HomeMy Public PortalAbout055-2016 - Sanitary - HJ Umbaugh - Financial ServicesORIGINAL
AGREEMENT
THIS AGREEMENT made and entered into this 3L day of INS 0<1 , 2016, and referred
to as Contract No 55-2016 by and between the City of Richmond, Indiana, a municipal corporation
acting by and through its Board of Sanitary Commissioners (referred to as the "City"), and H.J.
Umbaugh & Associates, LLP, 8365 Keystone Crossing, Suite 300, Indianapolis, Indiana 46240
(hereinafter referred to as the "Contractor").
SECTION 1. STATEMENT AND SUBJECT OF WORK
City hereby retains Contractor for the work described on Exhibit "A" attached hereto. The City
must comply with 329 IAC 10-39-2 as the same pertains to the applicable financial test contained
within certain subsections therein. Contractor shall provide services to the City relative to this
obligation using the procedures set forth on Exhibit "A" attached hereto, and will issue its findings
to the City.
Should any provisions, terms, or conditions contained in any of the documents attached hereto and
incorporated by reference herein as Exhibits, conflict with any of the provisions, terms, or
conditions of this Agreement, this Agreement shall be controlling.
The Contractor shall furnish all labor, material, equipment, and services necessary for the proper
completion of all work specified. Contractor shall submit statements or bills monthly.
No performance of services shall commence until the following has been met:
1. The City is in receipt of any required certificates of insurance and/or warranties;
2. The City is in receipt of any required affidavit(s) signed by Contractor in accordance with
I.C. § 22-5-1.7-11(a)(2); and
3. A purchase order has been issued by the Purchasing Department.
SECTION II. STATUS OF CONTRACTOR
Contractor shall be deemed to be an independent contractor and is not an employee or agent of the
City of Richmond. The Contractor shall provide, at its own expense, competent supervision of the
work.
SECTION III. COMPENSATION
City shall pay Contractor at the rates indicated in Exhibit "B". Specifically, City shall pay to the
Contractor the hourly rates set forth on Exhibit "B"; however, the consideration under this
Agreement shall not exceed the sum of Five Thousand Five Hundred Dollars and 00/100
($5,500.00).
SECTION IV. TERM OF AGREEMENT
This Agreement shall become effective when signed by all of the parties hereto.
Notwithstanding the term of this Agreement, City may terminate this Agreement in whole or in
part, for cause, at any time by giving at least thirty (30) days written notice specifying the effective
date and the reasons for termination which shall include but are not be limited to the following:
a. failure, for any reason of the Contractor to fulfill in a timely manner
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Contract No. 55-2016
its obligations under this Agreement;
b. submission of a report, other work product, or advice, whether oral or written, by the
Contractor to the City that is incorrect, incomplete, or does not meet reasonable
professional standards in any material respect;
c. ineffective or improper use of funds provided under this Agreement;
d. suspension or termination of the grant funding to the City under which this Agreement
is made; or
e. unavailability of sufficient funds to make payment on this Agreement.
This Agreement may also be terminated by either the City or the Contractor, in whole or in part,
by mutual Agreement setting forth the reasons for such termination, the effective date, and in the
case of partial termination, the portion to be terminated.
This Agreement may also be terminated by either the City or the Contractor, without cause, by
giving at least thirty (30) days written notice to the other party.
In the event of termination of this Agreement, the City shall be required to make payment for all
work performed prior to the date this Agreement is terminated, but shall be relieved of any other
responsibility herein.
SECTION V. INDEMNIFICATION AND INSURANCE
Contractor agrees to obtain insurance and to indemnify the City for any damage or injury to person
or property or any other claims which may arise from the Contractor's conduct or performance of
this Agreement, either intentionally or negligently; provided, however, that nothing contained in
this Agreement shall be construed as rendering the Contractor liable for acts of the City, its officers,
agents, or employees. Contractor shall as a prerequisite to this Agreement, purchase and thereafter
maintain such insurance as will protect it from the claims set forth below which may arise out of
or result from the Contractor's operations under this Agreement, whether such operations by the
Contractor or by any sub -contractors or by anyone directly or indirectly employed by any of them,
or by anyone for whose acts the Contractor may be held responsible.
