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HomeMy WebLinkAbout1990-131 , '. 1 RESOLUTION NO. 90-131 2 RESOLUTION OF THE CITY OF SAN BERNARDINO AUTHORIZING 3 ISSUANCE OF BONDS, APPROVING BOND INDENTURE AND OFFICIAL STATEMENT FOR A SPECIAL ASSESSMENT DISTRICT 4 WHEREAS, the COMMON COUNCIL of the CITY OF SAN BERNARDINO, 5 CALIFORNIA, is conducting proceedings for the construction of 6 certain publ ic improvements in a special assessment district 7 pursuant to the terms and provisions of the "Municipal Improve- 8 ment Act of 1913", being Division 12 of the Streets and Highways 9 Code of the State of California, said special assessment 10 district known and designated as ASSESSMENT DISTRICT NO. 977A 11 (hereinafter referred to as the "Assessment District"); and, 12 WHEREAS, this legislative body has previously declared in 13 its Resolution of Intention to issue bonds to finance said 14 improvements, said bonds to issue pursuant to the terms and 15 provisions of the "Improvement Bond Act of 1915", being Division 16 10 of said Code; and, 17 WHEREAS, at this time this legislative body is desirous to 18 set forth all formal terms and conditions relating to the 19 authorization, issuance and administration of said bonds; and, 20 WHEREAS, there has been presented, considered and ready for 21 approval a bond indenture setting forth formal terms and 22 conditions relating to the issuance and sale of bonds; and, 23 WHEREAS, there has also been presented an Official 24 statement containing information including but not limited to 25 the Assessment District and the type of bonds, including terms 26 and conditions thereof; and, 27 28 / / 3/9/90 RESOLUTION' AUTHORIZING ISSUANCE OF BONDS 1 2 WHEREAS, this legislative body hereby further determines 3 that the unpaid assessments shall be specifically in the amount 4 as shown and set forth in the Certificate of Paid and Unpaid 5 Assessments as certif ied by and on f ile with the Treasurer, and 6 for particulars as to the amount of said unpaid assessments, 7 said Certificate and listshall control and govern. 8 9 10 11 12 13 NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO THAT: RECITALS SECTION 1. The above recitals are true and correct. BOND AUTHORIZATION SECTION 2. This legislative body does authorize the 14 issuance of bonds pursuant to the terms and provisions of the 15 "Improvement Bond Act of 1915", being Division 10 of the Streets 16 and Highways Code of the State of California, and also pusuant 17 to the specific terms and conditions as set forth in the BOND 18 19 20 21 22 23 24 INDENTURE presented herein. BOND INDENTURE SECTION 3. The BOND INDENTURE is approved substantially in the form presented herein, and is subject to modifications as necessary and as approved by the Treasurer, with the concurrence of Bond Counsel. Final approval of the BOND INDENTURE shall be conclusively evidenced by the signature of the Treasurer upon 25 final delivery of bonds and receipt of proceeds. A copy of said 26 BOND INDENTURE shall be kept on file with the transcript of 27 these proceedings and open for public inspection. 28 / / 3/9/90 RESOLUTION AUTHORIZING ISSUANCE OF BONDS 1 2 OFFICIAL STATEMENT 3 SECTION 4. The Official statement, as prepared and 4 submitted, is hereby approved and adopted, and the execution and 5 distribution is hereby authorized. A copy of said Official 6 Statement shall be kept on file with the transcript of these 7 proceedings and remain open for public inspection. 8 FINAL ASSESSMENTS 9 SECTION 5. The certificate of Paid and Unpaid Assessments, 10 as certified by the Treasurer, shall remain on file in that 11 office and be open for public inspection for 'all particulars as 12 it relates to the amount of unpaid assessments to secure bonds 13 for this Assessment District. 14 SUPERIOR COURT FORECLOSURE 15 SECTION 6. In the event of delinquency in the payment of 16 any installment of unpaid assessments, this legislative body 17 does specifically covenant for the benefit of the owners of the 18 bonds that it does hereby authorize judicial foreclosures to be 19 made if assessment collections in any year are less than ninety- 20 five percent (95%) of the assessment installments due and 21 payable; however, foreclosure actions may be deferred if the 22 reserve fund balance is not less than the original reserve fund 23 amount. For further particulars and specifics, reference is 24 made to the Bond Indenture to be approved prior to any issuance 25 and delivery of bonds. 26 APPOINTMENT OF FISCAL AGENT 27 SECTION 7. This legislative body does hereby appoint Security Pacific National Bank 28 3/9/90 RESOLUTION AUTHORIZING ISSUANCE OF BONDS . 1 2 as Fiscal Agent for the bonds. The Treasurer is hereby autho- 3 rized to execute, with the concurrence of Bond Counsel, a Fiscal 4 Agent Agreement which is consistent with the terms of the 5 proposal previously received from the Fiscal Agent. 6 I HEREBY CERTIFY that the foregoing resolution was duly 7 adopted by the Mayor and Common Council of the City of San 8 Bernardino at a reqular 9 on the day of 16th 10 following vote, to wit: 11 12 AYES: Council Members meeting thereof, held Aoril 1990, by the Estrada. Reillv. Flores. Maudslev Minor. PODe-Ludlam 13 14 NOES: None 15 ABSENT: Council Member Miller 16 17 18 19 ~ff4/LJ?#/ City Clerk /;'// 1/(./1.-- c. 20 The foregoing resolution is hereby approved this day of April 21 22 23 24 1990. // / /~5> 1~2?