final payment date, an issuer is required to pay 100 percent of the remaining rebate liability. Failure to timely pay rebate does not necessarily result in the loss of tax -exemption. Late payments, however, are subject to the payment of interest, and unless waived, a penalty of 50 percent (or, in the case of private activity bonds, other than qualified 501(c)(3) bonds,100 percent) of the rebate amount which is due. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. Rebate payments are refundable. The issuer, however, must establish to the satisfaction of the Commissioner of the Internal Revenue Service that the issuer paid an amount in excess of the rebate and that the recovery of the overpayment on that date would not result in additional rebatable arbitrage. An overpayment of less than $5,000 may not be recovered before the final computation date. Alternative Penalty Amount In certain cases, an issuer of a bond the proceeds of which are to be used for construction may elect to pay a penalty, in lieu of rebate. The penalty may be elected in circumstances in which the issuer expects to satisfy the two-year spending exception which is more fully described under the heading "Exceptions to Rebate." The penalty is payable, if at all, within 60 days after the end of each six-month period. This is more often than rebate. The election of the alternative penalty amount would subject an issuer, which fails the two-year spend -out requirements, to the payment of a penalty equal to one and one-half of the excess of the amount of proceeds which was required to be spent during that period over the amount which was actually spent during the period. The penalty has characteristics which distinguish it from arbitrage rebate. First, the penalty would be payable without regard to whether any arbitrage profit is actually earned. Second, the penalty continues to accrue until either (1) the appropriate amount is expended or (2) the issuer elects to terminate the penalty. To be able to terminate the penalty, the issuer must meet specific requirements and, in some instances, must pay an additional penalty equal to three percent of the unexpended proceeds. Exceptions to Rebate The Code and regulations provide certain exceptions to the requirement that the excess investment earnings be rebated to the United States. a. Small Issuers. The first exception provides that if an issuer (together with all subordinate issuers) during a calendaryeardoes not issue tax-exempt bonds2 in an aggregate z For this purpose, "private activity bonds" neither are afforded the benefit of this exception nor are taken into account for purposes of determining the amount of bonds issued. McCall, Parkhurst &Horton L.L.P. -Page 8 ' face amount exceeding $5 million, then the obligations are not subject to rebate. Only issuers with general taxing powers may take advantage of this exception. Subordinate issuers are those issuers which derive their authority to issue bonds from the same issuer, e.g., a city and a health facilities development corporation, or which are controlled by the same issuer, e.g., a state and the board of a public university. In the case of bonds issued for public school capital expenditures, the $5 million cap may be increased to as much as $15 million. For purposes of measuring whether bonds in the calendar year exceed these dollar limits, current refunding bonds can be disregarded if they meet certain structural requirements. Please contact McCall, Parkhurst & Horton L.L.P. for further information. b. Spendinccr Exceptions. Six -Month Exception. The second exception to the rebate requirement is available to all tax-exempt bonds, all of the gross proceeds of which are expended during six months. The six month rule is available to bonds issued after the effective date of the Tax Reform Act of 1986. See the discussion of effective dates on page two. For this purpose, proceeds used for the redemption of bonds (other than proceeds of a refunding bond deposited to an escrow fund to discharge refunded bonds) can not be taken into account as expended. As such, bonds with excess gross proceeds generally can not satisfy the second exception unless the amount does not exceed the lesser of five percent or $100,000 and such de minimis amount must be expended within one year. Certain gross proceeds are not subject to the spend -out requirement, including amounts deposited to a bona fide debt service fund, to a reserve fund and amounts which become gross proceeds received from purpose investments. These amounts themselves, however, may be subject to rebate even though the originally expended proceeds were not. The Code provides a special rule for tax and revenue anticipation notes (i.e., obligations issued to pay operating expenses in anticipation of the receipt of taxes and other revenues). Such notes are referred to as TRANs. To determine the timely expenditure of the proceeds of a TRAN, the computation of the "cumulative cash flow deficit" is important. If the "cumulative cash flow deficit" (i.e., the point at which the operating expenditures of the issuer on a cumulative basis exceed the revenues of the issuer during the fiscal year) occurs within the first six months of the date of issue and must be equal to at least 90 percent of the proceeds of the TRAN, then the notes are deemed to satisfy the exception. This special rule requires, however, that the deficit actually occur, not that the issuer merely have an expectation that the deficit will occur. In lieu of the statutory exception for TRANs, the regulations also provide a second exception. Under this exception,100 percent of the proceeds must be spent within six months, but before note proceeds can be considered spent, all other available amounts of the issuer must be spent first ("proceeds -spent -last" rule). In determining whether all available amounts are spent, a reasonable working capital reserve equal to five percent of the prior year's expenditures may be set aside and treated as unavailable. 98-Month Exception. The regulations also establish anon -statutory exception to arbitrage rebate if all of the gross proceeds (including investment earnings) are expended within 18 months after the date of issue. Under this exception, 15 percent of the gross proceeds must be expended within a six-month spending period, 60 percent within a 12-month spending period and 100 percent within an 18-month spending period. The rule permits an issuer to rely on its reasonable expectations for computing investment earnings which are included as gross McCall, Parkhurst &Horton L.L.P. -Page 9 proceeds during the first and second spending period. A reasonable retainage not to exceed five percent of the sale proceeds of the issue is not required to be spent within the 18-month period but must be expended within 30 months. Rules similar to the six-month exception relate to the definition of gross proceeds. Two Year Exception. Bonds issued after December 19, 1989 (i.e., the effective date of the Omnibus Reconciliation Act of 1989), at least 75 percent of the net proceeds of which are to be used for construction, may be exempted from rebate if the gross proceeds are spent within two years. Bonds more than 25 percent of the proceeds of which are used for acquisition or working capital may not take advantage of this exception. The exception applies only to governmental bonds, qualified 501(c)(3) bonds and private activity bonds for governmentally - owned airports and docks and wharves. The two-year exception requires that at least 10 percent of the available construction proceeds must be expended within six months after the date of issue, 45 percentwithin 12 months, 75 percentwithin 18 months and 100 percentwithin 24 months. The term "available construction proceeds" generally means sale proceeds of the bonds together with investment earnings less amounts deposited to a qualified reserve fund or used to pay costs of issuance. Under this rule, a reasonable retainage not to exceed five percent need not be spent within 24 months but must be spent within 36 months. The two-year rule also provides for numerous elections which must be made not later than the date of issuance of the bonds. Once made, the elections are irrevocable. Certain elections permit an issuer to bifurcate bond issues, thereby treating only a portion of the issue as a qualified construction bond; and, permit an issuerto disregard earnings from reserve funds for purposes of determining "available construction proceeds." Another election permits an issuer to pay the alternative penalty amount discussed above in lieu of rebate if the issuer ultimately fails to satisfy the two-year rule. Issuers should discuss these elections with their financial advisors prior to issuance of the bonds. Of course, McCall, Parkhurst & Horton L.L.P. remains available to assist you by providing legal interpretations thereof. Debt Service Funds. Additionally, an exception to the rebate requirement, whether or not any of the previously discussed exceptions are available, applies for earnings on "bona fide debt service funds." A "bona fide debt service fund" is one in which the amounts are expended within 13 months of the accumulation of such amounts by the issuer. In general, most interest and sinking funds (other than any excess taxes or revenues accumulated therein) satisfy these requirements. For private activity bonds, short term bonds (i.e., have a term of less than five years) or variable rate bonds, the exclusion is available only if the gross earnings in such fund does not exceed $100,000, for the bond year. For other bonds issued after November 11, 1988, no limitation is applied to the gross earnings on such funds for purposes of this exception. Therefore, subject to the foregoing discussion, the issuer is not required to take such amounts into account for purposes of the computation. FOR BONDS ISSUED