Coverne
A. Worker's Compensation &
Disability Requirements
B. Employer's Liability
C. Comprehensive General Liability
Section 1. Bodily Injury
Section 2. Property Damage
D. Comprehensive Auto Liability
Section 1. Bodily Injury
Limits
Statutory
$100,000
$1,000,000 each occurrence
$2,000,000 aggregate
$1,000,000 each occurrence
$1,000,000 each person
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Section 2. Property Damage
E. Comprehensive Umbrella Liability
Malpractice/Errors & Omissions Insurance
$1,000,000 each occurrence
$1,000,000 each occurrence
$1,000,000 each occurrence
$1,000,000 aggregate
$1,000,000 each occurrence
$2,000,000 aggregate
SECTION VI. COMPLIANCE WITH WORKER'S COMPENSATION LAW
Contractor shall comply with all provisions of the Indiana Worker's Compensation law, and shall,
before commencing work under this Agreement, provide the City a certificate of insurance, or a
certificate from the industrial board showing that the Contractor has complied with Indiana Code
Sections 22-3-2-5, 22-3-5-1 and 22-3-5-2. If Contractor is an out of state employer and therefore
subject to another state's worker's compensation law, Contractor may choose to comply with all
provisions of its home state's worker's compensation law and provide the City proof of such
compliance in lieu of complying with the provisions of the Indiana Worker's Compensation Law.
SECTION VII. COMPLIANCE WITH INDIANA &VERIFY PROGRAM
REQUIREMENTS
Pursuant to Indiana Code 22-5-1.7, Contractor is required to enroll in and verify the work
eligibility status of all newly hired employees of the contractor through the Indiana E-Verify
program. Contractor is not required to verify the work eligibility status of all newly hired
employees of the contractor through the Indiana E-Verify program if the Indiana E-Verify
program no longer exists. Prior to the performance of this Agreement, Contractor shall provide
to the City its signed Affidavit affirming that Contractor does not knowingly employ an
unauthorized alien in accordance with IC 22-5-1.7-11 (a) (2). In the event Contractor violates
IC 22-5-1.7 the Contractor shall be required to remedy the violation not later than thirty (30)
days after the City notifies the Contractor of the violation. If Contractor fails to remedy the
violation within the thirty (30) day period provided above, the City shall consider the
Contractor to be in breach of this Agreement and this Agreement will be terminated. If the
City determines that terminating this Agreement would be detrimental to the public interest or
public property, the City may allow this Agreement to remain in effect until the City procures
a new contractor. If this Agreement is terminated under this section, then pursuant to IC 22-5-
1.7-13 (c) the Contractor will remain liable to the City for actual damages.
SECTION VIII. IRAN INVESTMENT ACTIVITIES
Pursuant to Indiana Code (IC) 5-22-16.5, Contractor certifies that Contractor is not
engaged in investment activities in Iran. In the event Board determines during the course
of this Agreement that this certification is no longer valid, Board shall notify Contractor in
writing of said determination and shall give contractor ninety (90) days within which to
respond to the written notice. In the event Contractor fails to demonstrate to the Board that
the Contractor has ceased investment activities in Iran within ninety (90) days after the
written notice is given to the Contractor, the Board may proceed with any remedies it may
have pursuant to IC 5-22-16.5. In the event the Board determines during the course of this
Agreement that this certification is no longer valid and said determination is not refuted by
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Contractor in the manner set forth in IC 5-22-16.5, the Board reserves the right to consider
the Contractor to be in breach of this Agreement and terminate the agreement upon the
expiration of the ninety (90) day period set forth above.
SECTION IX. PROHIBITION AGAINST DISCRIMINATION
A. Pursuant to Indiana Code 22-9-1-10, Contractor, any sub -contractor, or any person acting
on behalf of Contractor or any sub -contractor shall not discriminate against any employee
or applicant for employment to be employed in the performance of this Agreement, with
respect to hire, tenure, terms, conditions or privileges of employment or any matter directly
or indirectly related to employment, because of race, religion, color, sex, disability,
national origin, or ancestry.
