STAFF REPORT
Operations Committee,
August 7, 2008
Installment Purchase Contract Resolution
(FN09-01)
Consideration of a resolution to enter into a
lease purchase contract with RBC Bank to finance the purchase of two fire
trucks
Speaker:
Ms. Karen Mills
From:
Karen A. Mills, Finance Director
Prepared by: Pat Liguori, Deputy Treasurer
Approved by: William B. Coleman, Jr., Town Manager
Approved by: Benjamin T. Shivar, Assistant Town Manager
REVIEW: A service
ladder truck replacement and an aerial service ladder truck in the existing
capital budget were included for a total of $1,554,000. These trucks have
been received and final equipment for these trucks should be in place by
September 1. Both of these trucks were budgeted to be funded with
installment financing through lease purchase agreements. A request for
proposal to provide financing for the fire trucks was issued to ten
institutions. Eight institutions responded. The request specified the
Town’s interest in a financing contract with a ten-year or fifteen-year term
at a fixed rate of interest. A summary of the proposal results is as
follows:
|
Bidder |
10 Year
Interest Rate
Fixed |
10 Year
Estimated Total
Financing Cost (a) |
15 Year
Interest Rate Fixed |
15 Year
Estimated Total
Financing Cost (a) |
|
RBC Bank |
3.560% |
$247,492
|
3.890% |
$418,608
|
|
BB&T |
3.670% |
255,406
|
3.810% |
409,250
|
|
Bank of America |
3.553% |
268,938
|
n/a |
n/a
|
|
Wachovia Bank |
3.930% |
274,265
|
4.420% |
310,429
|
|
Sun Trust
Leasing |
4.000% |
279,213
|
4.270% |
462,512
|
|
First-Citizens
Bank |
3.990% |
279,495
|
n/a |
n/a
|
|
Koch Financial
|
4.730% |
333,314
|
5.000% |
549,141
|
|
Fifth Third
Bank (b) |
n/a |
n/a
|
n/a |
n/a
|
(a)
estimated total cost includes
total projected interest plus other fees, such as
attorney fees and documentation fees as
provided in the response to the RFP
(b)
Fifth Third Bank provided a
response based on a balloon repayment term that was
not requested in the RFP and was not
beneficial to the Town
Both 10 and 15 year
financings were requested in the bid to evaluate the necessity of a 15 year
repayment in case the 10 year financing repayment exceeded budget. RBC
Bank proposed the lowest total estimated financing cost of $247,492 for a 10
year repayment term that is within budgeted debt service for this purpose.
RBC
Bank requires Council approval of a resolution that authorizes the Town to
enter into a lease with RBC
Bank and that authorizes certain Town officials to execute the necessary
documents. The proposed resolution is attached. The
resolution refers to the
contract (pdf) documents which are
also attached.
Fiscal
Impact: Annual
debt service is estimated to be $156,239 per year for ten years.
The forecasted debt service on the fire trucks
was included in the committed debt service budget for $170,299 in the
General Fund as discussed in FY 2009 budget worksessions and included in the
FY 2009 proposed and adopted budget.
Staff
Recommendation:
Staff recommends that Council accept the RBC Bank proposal for a ten-year
term installment purchase agreement at a fixed rate of 3.56% and approve the
attached resolution.
RESOLUTION
AUTHORIZING THE EXECUTION AND DELIVERY OF AN INSTALLMENT FINANCING CONTRACT,
AN ESCROW DEPOSIT AGREEMENT AND RELATED DOCUMENTS IN CONNECTION WITH THE
FINANCING OF EQUIPMENT FOR THE TOWN
BE IT
RESOLVED by the Town Council (the “Town Council”) of the Town of Cary, North
Carolina (the “Town”) as follows:
Section 1. The Town Council does hereby find and determine as follows:
(a)
There exists in the Town a need for the acquisition of an aerial fire truck
and fire rescue truck for use by the Town in carrying out its governmental
functions (collectively, the “Equipment”).
(b)
The Town has solicited proposals from banks and other financial institutions
to provide the financing for such Equipment and, upon careful review and
consideration of the proposals submitted by banks to provide such financing,
the Town desires to accept the proposal of RBC Bank (USA) (the “Lender”).
(c)
The Town Council has determined that the most efficient manner of financing
the Equipment will be through the entering of an Installment Financing
Contract (the “Contract”) with the Lender pursuant Section 160A-20 of the
General Statutes of
North
Carolina, as amended. Pursuant to the Contract, the Lender will advance
moneys to the Town in an amount sufficient to pay the cost of the Equipment,
and the Town will repay the advancement in installments, with interest (the
“Installment Payments”).
(d) In order to secure the repayment pursuant to the terms of the Contract
by the Town of the advance of moneys for acquisition of the Equipment, the
Town will grant to the Lender a security interest in the Equipment pursuant
to the Contract.
(e) In order to provide for the operation of the Escrow Account (as defined
in the Contract), into which the advancement will be deposited, the Town
will enter into an Escrow Deposit Agreement (the “Escrow Deposit Agreement”)
with the Lender.
(f)
There has been presented to the Town Council at this meeting drafts of the
Contract and the Escrow Deposit Agreement.
Section 2. The proposal of the Lender to provide financing through the
Contract for the purpose of providing funds to pay the cost of the Equipment
is hereby accepted, subject to further approval of the particular
documentation related thereto by the Town Council, and all actions of the
Town Manager, Assistant Town Manager and the Finance Director of the Town
accepting the proposal of the Lender are hereby ratified, authorized and
approved.