~= /- . W. JL lcomlj', Mayo City 0 San aernardino Approved as to form and legal content: 25 26 James F. Penman City Attorney By ft/>1At(~J2W<-1 // 27 28 3/9/90 BOND INDENTURE This Bond Indenture (the "Indenture") dated as of April 2, 1990, entered into and approved by the City of San Bernardino, (the "Issuerll) I a municipal corporation, to establish the terms and conditions pertaining to the issuance of bonds in a special assessment district known and designated as ASSESSMENT DISTRICT NO. 977A (the "Assessment District"). SECTION 1. SECTION 2. SECTION 3. SECTION 4. SECTION 5. SECTION 6. Issuance, Designation and Amount. Pursuant to the provisions of the "Improvement Bond Act of 1915" (the "Act"), being Division 10 of the Streets and Highways Code of the State of California, the Issuer does hereby authorize the issuance of bonds to represent unpaid assessments within the Assessment District in principal amount not to exceed $740,350.00, and designated as the city of San Bernardino Assessment District No. 977A Limited Obligation Improvement Bonds (the "Bonds"). Term of Bonds. Bonds to represent the unpaid a~se8Bments, and bear interest at a rate not to exceed the current legal maximum rate of 12% per annum, will be issued in the manner provided in the "Improvement Bond Act of 1915", being Division 10 of the Streets and Highways Code of the State of California, the last installment of which Bonds shall mature a maximum of and not to exceed nineteen (19) years from the second day of September next succeeding twelve (12) months from their date. The provisions of Part 11.1 of said Act, providing an alternative procedure for the advance payment of assessments and the calling of Bonds shall apply. Registered Bonds and Denominations. Said Bonds shall be issuable only as fully reg istered Bonds in the denomination of $5,000, or any integral multiple thereof, except for one bond maturing in the first year of maturity, which shall include the amount by which the total issue exceeds the maximum integral multiple of $S, 000 contained therein. Date of Bonds. All of said Bonds shall be dated the 2nd day of April, 1990, and interest shall accrue from that date. Maturity. The Bonds shall be issued in serial form with annual maturities on September 2nd of every year succeeding twelve (12) months after their date, until the whole is paid. The amount maturing each year shall be such as to result in approximately equal annual debt service during the term of the issue as reflected by the interest rate and/or rates and principal amounts maturing in the respective years of maturity as shown on Exhibit "A" attached hereto and incorporated herein by this reference, and the Issuer shallr immediately upon completion of the cash collection period, prescribe the denominations of the Bonds, which shall be in convenient amounts, not necessarily equal, and shall further provide for their issuance and delivery. Interest. Each Bond shall be of a single maturity and shall bear interest at the rate as set forth in Exhibit "A" attached hereto for said Bonds from the interest payment date next preceding the date on 1 SECTION 7. SECTION 8. which it authenticated and registered, unless said Bond is authentl- cct.ted and registered as of an interest payment date, in which case it shall bear interest from said interest payment date, or unless said Bond is authenticated and registered prior to the first interest payment date, in which case it shall bear interest from its date, until payment of its principal sum has been discharged. Place of Payment. The principal on the Bonds shall be payable in lawful money of the United States of America upon surrender of the Bond at the office of Security Pacific , the designated registrar, transfer agent and paying agent of the Issuer ("Fiscal Agent"), or such other registrar, transfer agent or paying agent as may be designated by supplemental Indenture of the Issuer. Interest on said Bonds shall be paid on March 2 and September 2 of each year, commencing September 2, 1990, by check or draft to the registered owner thereof at his address as it appears on the books of registration as of the 15th day of the month immediately preceding said interest payment date. Redemption. (a) optional Redemption. The Bonds maturing on or after September 2, 1991, may be redeemed prior to maturity, in whole or in part, at the option of the Issuer, on September 2, or on any March 2 or September 2 thereafter at a redemption price equal to 103% of the principal amount thereof, together with accrued interest to the date of redemption, from any source of funds. (b) Mandatory Redemption. The Bonds maturing on or after September 2, 1991, shall be subject to mandatory redemption prior to maturity, in whole or in part, on September 2, 1990, or on any March 2 or September 2 thereafter at a redemption price equal to 103% of the principal amount thereof, together with accrued interest to the date of redemption, from monies representing the prepayment of assessments or surplus funds transferred from the Improvement Fund. (c) Selection of Bonds for Redemption. If less than all of the outstanding Bonds are to be redeemed, the Fiscal Agent shall select the Bonds to be redeemed in authorized denominations from each maturity in the same proportion which such maturity represents with respect to all of the outstanding Bonds and by lot within a single maturity; provided, however, that the portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or a multiple thereof, and that, in selecting portions of such Bonds for redemption, the Fiscal Agent shall treat each such Bond as representing that number of Bonds of $5,000 denominations which is obtained by dividing the principal amount of such Bonds to be redeemed in part by $5,000. The Fiscal Agent shall promptly notify the Issuer in writing of the Bonds, or portions thereof, selected for redemption. 