B. Pursuant to Indiana Code 5-16-6-1, the Contractor agrees:
That in the hiring of employees for the performance of work under this Agreement
of any subcontract hereunder, Contractor, any subcontractor, or any person acting
on behalf of Contractor or any sub -contractor, shall not discriminate by reason of
race, religion, color, sex, national origin or ancestry against any citizen of the State
of Indiana who is qualified and available to perform the work to which the
employment relates;
That Contractor, any sub -contractor, or any person action on behalf of Contractor
or any sub -contractor shall in no manner discriminate against or intimidate any
employee hired for the performance of work under this Agreement on account of
race, religion, color, sex, national origin or ancestry;
That there may be deducted from the amount payable to Contractor by the City
under this Agreement, a penalty of five dollars ($5.00) for each person for each
calendar day during which such person was discriminated against or intimidated
in violation of the provisions of the Agreement; and
That this Agreement may be canceled or terminated by the City and all money due
or to become due hereunder may be forfeited, for a second or any subsequent
violation of the terms or conditions of this section of the Agreement.
C. Violation of the terms or conditions of this Agreement relating to discrimination or
intimidation shall be considered a material breach of this Agreement.
SECTION X. RELEASE OF LIABILITY
Contractor hereby agrees to release and hold harmless the City and all officers, employees, or
agents of the same from all liability which may arise in the course of Contractor's performance of
its obligations pursuant to this Agreement.
SECTION XI. MISCELLANEOUS
This Agreement is personal to the parties hereto and neither party may assign or delegate any of its
rights or obligations hereunder without the prior written consent of the other party. Any such
delegation or assignment, without the prior written consent of the other party, shall be null and
void. This Agreement shall be controlled by and interpreted according to Indiana law and shall be
binding upon the parties, their successors and assigns. This document constitutes the entire
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Agreement between the parties, although it may be altered or amended in whole or in part at any
time by filing with the Agreement a written instrument setting forth such changes signed by both
parties. By executing this Agreement the parties agree that this document supersedes any previous
discussion, negotiation, or conversation relating to the subject matter contained herein.
This Agreement may be simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
The parties hereto submit to jurisdiction of the courts of Wayne County, Indiana, and any suit
arising out of this Contract must be filed in said courts. The parties specifically agree that no
arbitration or mediation shall be required prior to the commencement of legal proceedings in said
Courts. By executing this Agreement, Contractor is estopped from bringing suit or any other action
in any alternative forum, venue, or in front of any other tribunal, court, or administrative body other
than the Circuit or Superior Courts of Wayne County, Indiana, regardless of any right Contractor
may have to bring such suit in front of other tribunals or in other venues.
Any person executing this Contract in a representative capacity hereby warrants that he/she has
been duly authorized by his or her principal to execute this Contract.
In the event of any breach of this Agreement by Contractor, and in addition to any other damages
or. remedies, Contractor shall be liable for all costs incurred by City in its efforts to enforce this
Agreement, including but not limited to, City's reasonable attorney's fees.
In the event that an ambiguity, question of intent, or a need for interpretation of this Agreement
arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement at R. hmond, Indiana, as of
the day and year first written above, although signatures may be affixed or different dates.
"CITY"
The City of Richmond, Indiana, by and through
its Board of ni ryCommissioners
Sue Miller, President
Dated:
APPROVED:
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H. J. Umbaugh & Associates
Certified Public Accountants, LLP
8365 Keystone Crossing
Suite 300
Indianapolis, IN 46240-2687
Phone:317-455.1500
Fax 317.465-1550
wwmumbaugh.com
Ms, Sandra Spencer, Controller
City of Richmond
50 North 5°i Street
Richmond, Indiana 47374-4203
May 10, 2016
RE: Richmond (Indiana) Sanitary District
Annual Financial Assurance Test —New Paris Landfill
Dear Sandra:
This letter confirms our understanding of the agreed -upon procedures we will provide to the Richmond
(Indiana) Sanitary District (the "District") in regards to the financial test required by 3291AC 10-39-2.