Section 3. In order to provide for the financing of the Equipment, the Town
is hereby authorized to enter into the Contract and receive an advancement
pursuant thereto in a principal amount not to exceed $1,315,000. The Town
shall repay the advancement in installments due in the amounts and at the
times set forth in the Contract. The payments of the installment payments
shall be designated as principal and interest as provided in the Contract.
Section 4. The Town Council hereby approves the Contract and the Escrow
Deposit Agreement in substantially the forms presented at this meeting. The
Mayor, the Town Manager, the Assistant Town Manager and the Finance Director
of the Town are each hereby authorized to execute and deliver on behalf of
the Town said documents in substantially the forms presented at this
meeting, containing such insertions, deletions and filling in of blanks as
the person executing such documents shall approve, such execution to be
conclusive evidence of approval by the Town Council of any such changes.
The Town Clerk or any Deputy or Assistant Town Clerk of the Town is hereby
authorized and directed to affix the official seal of the Town to said
documents and to attest the same.
Section 5. No deficiency judgment may be rendered against the Town in any
action for breach of any contractual obligation authorized pursuant to this
resolution and the taxing power of the Town is not and may not be pledged
directly or indirectly to secure any moneys due under any contract herein
authorized.
Section 6. The Mayor, the Town Manager, the Assistant Town Manager, the
Finance Director and the Town Clerk of the Town, and any other officers,
agents and employees of the Town, are hereby authorized and directed to
execute and deliver such closing certificates, opinions and other items of
evidence as shall be deemed necessary to consummate the transactions
described above.
Section 7. The Town hereby represents that it reasonably expects that it,
all subordinate entities thereof and all issuers issuing obligations on
behalf of the Town will not issue in the aggregate more than $10,000,000 of
tax-exempt obligations (not counting private-activity bonds except for
qualified 501(c)(3) bonds as defined in the Code) during calendar year
2008. In addition, the Town hereby designates each of the installment
payments under the Agreement as a “qualified tax-exempt obligation” for the
purposes of the Code.
Section 8. This resolution shall take effect immediately upon its passage.
INSTALLMENT FINANCING
CONTRACT
$1,315,000.00
between
RBC BANK (USA)
as the Lender
and
Town of
Cary
as the
MERGEFIELD City_or_County
Town
Dated: August ____,
2008
TABLE OF CONTENTS
TOC
\o "1-1" \t "Heading 1,1"
SECTION 1.
DEFINITIONS...................................................................................................................................
PAGEREF
_Toc32041765 \h 6
SECTION 2. ADVANCE OF LOAN
AMOUNT.......................................................................................................
PAGEREF _Toc32041766 \h 7
SECTION 3. INSTALLMENT PAYMENTS AND OTHER
PAYMENTS..................................................................
PAGEREF _Toc32041767 \h 7
SECTION 4. NATURE OF
CONTRACT...............................................................................................................
PAGEREF _Toc32041768 \h 8
SECTION 5. RESPONSIBILITIES AND COVENANTS OF THE MERGEFIELD
CITY_OR_COUNTY1
TOWN.............................................................. PAGEREF
_Toc32041769 \h 8
SECTION 6. SECURITY INTEREST;
LIENS......................................................................................................
PAGEREF _Toc32041770 \h 11
SECTION 7. INSURANCE AND UNFORESEEN
LOSSES................................................................................
PAGEREF _Toc32041771 \h 11
SECTION 8. WARRANTIES AND REPRESENTATIONS OF THE MERGEFIELD
CITY_OR_COUNTY1 TOWN.......................................................
PAGEREF _Toc32041772 \h 12
SECTION 9.
INDEMNIFICATION.........................................................................................................................
PAGEREF _Toc32041773 \h 13
SECTION 10. DISCLAIMER OF
WARRANTIES................................................................................................
PAGEREF _Toc32041774 \h 13
SECTION 11. DEFAULT AND
REMEDIES.........................................................................................................
PAGEREF _Toc32041775 \h 13
SECTION 12.
ASSIGNMENT..............................................................................................................................
PAGEREF _Toc32041776 \h 14
SECTION 13. LIMITED OBLIGATION OF THE MERGEFIELD CITY_OR_COUNTY1
TOWN......................................................................................
PAGEREF _Toc32041777 \h 15
SECTION 14. TAX‑EXEMPT
INTEREST............................................................................................................
PAGEREF _Toc32041778 \h 16
SECTION 15.
MISCELLANEOUS.......................................................................................................................
PAGEREF _Toc32041779 \h 17
INSTALLMENT
FINANCING CONTRACT
EQUIPMENT
THIS INSTALLMENT
FINANCING CONTRACT, dated as of August _____, 2008 (the "Contract"), by and
between RBC BANK (USA), a North Carolina banking corporation (the "Bank");
and TOWN OF CARY, a body politic and corporate of the State of North
Carolina (the "Town");
W I
T N E S S E T H:
WHEREAS, the Town is
a duly and validly created, organized and existing public body politic, duly
created and existing under and by virtue of the Constitution and laws of the
State of North Carolina; and
WHEREAS, the Town has
the power, pursuant to Section 160A‑20 of the General Statutes of North
Carolina, to enter into installment contracts to finance the purchase of
personal property, including property to be affixed or attached to real
estate as fixtures; and
WHEREAS, the Bank
desires to advance certain funds to enable the Town to finance the purchase
and installation of the Equipment (as hereinafter defined); and
WHEREAS, the Town
desires to obtain such advance from the Bank and to purchase and install the
Equipment pursuant to the terms and conditions hereinafter set forth; and
WHEREAS, the
obligation of the Town to make Installment Payments (as hereinafter defined)
and other payments required under Section 3 hereof shall constitute a
limited obligation payable solely from currently budgeted appropriations of
the Town and shall not constitute a pledge of the faith and credit of the
Town within the meaning of any constitutional debt limitation or as
otherwise prohibited by the North Carolina Constitution; and
WHEREAS, no
deficiency judgment may be rendered against the Town in any action for
breach of a contractual obligation under this Contract, and the taxing power
of the Town is not and may not be pledged in any way, directly or indirectly
or contingently, to secure any moneys due under this Contract; and
WHEREAS, the Bank and
the Town each have duly authorized the execution and delivery of this
Contract.