AFTER THE EFFECTIVE DATE OF THE TAX REFORM ACT OF 1986 WHICH WERE OUTSTANDING AS OF NOVEMBER 11, 1988, OTHER THAN PRIVATE ACTIVITY BONDS, SHORT TERM BONDS OR VARIABLE RATE BONDS, A ONE-TIME ELECTION MAY BE MADE TO EXCLUDE EARNINGS ON "BONA FIDE DEBT SERVICE FUNDS" WITHOUT REGARD TO THE $100,000, LIMITATION. THE ELECTION MUST BE MADE IN WRITING (AND MAINTAINED AS PART OF THE ISSUER'S BOOKS AND McCall, Parkhurst &Horton L.L.P. —Page 10 RECORDS) NO LATER THAN THE LATER OF MARCH 21, 1990, OR THE FIRST DATE A REBATE PAYMENT IS REQUIRED. Conclusion McCall, Parkhurst & Horton L.L.P. hopes that this memo,randum will prove to be useful as a general guide to the arbitrage rebate requirements. Again, this memorandum is not intended as an exhaustive discussion nor as specific advice with respect to any specific transaction. We advise our clients to seek competent financial and accounting assistance. Of course, we remain available to provide legal advice regarding all federal income tax matters, including arbitrage rebate. If you have any questions, please feel free to contact either Harold T. Flanagan or Faust N. Bowerman at (214) 754-9200. McCall, Parkhurst &Horton L.L.P. -Page 11 Exhibit "B" LAW OFFICES MCCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 717 NORTH HARWOOD 1800 ONE AMERICAN CENTER NINTH FLOOR AUSTIN,TEXAS 78701-3248 DALLAS,TEXAS 75201-6587 TELEPHONE: (512) 478-3805 TELEPHONE: (214) 754-9200 FACSIMILE: (512) 472-0871 FACSIMILE: (214) 754-9250 February 26, 2008 Mr. Wayne Cummings Assistant City Manager City of Anna, Texas 101 North Powell Parkway Anna, Texas 75409 700 N. ST. MARY'S STREET 1525 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 TELEPHONE: (210) 225-2800 FACSIMILE: (210) 225-2984 Re: Finance Contractual between City of Anna, Texas and Independent Bank, McKinney, Texas, dated February 26, 2008 Dear Mr. Cummings: As you know, the City of Anna, Texas (the "Issuer") will issue the captioned finance contract in order to provide for the acquisition of the project. As a result of that issuance, the federal income tax laws impose certain restrictions on the investment and expenditure of amounts to be used for the project or to be deposited to the interest and sinking fund for the captioned finance contract. The purpose of this letter is to set forth, in somewhat less technical language, those provisions of the tax law which require the timely use of finance contract proceeds and that investment of these amounts be at a yield which is not higher than the yield on the captioned finance contract. For this purpose, please refer to line 21(e) of the Form. 8038-G included in the transcript of proceedings for the yield on the captioned finance contract. Generally, the federal tax laws provide that, unless excepted, amounts to be used for the project or to be deposited to the interest and sinking fund must be invested in obligations the combined yield on which does not exceed the yield on the finance contract. Importantly, for purposes of administrative convenience, the finance contract, however, have been structured in such a way as to avoid, for the most part, this restriction on investment yield. They also contain certain covenants relating to expenditures of proceeds designed to alert you to unintentional failures to comply with the laws affecting expenditures of proceeds and dispositions of property. First, the sale and investment proceeds to be used for the project may be invested for up to three years without regard to yield. (Such amounts, however, may be subject to rebate.) Thereafter, they must be invested at or below the finance contract yield. Importantly, expenditure of these proceeds must be accounted in your books and records. Allocations of these expenditures must occur within 18 months of the later of the date paid or the date the project is completed. The foregoing notwithstanding, the allocation should not occur later than 60 days after the earlier of (1) of five years after the delivery date of the finance contract or (2) the date the finance contract is retired unless you obtain an opinion of bond counsel. Second, the interest and sinking fund is made up of amounts which are received annually for the payment of current debt service on all the captioned finance contract. Any taxes or revenues deposited to the interest and sinking fund which are to be used for the payment of current debt service on the captioned finance contract are not subject to yield restriction. By definition, current debt service refers only to debt service to be paid within one year of the date of receipt of these amounts. For the most part, this would be debt service in the current fiscal year. These amounts deposited to the account for current debt service may be invested without regard to any constraint imposed by the federal income tax laws. Third, a portion of the interest and sinking fund is permitted to be invested without regard to yield restriction as a "minor