We will apply the agreed -upon procedures which are listed in the attached schedule. We will submit a
report listing the procedures performed and our findings. This report is intended solely for the use of the
District, regarding the above -described financial tests, and should not be used by those who did not agree
to the procedures and take responsibility for the sufficiency of the procedures for their purposes. Our
report will contain a paragraph indicating that we did not perform an examination and that had we
performed additional procedures, other matters might have come to our attention that would have been
reported to you.
Our engagement to apply agreed -upon procedures (as listed in the attachment) will be conducted in
accordance with attestation standards established by the American Institute of Certified Public
Accountants. Those standards require that we obtain your concurrence and the concurrence of all parties
to whom we address our report as to the sufficiency of the procedures.
We appreciate the opportunity to assist you and believe this letter accurately summarizes the significant
terms of our engagement. If you have any questions, please let me know. If you agree with the terms of
our engagement as described in this letter (including the procedures enumerated), please sign this letter
and return to us for our files.
Very ruly yours,
MB UGH
Jo I M. Seever
JMS/tdg
Enclosure: Agreed -Upon Procedures
RESPONSE:
This letter correctly sets forth the understanding of the City of Richmond, Indiana.
Title:
Date:
Exhibit A
RICHMOND (INDIANA) SANITARY DISTRICT
AGREED -UPON PROCEDURES
Compliance With 329IAC 10-39-2
The procedures to be performed are summarized below:
(1) Confirm Bond ratings on all outstanding debt of the City of Richmond, Indiana (the "City"), if
any.
(2) Calculate ratio of City's cash and marketable securities compared to total expenditures.
(3) Calculate ratio of anneal debt service of the City compared to total expenditures.
(4) Determine basis of accounting for which the City follows.
(5) Confirm the City has not defaulted on any of its outstanding General Obligation Bonds.
(6) Calculate the City's annual operating surplus/deficit for the most recent three fiscal years.
(7) Calculate the City's ability to financially assure costs for closure, post closure, and corrective
action costs related to the New Paris Landfill.
(8) Prepare a report of findings to the District.
Exhibit A
Senior Partners / Principals
Partners / Principals
Managers
Accountants/Financial Analysts
Paraprofessional Staff
Rees
Standard Hourly Rates by Job Classification
01/01/2015
$300.00
to
$550.00
$220.00
to
$400.00
$175.00
to
$325.00
$95.00
to
$250,00
$85.00
to
$175.00
Support Personnel $75.00 to $120.00
• Billing rates are subject to change periodically due to changing requirements and economic
conditions. Actual fees will be based upon experience of the stg8"assigned and the complexity
of the engagement.
The above fees shall include all expenses incurred by the Firm with the exception of expenses incurred
for travel, if any, outside the State of Indiana. No such expenses will be incurred without the prior
authorization of the Client, The fees do not include the charges of other entities such as rating agencies,
bond and official statement printers, couriers, newspapers, bond insurance companies, bond counsel and
local counsel, and electronic bidding services, including Parity®. Coordination of the printing and
distribution of Official Statements or any other Offering Document are to be reimbursed by the Client
based upon the time and expense for such services.
Exhibit 6
May 31, 2016
Ms. Sandra Spencer, Controller
City of Richmond
50 North 51h Street
Richmond, IN 47374-4203
Re: Agreement for Annual Financial Assurance Test — New Paris Landfill
Dear Ms. Spencer:
You have requested that H.J. Umbaugh & Associates, Certified Public Accountants, LLP (the "Firm")
provide to the Richmond Sanitary District (the "Client") those services more fully set forth in Exhibit A
hereto (the "Services"),
Fees and Costs
Fees charged for work performed are generally based on hourly rates, as set forth in Exhibit B, for the
time expended, a fixed amount or other arrangement as mutually agreed upon as more appropriate for a
particular matter, Hourly rates for work performed by our professionals vary by individual and reflect the
complexity of the engagement.