NOW, THEREFORE, for
and in consideration of the premises and of the covenants hereinafter
contained, and other valuable consideration, the parties hereto agree as
follows:
For purposes of this Contract, the following
definitions will apply:
The Bank agrees to
advance the Loan Amount to the Town
and the Town
agrees to borrow the Loan Amount from the Bank to be applied in accordance
with the terms and conditions of this Contract. The proceeds of the Loan
Amount shall be used to purchase and to install, construct or repair the
Equipment. The advance by the Bank shall be made by the deposit by the Bank
to the Escrow Fund of the Loan Amount. The Loan Amount may be invested
pending disbursement, and shall be disbursed to acquire and to install,
construct or repair the Equipment in accordance with the Escrow Deposit
Agreement. The Town
shall pay any additional sums necessary to purchase and install, construct
or repair the Equipment and shall provide evidence of the payment of such
additional sums to the Bank upon request.
3.1.
Amounts
and Times of Installment Payments and Other Payments.
Subject to the provisions of Section 13 hereof entitled "Limited Obligation
of the Town," the Town shall repay the Loan Amount in installments as
provided in Exhibit B to this Contract. Each installment shall be
deemed to be an Installment Payment and shall be paid in the amounts and at
the times set forth in the Payment Schedule except as provided herein.
Installment Payments shall be sufficient in the aggregate to repay the Loan
Amount together with interest thereon at a per annum rate equal to the rate
per annum described in Exhibit B hereto. A portion of each
Installment Payment is interest.
Interest on the Loan
Amount as set forth on Exhibit B is based upon a 360-day year, with
twelve (12) thirty (30) day months. The amortization schedule is based on
all payments being received by the Bank on the scheduled due date. The Bank
reserves the right to increase the initial payment to reflect any additional
interest accruing prior to the end of the initial interest period.
3.2.
Place
of Payments.
All payments required to be made to the Bank hereunder shall be made at the
Bank's principal office or as may be otherwise directed by the Bank or its
assignee.
3.3.
Late
Charges.
Should the Town fail to pay any Installment Payment or any other sum
required to be paid to the Bank within fifteen (15) days after the due date
thereof, the Town shall pay a late payment charge equal to four percent (4%)
of the delinquent payment.
3.4.
Abatement of Installment Payments.
Subject to Section 13 hereof entitled "Limited Obligation of the Town,"
there shall be no abatement or reduction of the Installment Payments or
other payments by the Town for any reason, including but not limited to, any
defense, recoupment, setoff, counterclaim, or any claim (real or contingent)
arising out of or related to the Equipment. The Town assumes and shall bear
the entire risk of loss and damage to the Equipment from any cause
whatsoever, it being the intention of the parties that the Installment
Payments and other payments shall be made in all events unless the
obligation to make such Installment Payments and other payments is
terminated as otherwise provided herein.
3.5.
Prepayment of Installment Payments.
The loan may not
be prepaid in years one (1) through five (5). The loan may be prepaid at
any time thereafter without penalty.
This Contract is an
installment contract and security agreement pursuant to Section 160A‑20 and
Article 9 of Chapter 25 (the "Uniform Commercial Code ‑ Secured
Transactions") of the General Statutes of North Carolina.
5.1.
Care
and Use.
The Town shall use the Equipment in a careful and proper manner, in
compliance with all applicable laws and requisitions, and, at its sole cost
and expense or at the cost or expense of a third party other than the Bank,
shall service, repair and maintain the Equipment so as to keep the Equipment
in good condition, repair, appearance and working order for the purposes
intended, ordinary wear and tear excepted, and shall replace any part of the
Equipment as may from time to time become worn out, lost, stolen, destroyed
or damaged or is unfit for use. Any and all additions to or replacements of
the Equipment and all parts thereof shall constitute accessions to the
Equipment and shall be subject to all terms and conditions of this Contract
and included in the term "Equipment" as used in this Contract. If requested
by the Bank, the Town shall enter into or cause to be entered into, and
maintained in full force and effect during the term of this Contract,
manufacturer's or supplier's standard maintenance contracts satisfactory to
the Bank covering the Equipment and shall comply with all of its obligations
thereunder. The Town shall furnish evidence to the Bank upon Bank's request
of such signed maintenance contracts at or prior to the date of this
Contract and the payment of all charges and premiums therefore.
5.2.
Inspection.
The Bank shall have the right upon reasonable prior notice to the Town to
enter into and upon the premises where the Equipment is located to inspect
the Equipment and observe its use during normal business hours.
5.3.
Alterations.
Without the prior written consent of the Bank, which consent shall not be
unreasonably withheld, the Town shall not make any alterations,
modifications or attachments to the Equipment which cannot be removed
without materially damaging the functional capabilities or economic value of
the Equipment.
5.4.
Utilities.
The Town shall pay, when due, all charges for utility services used in
connection with the Equipment. There shall be no abatement of the
Installment Payments on account of interruption of any such services.
5.5.
Taxes.
The Town shall pay, when due, any and all taxes levied by any governmental
body as a result of the Town 's ownership, possession, or use of the
Equipment or as a direct or indirect result of the purchase of the Equipment
by the Town.