portion." The "minor portion" exception is available for de nummis amounts of taxes or revenues deposited to the interest and sinking fund. The maximum amount that may be invested as part of this account may not exceed the lesser of five percent of the principal amount of the finance contract or $100,000. Accordingly, you should review the current balance in the interest and sinking fund in order to determine if such balance exceeds the aggregate amounts discussed above. Additionally, in the future it is important that you be aware ofthese restrictions as additional amounts are deposited to the interest and sinking fund. The amounts in this fund which are subject to yield restriction would only be the amounts which are in excess of the sum of (1) the current debt service account and (2) the "minor portion" account. The Ordinance contains covenants that require the Issuer to comply with the requirements ofthe federal tax laws relating to the tax-exempt obligations. The Internal Revenue Service (the "Service") has determined that certain materials, records and information should be retained by the issuers of tax-exempt obligations for the purpose of enabling the Service to confirm the exclusion of the interest on such obligations under the Internal Revenue Code. Accordingly, the Issuer should retain such materials, records and information for the period beginning on the issue date of the captioned finance contract and ending three years after the date the captioned finance contract is retired. Please note this federal tax law standard may vary from state law standards. The material, records and information required to be retained will generally be contained in the transcript of proceedings forthe captioned finance contract, however, the Issuer should collect and retain additional materials, records and information to ensure the continued compliance with federal tax law requirements. For example, beyond the transcript of proceedings for the finance contract, the Issuer should keep schedules evidencing the expenditure of finance contract proceeds, documents relating to the use of property acquired with proceeds of the captioned finance contract by governmental and any private parties (e.g., leases and management contracts, if any) and schedules pertaining to the investment of finance contract proceeds. In the event that you have questions relating to record retention, please contact us. Finally, you should notice that the ordinance contains a covenant that limits the ability of the Issuer to sell or otherwise dispose ofbond-financed property for compensation. Beginning for obligations issued after May 15, 1997 (including certain refunding finance contract), or in cases in which an issuer elects to apply new private activity bond regulations, such sale or disposition causes the creation of a class of proceeds referred to as "disposition proceeds." Disposition proceeds, like sale proceeds and investment earnings, are tax - restricted funds. Failure to appropriately account, invest or expend such disposition proceeds would adversely affect the tax-exempt status of the finance contract. In the event that you anticipate selling property, even in the ordinary course, please contact us. Obviously, this letter only presents a fundamental discussion of the yield restriction rules as applied to amounts deposited to the interest and sinking fund. Moreover, this letter does not address the rebate consequences with respect to the interest and sinking fund and you should review the memorandum attached to the Federal Tax Certificate as Exhibit "A" for this purpose. If you have certain concerns with respect to the matters discussed in this letter or wish to ask additional questions with regards to certain limitations imposed, please feel free to contact our firm. Thank you for your consideration and we look forward to our continued relationship. Very truly yours, McCALL, PARK:HURST & HORTON L.L.P. cc: Mr. Leroy Grawunder, Jr. The undersigned hereby certifies the following information: (a) This certificate is executed and delivered with reference to the Finance Contract, dated as of February 26, 2008 (the "Finance Contract"), between Independent Bank, McKinney, Texas (the "Bank"), and the City of Anna, Texas (the "City"). below. (b) The undersigned is the duly chosen, qualified and acting officer of the City indicated (c) The Finance Contract has been duly executed and delivered to the Bank. (d) The City has received the total amount of funds to be provided by the Bank pursuant to the Finance Contract. EXECUTED AND DELIVERED this March 19, 2008 BANK'S RECEIPT The undersigned, acting as the authorized representative of Independent Bank, McKinney, Texas (the "Bank"), hereby acknowledges execution, delivery and receipt from City of Anna, Texas (the "City"), of that certain Finance Contract, dated as of February 26, 2008, between the Bank and the City. DATED: March 19 2008 INDEPENDEI�L'��K, McKINNEY, TEXAS