Disclosure of Conflicts of Interest with Various Forms of Compensation
The Municipal Securities Rulemaking Board (MSRB) is expected to require us, as your municipal
advisor, to provide written disclosure to you about the actual or potential conflicts of interest presented by
various forms of compensation. Exhibit C sets forth the potential conflicts of interest associated with
various forms of compensation. By signing this letter of engagement, the signee acknowledges that
he/she has received Exhibit C and that he/she has been given the opportunity to raise questions and
discuss the matters contained within the exhibit with the municipal advisor.
Billing Procedures
Normally, you will receive a monthly statement showing fees and costs incurred in the prior month.
Occasionally, we may bill on a less frequent basis if the time involved in the prior month was minimal or
if arrangements are made for the payment of fees from bond proceeds. The account balance is due and
payable on receipt of the statement and we reserve the right to charge 1% interest per month for
outstanding unpaid balances over thirty (30) days from the date of billing. Once our representation has
been concluded or terminated, a final billing will be sent to you. If requested to provide an estimate of
our fees for a given matter, we will endeavor in good faith to provide our best estimate, but unless there is
a mutual agreement to a fixed fee, the actual fees incurred on any project may be less than or exceed the
estimate. Any questions or errors in any fee statement should be brought to our attention in writing
within sixty (60) days of the billing date.
Termination
Both the Client and the Firm have the right to terminate the engagement at any time after reasonable
advance written notice. On termination, all fees and charges incurred prior to termination shall be paid
promptly.
Ms. Sandra Spencer, Controller
City of Richmond
Re: Agreement for Annual Financial Assurance Test — New Paris Landfill
May 31, 2016
Page 2
Accountants' Opinion
In performing our engagement, we will be relying on the accuracy and reliability of information provided
by Client personnel. We will not audit, review, or examine the information. Please also note that our
engagement cannot be relied on to disclose errors, fraud, or other illegal acts that may exist. However, we
will inform you of any material errors and any evidence or information that comes to our attention during
the performance of our procedures that fraud may have occurred. In addition, we will report to you any
evidence or information that comes to our attention during the performance of our procedures regarding
illegal acts that may have occurred, unless they are clearly inconsequential. We have no responsibility to
identify and communicate significant deficiencies or material weaknesses in your internal control as part
of this engagement.
The responsibility for auditing the records of the Client rests with the Indiana State Board of Accounts
and the work performed by the Firm shall not include an audit or review of the records or the expression
of an opinion on financial data.
Client Responsibilities
It is understood that the Firm will serve in an advisory capacity with the Client. The Client is responsible
for management decisions and functions, and for designating an individual with suitable skill, knowledge
or experience to oversee the services we provide. The Client is responsible for evaluating adequacy and
results of the services performed and accepting responsibility for such services. The Client is responsible
for establishing and maintaining internal controls, including monitoring ongoing activities.
Additional Services
Exhibit A sets forth the scope of the Services to be provided by the Firm. From time to time, additional
services may be requested by the Client beyond the scope of Exhibit A. The Firm may provide these
additional services and be paid at the Firm's customary fees and costs for such services. In the
alternative, the Firm and the Client may complete a revised and supplemented Exhibit A to set forth the
additional services (including revised fees and costs, as needed) to be provided. In either event, the terms
and conditions of this letter shall remain in effect.
E-VerifyProgram
The Firm participates in the E-Verify program. For the purpose of this paragraph, the E-Verify program
means the electronic verification of the work authorization program of the Illegal Immigration Reform
and Immigration Responsibility Act of 1996 (P.L. 104-208), Division C, Title IV, s.401(a), as amended,
operated by the United States Department of Homeland Security or a successor work authorization
program designated by the United States Department of Homeland Security or other federal agency
authorized to verify the work authorization status of newly hired employees under the Immigration
Reform and Control Act of 1986 (P.L. 99-603). The Firm does not employ any "unauthorized aliens" as
that term is defined in 8 U.S.C. 1324a(h)(3).