5.6.
Risk of
Loss.
Subject to the provisions of Section 13 hereof entitled "Limited Obligation
of the Town," the Town shall bear all risk of loss to and condemnation of
the Equipment. In the event of loss or damage to the Equipment, the Town
shall either (a) continue to make the Installment Payments due hereunder and
repair or replace the Equipment or (b) prepay in full the principal
components of the outstanding Installment Payments in accordance with
Section 3.5 hereof. Said repair or replacement of the Equipment shall meet
with the satisfaction of the Bank.
5.7.
Performance by the Bank of the Town's Responsibilities.
Any performance required of the Town or any payments required to be made by
the Town may, if not timely performed or paid, be performed or paid by the
Bank, and, in that event, the Bank shall be immediately reimbursed by the
Town for such payments and for any costs and expenses, legal or otherwise,
associated with the payments or other performance by the Bank, with interest
thereon at a per annum rate equal to the Prime Rate in effect on the last
business day of the calendar month preceding the payment (but not exceeding
the maximum rate, if any, permitted by applicable law).
5.8.
Financial Statements.
The Town agrees that it will furnish the Bank current audited financial
statements (as soon as practicable after the Town's acceptance thereof) and
the Town's annual budget as submitted or approved, and permit the Bank or
its agents and representatives to inspect the Town's books and records and
make extracts therefrom at its own expense during regular business hours and
in a manner which will not disrupt the normal business routine of the Town.
Town shall furnish to Bank current financial statements at such reasonable
times as the Bank may request. The Town represents and warrants to the Bank
that all financial statements which have been delivered to the Bank in
connection with this Contract fairly and accurately reflect the Town's
financial condition and there has been no material adverse change in the
Town’s financial condition as reflected in the financial statements since
the date thereof.
5.9.
Other
Responsibilities and Conditions.
Simultaneously with the execution of this Contract and prior to the
advancement of any funds hereunder by the Bank, the Town shall cause to be
provided to the Bank the following:
(a)
An
Incumbency and Authorization Certificate in the form of Exhibit C
attached hereto;
(b)
An Opinion
Letter of counsel for the Town in the form of Exhibit D attached
hereto;
(c)
A
certificate in the form of Exhibit E attached hereto or other proof
of insurance on the Equipment satisfactory to the Bank;
(d)
Certified
copies of resolutions of the Town's governing body authorizing the Town to
enter into this Contract and carry out its terms;
(e)
Properly
completed UCC financing statements as required by Section 6.1 hereof
sufficient in form and substance and filed in all necessary locations to
perfect a first lien in the Equipment;
(f)
An Escrow
Deposit Agreement in a form satisfactory to the Bank; and
(g)
If
required by the Bank, an opinion letter from tax counsel, in form and
substance and from an attorney satisfactory to the Bank, which states that
the interest on the Town's obligations under the Contract will not be
included in the gross income of the Bank for Federal and North Carolina
income tax purposes, will not be an item of tax preference for purposes of
the Federal alternative minimum income tax, if applicable and that such
obligations are "qualified tax‑exempt obligations" within the meaning of
Section 265(b)(3) of the Internal Revenue Code of 1986;
(h)
Executed
originals of any other documents and instruments required by Bank in
connection with this Contract.
5.10.
Special
Tax Covenants.
The Town covenants that: (a) it will make no use of the monies advanced by
the Bank (the "proceeds") which would cause this Contract to be an
"arbitrage bond" within the meaning of Section 148 of the Internal Revenue
Code of 1986, as amended (the "Code"), or the Treasury Regulations
promulgated thereunder; (b) so long as the Contract remains in effect, the
Town will comply with the requirements of the Code and the applicable
Treasury Regulations promulgated thereunder and will not take or omit to
take any action which will cause the interest paid or payable under this
Contract to be includible in the gross income of the registered owner
hereof; (c) the Equipment shall be used exclusively for essential
governmental purposes of the Town and no use shall be made of the proceeds
or of the Equipment, directly or indirectly, which would cause this Contract
to be a "private activity bond" within the meaning of Section 141 of the
Code; (d) no part of the payment of principal or interest under this
Contract is or shall be guaranteed, in whole or in part, by the United
States or any agency or instrumentality thereof; (e) no portion of the
proceeds shall be used, directly or indirectly, in making loans the payment
of principal or interest with respect to which are to be guaranteed, in
whole or in part, by the United States or any agency or any instrumentality
thereof; and (f) the Town shall not lease or otherwise make any of the
Equipment available to any entity if such lease or other availability would
cause the interest portion of the Installment Payments to be included in the
gross income of the Bank under the Code for income tax purposes.
The
Town
shall furnish promptly all information necessary to permit the Bank to file
on or before its due date IRS Form 8038‑G. The
Town
shall not take or omit to take any action that may cause a loss of the
federal, state or local tax‑exempt status of this Contract or the interest
thereon.
5.11.
Appropriations of Payments.
(a) The Town reasonably believes that funds sufficient to make all
Installment Payments during the Term of this Contract can be obtained.
While recognizing that it is not empowered to make any binding commitment to
make Installment Payments or any other payments beyond its current fiscal
year, the Governing Body of the Town in authorizing the execution of this
Contract has stated its intent to make annual appropriations sufficient to
make the Installment Payment and has recommended that future governing
bodies continue to do so during the Term of this Contract.
(b) The
Manager shall include in the initial proposal for each of the
Town's
annual budgets the amount of all Installment Payments coming due during the
fiscal year to which such budget is applicable. Notwithstanding that the
Manager includes an appropriation for Installment Payments in a proposed
budget, the Town
may terminate all its obligations hereunder by not appropriating sufficient
funds to make the scheduled Installment Payments. In the event the
Governing Body determines not to appropriate in its budget an amount
sufficient to pay all Installment Payments coming due in the applicable
fiscal year, the Governing Body shall adopt a resolution specifically
deleting such appropriation from the proposed budget for that fiscal year.
Such resolution shall state the reasons for such deletion, shall be adopted
by a vote identifying those voting for and against and abstaining from the
resolution, and shall be recorded in the minutes of the Governing Body. A
copy of such resolution shall be promptly sent to the Bank. Such failure to
appropriate shall constitute an Event of Default.
(c) The
Budget Officer shall deliver to the Bank, within (15) days after the
beginning of each Fiscal Year, a certificate stating whether an amount equal
to the Installment payments and estimated Additional Payments coming due
during the next Fiscal Year has been appropriated by the
Town
in such budget for such purposes. If such amount has not been so
appropriated, the Budget Officer shall send a copy of such certificate to
the LGC, to the attention of its Secretary, at the Albermarle Building, 325
North Salisbury St., Raleigh, NC 27603-1385.
6.1.
Security Interest.
The Town hereby grants to the Bank a security interest in the Equipment and
in any and all additions, accessions, repairs, replacements, substitutions,
and modifications to the Equipment, and all proceeds of all the foregoing,
including any insurance proceeds paid because of loss or damage to the
Equipment to the extent necessary to secure the Town's payment obligations
to the Bank under this Contract. The Town shall cause to be filed, at the
Town's expense, financing statements and other related documents that are
necessary under Article 9 of Chapter 25 (the "Uniform Commercial Code ‑
Secured Transactions") of the General Statutes of North Carolina to perfect
a first lien security interest by filing and to maintain that first lien
security interest in perfected form. If the Equipment is or includes one or
more motor vehicles, the ownership of which is or are evidenced by a
certificate of title(s), the Town shall cause the Bank's lien to be properly
shown on such title(s) as a first lien security interest.
The Equipment is and
shall throughout the term of this Contract be and remain personal property,
regardless of whether the Equipment is now or may become in any manner
affixed or attached to real estate or any building or fixtures on real
estate. No portion of the Equipment may be affixed or attached to real
estate or any building or fixtures on real estate. If the Equipment is
permanently located on any real estate, not owned in fee simple by the
Town,
or if such real estate, is subject to any liens, the
Town
shall obtain a waiver of any rights in and to the Equipment (including the
rights of levy and distraint) from the person who gives the
Town
permission to use the real property on which the Equipment is located and
from any holder of liens on the real estate on which the Equipment is
located.
6.2.
Liens.
The Town shall not directly or indirectly create, incur, assume or suffer to
exist any lien, charge, security interest, encumbrance or claim on or with
respect to the Equipment (except the security interest granted to the
Bank). The Town shall promptly, at its own expense, take such action as may
be necessary to duly discharge any such lien, security interest, charge,
encumbrance or claim if the same shall arise at any time. The Town shall
reimburse the Bank for any expense incurred by it in order to discharge or
remove any such lien, security interest, encumbrance or claim.
7.1.
Insurance.
The Town shall obtain and maintain, at its expense, at all times until
termination of this Contract a primary policy of insurance covering the
Equipment and providing the insurance protection described in this Section.
The Town shall maintain at its own expense fire, casualty, public liability,
property damage and theft insurance, and such other insurance in such
amounts and with such deductibles, if permitted, as required by the Bank
from time to time. The Equipment shall be insured in an amount at least
equal to its replacement value. All such insurance shall be maintained with
such insurance company or companies as shall be satisfactory to the Bank and
shall provide that losses shall be payable to the Bank and the Bank shall be
named as an additional insured with respect to all such insurance. The Town
shall deliver to the Bank the policies of insurance or duplicates thereof or
other evidence satisfactory to the Bank of such insurance coverage. Each
insurer shall agree by endorsement upon the policy or policies issued by it
that (i) it will give thirty (30) days prior written notice to the Bank of
the cancellation or material modification of such policy; and (ii) the
coverage of the Bank shall not be terminated, reduced or affected in any
manner regardless of any breach or violation by the Town of any warranties,
declarations and conditions of such insurance. The Town agrees to cooperate
fully in all accident insurance investigations, claims and litigation
proceedings. The Town shall cooperate fully with the Bank in filing any
proof of loss with respect to any insurance policy described above. In no
event shall the Town voluntarily settle, or consent to the settlement of,
any proceeding arising out of any insurance claim with respect to the
Equipment without the written consent of the Bank.
In lieu of policies
of insurance written by commercial insurance companies meeting the
requirements of this Section, the
Town may maintain a program of
self-insurance or participate in group risk financing programs, risk pools,
risk retention groups, purchasing groups and captive insurance companies,
and in state or federal insurance programs.
7.2.
Condemnation.
Any condemnation award paid as a result of the exercise of the power of
eminent domain over the Equipment or any part thereof by any governmental
body or any person or entity acting under governmental authority, which is
not utilized by the Town to repair or replace the Equipment to the
satisfaction of the Bank shall be paid to the Bank in accordance with
Sections 3.5 and 5.6 hereof.