Investments
The Firm certifies that pursuant to Indiana Code 5-22-16.5 et seq. the Firm is not now engaged in
investment activities in Iran. The Firm understands that providing a false certification could result in the
fines, penalties, and civil action listed in I.C. 5-22-16.5-14.
Ms. Sandra Spencer, Controller
City of Richmond
Re: Agreement for Annual Financial Assurance Test —New Paris Landfill
May 31, 2016
Page 3
Municipal Advisor Registration
The Firm is a Municipal Advisor registered with the Securities and Exchange Commission and the
Municipal Securities Rulemaking Board. As such, the Firm is providing certain specific municipal
advisory services to the Client. The Firm is neither a placement agent to the Client nor a broker/dealer.
The offer and sale of any Bonds shall be made by the Client, in the sole discretion of the Client, and under
its control and supervision. The Client agrees that the Firm does not undertake to sell or attempt to sell the
Bonds, and will take no part in the sale thereof.
Other Financial Industry Activities and Affiliations
Umbaugh Cash Advisory Services, LLC ("UCAS") is a wholly -owned subsidiary of the Firm. UCAS is
registered as an investment adviser with the Securities and Exchange Commission under the federal
Investment Advisers Act. UCAS provides non -discretionary investment advice with the purpose of
helping clients create and maintain a disciplined approach to investing their funds prudently and
effectively. UCAS may provide advisory services to the clients of the Firm.
UCAS has no other activities or arrangements that are material to its advisory business or its clients with
a related person who is a broker -dealer, an investment company, other investment adviser or financial
planner, bank, law firm or other financial entity.
If the foregoing accurately represents the basis upon which we may provide Services to the Client, we ask
that you execute this letter, in the space provided below setting forth your agreement. Execution of this
letter can be performed in counterparts each of which will be deemed an original and all of which together
will constitute the same document.
If you have any questions, please let us know.
Very truly yours,
H.J. Umbaugh & Associates
Certified Public Accountants, LLP
John M. Seever, Partner
The undersigned hereby acknowledges and agrees to the foregoing letter of engagement.
Richmond Sanitary District
Date: By:
EXHIBIT A
Services Provided
Scope of Services
Article I Preliminary Financial Planning
Gather historical financial information for the City of Richmond for the two to three
prior years, including the landfill operations. Also obtain copies of State Board of
Accounts Audits and any available bond rating reports for the City and landfill; obtain
copies of ordinances and/or resolutions dealing with the landfill operations in regard to
rates and charges for revenue generation, including but not limited to, tipping charges
and copies of any contracts with private haulers, as well as any other miscellaneous
revenue sources.
Obtain budgets for the City landfill for 2015 and beyond for operational expenses and
capital improvements. Discuss with landfill operator and engineer the useful life of
landfill cells currently utilized and the timing of closure activity. Obtain information from
City representatives, landfill operator, and/or consulting engineers in terms of estimated
capital and operating costs for closure and post -closure activities. Gather any other
relevant information required to address the Financial Assurance Test requirements as
outlined in the Administrative Code.
Article H Financial Plan and Financial Assurance Test Development
Utilizing the historical and prospective financial and operational data gathered from
representatives of the City of Richmond, develop pro forma cash flow analysis for
the landfill that would include the anticipated closure and post -closure activities. In
this regard, summarize the financial information from the City of Richmond and
other resources to make the financial calculations and ratios as required by the
Administrative Code to meet Financial Assurance Test requirements. Meet the City of
Richmond representatives to review the reports and answer any questions.
Article III Approval of Financial Assurance Test and submission to IDEM
Finalize reports in regard to the operations of the landfill and the Financial Assurance
Test requirements for submission to the City of Richmond to be utilized by the City in
execution of the Financial Assurance Test and submission to IDEM.
EXHIBIT B
Fees
The Firm's fees for services set forth in Exhibit A shall be billed at the Firm's standard billing rates based
upon the actual time and expenses incurred and will not exceed Five Thousand Five Hundred Dollars
($5,500) without further authorization from the Client.