The Town warrants and
represents to the Bank (all such representations and warranties being
continuing) as follows:
(a)
The Town
is a public body politic duly created and existing under the laws of the
State of North Carolina as a political subdivision of the State of North
Carolina, and has all powers necessary to enter into the transactions
contemplated by this Contract and to carry out its obligations hereunder;
(b)
This
Contract and all other documents relating hereto, have been duly and validly
authorized, approved, executed and delivered by the Town, and the
performance by the Town of its obligations under such documents has been
approved and authorized under all laws, regulations and procedures
applicable to the Town, including, but not limited to, compliance with all
applicable public meeting and bidding requirements, and the transactions
contemplated by this Contract and all other documents relating hereto
constitute a public purpose for which public funds may be expended pursuant
to the Constitution and laws of the State of North Carolina, and, assuming
due authorization, execution and delivery hereof by the Bank, constitute
valid, legal and binding obligations of the Town, enforceable in accordance
with their respective terms, except as enforcement thereof may be limited by
general principles of equity or by bankruptcy, insolvency and other laws
affecting the enforcement of creditors' rights generally and as those other
laws may be further limited by the provisions of Section 160A‑20 of the
General Statutes of North Carolina, as amended;
(c)
No
approval or consent is required from any governmental authority with respect
to the entering into or performance by the Town of this Contract and the
transactions contemplated hereby, or, if any such approval is required, it
has been duly obtained;
(d)
There is
no action, suit, proceeding or investigation at law or in equity before or
by any court, public board or body pending or, to the best of the Town's
knowledge, threatened, against or affecting the Town challenging the
validity or enforceability of this Contract or any other documents relating
hereto, or the performance of the Town's obligations hereunder, and
compliance with the provisions hereof, under the circumstances contemplated
hereby, does not and will not in any material respect conflict with,
constitute on the part of the Town a breach of or default under, or result
in the creation of a lien or other encumbrance on any property of the Town
(except as contemplated herein) pursuant to any agreement or other
instrument to which the Town is a party, or any existing law, regulation,
court order or consent decree to which the Town is subject;
(e)
There are
no liens or encumbrances on the Equipment other than the lien created by
this Contract;
(f)
A
resolution relating to the performance by the Town of this Contract and the
transactions contemplated hereby has been duly adopted, is in full force and
effect, and has not been in any respect amended, modified, revoked or
rescinded;
(g)
The
purchase of the Equipment is essential to the proper, efficient and
economical operation of the Town and the delivery of its service and the
Equipment will provide an essential use and permit the Town to carry out
public functions that it is authorized by law to perform;
(h)
The
security interest granted by the Town to the Bank in the Equipment shall
have been duly perfected and shall constitute a first lien security interest
in the Equipment; and
(i)
The Town
has designated its obligation hereunder as a "qualified tax‑exempt
obligation" within the meaning of Section 265(b)(3) of the Code. The Town
(i) has not, does not expect to and shall not issue, directly or indirectly
through subordinate units, more than $10,000,000 of tax‑exempt obligations
(other than private activity bonds) during this calendar year and (ii) has
not and shall not designate during this calendar year more than $10,000,000
of its obligations (or of its subordinate units) as "qualified tax‑exempt
obligations".
To the extent
permitted by applicable law, the Town hereby agrees to indemnify protect and
save the Bank, the Escrow Agent and the members and employees of each of the
foregoing harmless from all liability, obligations, losses, claims, damages,
actions, suits, proceedings, costs and expenses, including attorneys fees,
arising out of, connected with, or resulting directly or indirectly from the
Equipment, including without limitation, the possession, condition or use
thereof. The indemnification arising under this section shall continue in
full force and effect notwithstanding the payment in full of all obligations
under this Contract.
10.1.
No
Representations by the Bank.
The Town acknowledges that it has inspected the Equipment and found the
Equipment to be satisfactory and acknowledges and agrees that it has
selected the Equipment based upon its own judgment and disclaims any
reliance upon any statements or representations made by the Bank with
respect thereto.
10.2.
Disclaimer By the Bank.
THE BANK MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO
THE CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE
EQUIPMENT OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE
EQUIPMENT.
11.1.
Definition of Event of Default.
The Town shall be deemed to be in default hereunder upon the happening of
any of the following events of default (each, an "Event of Default"):
(a)
The Town
shall fail to make any Installment Payment or fail to pay any other sum
hereunder when due, in either case within ten (10) days after receipt of
written notice of such failure; or
(b)
The Town
shall fail to perform or observe any term, condition or covenant of this
Contract or shall breach any warranty by the Town herein or therein
contained; or
(c)
Proceedings under any bankruptcy, insolvency, reorganization or similar
litigation shall be instituted by or against the Town, or a receiver,
custodian or similar officer shall be appointed for the Town or any of its
property, and such proceedings or appointments shall not be vacated or fully
stayed after the institution or occurrence thereof; or
(d)
Any
warranty, representation or statement made by the Town herein or in any
other document executed or delivered in connection herewith is found to be
incorrect or misleading in any material respect on the date made; or
(e)
An
attachment, levy or execution of a security interest or lien is levied upon
or against the Equipment.
11.2.
Remedies on Default.
Subject to Section 13 hereof entitled "Limited Obligation of the Town," upon
the occurrence of any Event of Default, the Bank may exercise any one or
more of the following remedies as the Bank in its sole discretion shall
elect:
(a)
Declare
the entire principal amount of the Installment Payments and all accrued
interest and other charges immediately due and payable without notice or
demand to the Town;
(b)
Proceed by
appropriate court action to enforce performance by the Town of the
applicable covenants of this Contract or to recover for the breach thereof;
(c)
Exercise
all the rights and remedies of a secured party or creditor under the Uniform
Commercial Code of the State of North Carolina and the general laws of the
State of North Carolina with respect to the enforcement of the security
interest granted or reserved hereunder, including, without limitation, to
the extent permitted by law, take possession of any collateral without any
court order or other process of law and without liability for entering the
premises and sell, lease, sublease or make other disposition of the same in
a commercially reasonable manner for the account of the Town, and apply the
proceeds of any such sale, lease, sublease or other disposition, after
deducting all costs and expenses, including court costs and attorneys' fees,
incurred with the recovery, repair, storage and other sale, lease, sublease
or other disposition costs, toward the balance due under this Contract and,
thereafter, shall pay any remaining proceeds to the Town;
(d)
Take
possession of any proceeds of the Equipment, including Net Proceeds; or
(e)
Pursue any
other remedy available at law or equity to the Bank.
11.3.
Further
Remedies.
In connection with the exercise by the Bank of its remedies under Section
11.2(d), Town
agrees to deliver the Equipment, at its own expense, to any location within
North
Carolina designated
by the Bank. All remedies of the Bank
are cumulative and may be exercised concurrently or separately. The
exercise of any one remedy shall not be deemed an election of such remedy or
preclude the exercise of any other remedy. The
Town
agrees to pay to the Bank all court costs and reasonable attorney fees
incurred by the Bank in enforcing the Bank's rights and remedies under this
Contract.
12.1.
Assignment by the Town.
The Town agrees not to sell, assign, lease, sublease, pledge or otherwise
encumber or suffer a lien or encumbrance upon or against any interest in
this Contract or the Equipment (except for the lien and security interest of
the Bank therein) without the Bank's prior written consent.
12.2.
Assignment by the Bank.
The Bank may, at any time and from time to time, assign all or any part of
its interest in the Equipment and/or this Contract, including without
limitation, the Bank's rights to receive the Installment Payments due and to
become due hereunder. Any assignment made by the Bank or any subsequent
assignee may be made only to a bank, insurance company, or similar financial
institution or other entity approved by the LGC. No such assignment shall
grant or purport to grant any greater interest or rights than those held by
the Bank pursuant to this Contract. The Town agrees that this Agreement may
become part of a pool of obligations and the Bank or its assignees may
assign or reassign all or any part of this Contract, including the
assignment or reassignment of any partial interest through the use of
certificate evidencing participation interests in this Contract, but only if
such certificates are sold to a bank, insurance company or similar financial
institution or other entity assigned by the LGC. The Bank or its designees
may assign or reassign either this entire Contract or a partial interest
herein, subject to the foregoing restrictions. All assignments by the Bank
shall be subject to the following rules and conditions:
(a)
The Bank
shall send written notice of the assignment and its effective date to the
Town before it makes the assignment. Such notification shall be forwarded
to the Town at least 30 days before the effective date of the assignment.
The notification shall include an executed copy of the assignment document
and shall specify the assignee's name and address, and shall provide the
Town with instructions for making payments after the effective date of the
assignment. The requirement of 30 days notice may be waived in writing by
the Town.
(b)
The Town
shall not be obligated to make payments to anyone other than the Bank until
the notification specified in part (a) of this Section is received by the
Town or until the effective date of the assignment, whichever is later.
Should the Town incorrectly make payments to the Bank after the conditions
specified in the preceding sentence are met, the Bank shall return those
payments to the Town.
(c)
When it
receives the notification specified in part (a) of this section, the Town
shall send a written acknowledgement of the same to the Bank and shall
record the assignment in the Town's "book entry system".
(d)
The Bank
shall require each of its assignees (1) to conform to the notification
requirements of this section in the event of further assignments, and (2) to
require such conformity from that assign's assignees.
(e)
The Town
shall execute, at the Bank's request, a notice of assignment and other
related documents that are reasonably necessary to protect the security
interest in the Equipment or in this Contract and to maintain those security
interests in perfected form.
After the giving of
notice described above to the Town, the Town shall thereafter make all
payments in accordance with the notice to the assignee named therein and
shall, if so requested, acknowledge such assignment in writing, but such
acknowledgement shall in no way be deemed necessary to make the assignment
effective.
NO PROVISION OF THIS
CONTRACT SHALL BE CONSTRUED OR INTERPRETED AS CREATING A PLEDGE OF THE FAITH
AND CREDIT OF THE TOWN
WITHIN THE MEANING OF ANY CONSTITUTIONAL DEBT LIMITATION. NO PROVISION OF
THIS CONTRACT SHALL BE CONSTRUED OR INTERPRETED AS CREATING A DELEGATION OF
GOVERNMENTAL POWERS NOR AS A DONATION BY OR A LENDING OF THE CREDIT OF THE
TOWN
WITHIN THE MEANING OF THE CONSTITUTION OF THE STATE OF NORTH CAROLINA. THIS
CONTRACT SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE
TOWN
TO MAKE ANY PAYMENTS BEYOND THOSE APPROPRIATED IN THE SOLE DISCRETION OF THE
TOWN
FOR ANY FISCAL YEAR IN WHICH THIS AGREEMENT IS IN EFFECT; PROVIDED, HOWEVER,
ANY FAILURE OR REFUSAL BY THE TOWN
TO APPROPRIATE FUNDS, WHICH RESULTS IN THE FAILURE BY THE
TOWN
TO MAKE ANY PAYMENT COMING DUE HEREUNDER WILL IN NO WAY OBVIATE THE
OCCURRENCE OF THE EVENT OF DEFAULT RESULTING FROM SUCH NONPAYMENT. NO
DEFICIENCY JUDGMENT MAY BE RENDERED AGAINST THE
TOWN
IN ANY ACTION FOR BREACH OF A CONTRACTUAL OBLIGATION UNDER THIS CONTRACT,
AND THE TAXING POWER OF THE TOWN
IS NOT AND MAY NOT BE PLEDGED DIRECTLY OR INDIRECTLY OR CONTINGENTLY TO
SECURE ANY MONEYS DUE UNDER THIS CONTRACT.