Standard Hourly Rates by Job Classification
O1/01/2015
Senior Partners / Principals $300.00 to $550.00
Partners / Principals $220.00 to $400.00
Managers $175.00 to $325.00
Accountants/Financial Analysts $95.00 to $250.00
Paraprofessional Staff $85.00 to $175.00
Support Personnel $75.00 to $120.00
• Billing rates are subject to change periodically due to changing requirements and economic
conditions. Actual fees will be based upon experience of the staff assigned and the complexity
of the engagement.
The above fees shall include all expenses incurred by the Firm with the exception of expenses incurred
for travel, if any, outside the State of Indiana. No such expenses will be incurred without the prior
authorization of the Client. The fees do not include the charges of other entities such as rating agencies,
bond and official statement printers, couriers, newspapers, bond insurance companies, bond counsel and
local counsel, and electronic bidding services, including Parity®. Coordination of the printing and
distribution of Official Statements or any other Offering Document are to be reimbursed by the Client
based upon the time and expense for such services.
EXHIBIT C
Disclosure of Conflicts of Interest with Various Forms of Compensation
The forms of compensation for municipal advisors vary according to the nature of the engagement and
requirements of the client, among other factors. Various forms of compensation present actual or
potential conflicts of interest because they may create an incentive for an advisor to recommend one
course of action over another if it is more beneficial to the advisor to do so. This exhibit discusses
various forms of compensation and the timing of payments to the advisors.
Fixed fee. Under a fixed fee form of compensation, the municipal advisor is paid a fixed amount
established at the outset of the transaction. The amount is usually based upon an analysis by the client and
the advisor of, among other things, the expected duration and complexity of the transaction and the
agreed -upon scope of work that the advisor will perform. This form of compensation presents a potential
conflict of interest because, if the transaction requires more work than originally contemplated, the
advisor may suffer a loss. Thus, the advisor may recommend less time-consuming alternatives, or fail to
do a thorough analysis of alternatives. There may be additional conflicts of interest if the municipal
advisor's fee is contingent upon the successful completion of a financing, as described below.
Hourly fee. Under an hourly fee form of compensation, the municipal advisor is paid an amount equal to
the number of hours worked by the advisor times an agreed -upon hourly billing rate. This form of
compensation presents a potential conflict of interest if the client and the advisor do not agree on a
reasonable maximum amount at the outset of the engagement, because the advisor does not have a
financial incentive to recommend alternatives that would result in fewer hours worked. In some cases, an
hourly fee may be applied against a retainer (e.g., a retainer payable monthly), in which case it is payable
whether or not a financing closes. Alternatively, it may be contingent upon the successful completion of a
financing, in which case there may be additional conflicts of interest, as described below,
Fee contingent upon the completion of a financing or other transaction. Under a contingent fee form
of compensation, payment of an advisor's fee is dependent upon the successful completion of a financing
or other transaction. This form of compensation presents a conflict because the advisor may have an
incentive to recommend unnecessary financings or financings that are disadvantageous to the client. For
example, when facts or circumstances arise that could cause the financing or other transaction to be
delayed or fail to close, an advisor may have an incentive to discourage a full consideration of such facts
and circumstances, or to discourage consideration of alternatives that may result in the cancellation of the
financing or other transaction.
Fee paid under a retainer agreement_._ Under a retainer agreement, fees are paid to a municipal advisor
periodically (e.g., monthly) and are not contingent upon the completion of a financing or other
transaction. Fees paid under a retainer agreement may be calculated on a fixed fee basis (e.g., a fixed fee
per month regardless of the number of hours worked) or an hourly basis (e.g., a minimum monthly
payment, with additional amounts payable if a certain number of hours worked is exceeded). A retainer
agreement does not present the conflicts associated with a contingent fee arrangement (described above).
Fee based upon principal or notional amount and term of transaction. Under this form of
compensation, the municipal advisor's fee is based upon a percentage of the principal amount of an issue
of securities (e.g., bonds) or, in the case of a derivative, the present value of or notional amount and term
of the derivative. This form of compensation presents a conflict of interest because the advisor may have
an incentive to advise the client to increase the size of the securities issue or modify the derivative for the
purpose of increasing the advisor's compensation.