No
provision of this Contract shall be construed to pledge or to create a lien
on any class or source of the Town's moneys other than the Escrow Fund
created pursuant to the Escrow Deposit Agreement referenced in Section
5.9(f). To the extent of any conflict between this Section and any other
provision of this Contract, this Section shall take priority.
14.1.
Intent
of Parties.
It is the intention of the parties hereto that the interest portion of the
Installment Payments paid by the
Town
to the Bank under this Contract shall be tax‑exempt under Section 103 of the
United States Internal Revenue Code.
14.2.
Determination or Event of Taxability.
If at any time there is a Determination of Taxability or Event of
Taxability, as such terms are hereinafter defined, the principal portion of
the indebtedness of the
Town
to the Bank which is represented by the Installment Payments shall, from and
after the Date of Taxability, as hereinafter defined, bear interest at the
Prime Rate, as the Prime Rate fluctuates from time to time, plus one percent
(1%) per annum (the "Alternative Rate of Interest") payable from the Date of
Taxability to such time. In such event, the
Town
also shall be required to pay to the Bank all amounts, if any, which may be
necessary to reimburse the Bank for any interest, penalties or other charges
assessed by the Internal Revenue Service and the Department of Revenue of
the State of North Carolina against the Bank by reason of the Bank's failure
to include the interest portion of the Installment Payments in its gross
income for income tax purposes. Installment Payment amounts under this
Contract shall be increased as a result of the increased interest rate and
additional interest as a result of said rate increase on all previous
payments shall be paid to the Bank upon demand thereof. The
Town
shall pay to the Bank the above‑mentioned Alternative Rate of Interest
notwithstanding any transfer by the Bank or payment or prepayment by the
Town prior to the
date such Determination of Taxability was made.
An Event of
Taxability shall mean any event, occurrence or situation, resulting from an
action, or failure to act, by the Town,
the effect of which is to cause the interest portion of the Installment
Payments to be includible in the gross income of the Bank for federal income
tax purposes. A Determination of Taxability shall mean a determination that
the interest portion of the Installment Payments is included in gross income
of the Bank for federal income tax purposes, which determination shall be
deemed to have been made upon the occurrence of the first to occur of the
following: (a) the date on which the Bank is advised in writing by the
Commissioner or any District Director of the Internal Revenue Service that,
as a consequence of an action, or failure to act, by the
Town, the interest portion of the
Installment Payments (hereinafter called "Interest") is included in the
gross income of the Bank for federal income tax purposes; (b) the date on
which the Town receives notice from the
Bank that the Bank has been advised (i) in writing that the Internal Revenue
Service has issued a statutory notice of deficiency or similar notice to the
Bank which asserts, in effect, that Interest received by the Bank is
included in the gross income of the Bank for federal income tax purposes, as
a result of an action, or failure to act, by the
Town, or (ii) by an opinion of counsel received by the Bank which
concludes, in effect, that Interest is included in the gross income of the
Bank for federal income tax purposes as a result of an action, or failure to
act, by the Town; (c) the day on which the
Town is advised in writing by the
Commissioner or any District Director of the Internal Revenue Service that
there has been issued a public or private ruling of the Internal Revenue
Service that the Interest is included in the gross income of the Bank for
federal income tax purposes as a result of an action, or failure to act, by
the Town; or (d) the day on which the
Town is advised in writing by counsel to
the Bank that a final determination, from which no further right of appeal
exists, has been made by a court of competent jurisdiction in the United
States of America in a proceeding with respect to which the
Town has been given written notice and an
opportunity to participate and defend that the Interest is included in the
gross income of the Bank for federal income tax purposes, as a result of an
action, or failure to act, by the Town.
The Date of
Taxability shall mean the first date upon which Interest is included in the
gross income of the Bank for federal income tax purposes as a result of an
Event of Taxability or a Determination of Taxability.
If at any time there
is a Change in Deductibility (hereinafter defined), the interest rate
payable hereunder shall increase to the rate which will provide to the Bank
the effective yield which it would have received had there not been a Change
in Deductibility. A "Change in Deductibility" means any determination by
the Internal Revenue service or any court of competent jurisdiction that the
obligation of the Town hereunder is not a
"qualified tax‑exempt obligation" within the meaning of Section 265(b) (3)
of the Internal Revenue Code as a result or as a consequence of (i) an
action, or failure to act, by the Town or
(ii) a breach of any representation or warranty made by the
Town to the Bank relating to the status of
this Contract as a qualified tax‑exempt obligation as defined above,
including but not limited to the representations and warranties contained in
Section 8(i) of this Contract.
14.3.
Duty to
Notify the Bank.
The
Town
agrees to give prompt written notice to the Bank upon the
Town's
receipt of any oral or written notice or information from any source
whatsoever to the effect that an Event of Taxability or a Determination of
Taxability has occurred.
15.1.
Waiver.
No covenant or condition of this Contract can be waived except by the
written consent of the Bank. Any failure of the Bank to require strict
performance by the
Town
or any waiver by the Bank of any terms, covenants or conditions herein shall
not be construed as a waiver of any other breach of the same or any other
term, covenant or condition herein.
15.2.
Severability.
In the event any portion of this Contract shall be determined to be invalid
under any applicable law, such provision shall be deemed void and the
remainder of this Contract shall continue in full force and effect.
15.3.
Governing Law.
This Contract shall be construed, interpreted and enforced in accordance
with the laws of the State of
North Carolina.