2 (d) Notice of Redemption. When the Fiscal Agent shall receive notice from the Issuer of its election to redeem Bonds at least sixty (60) days prior to the applicable redemption date, or when Bonds are otherwise to be redeemed pursuant to this section 8, the Fiscal Agent shall give notice, in the name and at the expense of the I seuer, of the redemption of such Bonds. Such notlce of redemption shall (a) specify the numbers of the Bonds selected for redemption, except that where all the Bonds are subject to redemption, the numbers thereof need not be specified; (b) state the date fixed for redemption; (c) state the redemption price; (d) state the place or places where the Bonds are to be redeemed; and (e) in the case of Bonds to be redeemed only in part, state the portion of the Bond which is to be redeemed. Such notice shall further state that on the date fixed for redempt ion there shall become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 45 days prior to the redemption date, the Fiscal Agent shall mail by first class mail, a copy of such not ice, postage prepaid, to the respective owners of the Bonds to be redeemed at their addresses appearing on the bond register. The actual receipt by the owner of any Bond of notlce of such redemption shall not be a condition precedent thereto, and failure to receive such notice shall not affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A certificate by the Fiscal Agent that notice of such redemption has been given as herein provided shall be conclusive as against all parties, and it shall not be open to any bondowner to show that he or she failed to receive notice of such redemption. (e) Partial Redemption of Bonds. Upon surrender of any Bond to be redeemed in part only, the Issuer shall execute and the Fiscal Agent shall authenticate and deliver to the bondowner, at the expense of the Issuer, a new Bond or Bonds of authorized denomina- tions equal in aggregate principal amount to the unredeemed portion of the Bond surrendered, with the same interest rate and the same maturity. (f) Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in this Section 8, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption: (1) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in this Indenture, anything in this Indenture or in the Bonds to the contrary notwithstanding; Upon presentation and surrender thereof at the principal corporate trust office of the Fiscal Agent, such Bonds shall be redeemed at the specified redemption price; 3 (3) From and after the redemption date the Bonds or portions thereof so designated for redemption shall be deemed to be no longer outstanding and such Bonds or portions thereof shall cease to bear further interest; and (4) From and after the date fixed for redemption no owner of any of the Bond or portion thereof so designated for redemption shall be entitled to any of the benefits of this Indenture, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. SECTION 9. Transfer of Reqistered Bonds. Any Bond may, in accordance with its terms, be transferred, upon the books of registration required to be kept pursuant to the provisions of Section 12, by the owner in whose name it is registered, or by his duly authorized attorney or legal representative, upon surrender of such Bond for registration of such transfer, accompanied by delivery of a written instrument of transfer in a form approved by the Fiscal Agent and duly executed by the owner of said Bonds. The Fiscal Agent shall require the payment by the Bondholder requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer and such charges as provided for in the system of registration for registered debt obligations. No transfer of Bonds shall be required to be made during the fifteen (15) days preceding the selection of any Bonds for redemption prior to the maturity thereof. nor with respect to any Bond which has been selected for redemption prior to the maturity thereof. Upon any such registration of transfer, a new Bond or Bonds shall be authenticated and delivered in exchange for such Bond, in the name of, the transferee, of any denomination or denominations authorized by this Indenture, and in an aggregate principal amount equal to the principal amount of such Bond or principal amount of such Bond or Bonds so surren- dered. In all cases in which Bonds shall be exchanged or transferred, the Fiscal Agent shall authenticate at the earliest practical time, Bonds in accordance with the provisions of this Indenture. All Bonds surrendered in such exchange or registration transfer shall forthwith be cancelled. SECTION 10. Exchanqe of Bonds. Bonds may be exchanged at the office of the Fiscal Agent for a like aggregate principal amount of Bonds of the same series, interest rate and maturity, subject to the terms and conditions provided in the system of registration for registered debt obligations, including the payment of certain charges, if any, upon surrender and cancellation of the Bond. Upon such transfer and exchange, a new regis- tered Bond or Bonds of any authorized denomination or denominations of the same maturity for the same aggregate principal amount will be issued to the transferee in exchange therefor. 4 SECTION 11. Books of Registration. There shall be kept by the Fiscal Agent suffi- cient books for the registration and transfer of the Bonds and, upon presentation for such purpose, the Fiscal Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said register, Bonds as hereinbefore provided. SECTION 12. Execution of Bonds. The Bonds shall be executed in facsimile by the Treasurer and by the City Clerk, and the corporate seal shall be imprinted in facsimile on the Bonds. The Bonds shall then be delivered to the Fiscal Agent for authentication and registration. In case an of f icer who shall have signed or attested to any of the Bonds by facsimile or otherwise shall cease to be such officer before the authen- tication, delivery and issuance of the Bonds, such Bonds nevertheless may be authenticated, delivered and issued, and upon such authentica- tion, delivery and issue, shall be as binding as though those who signed and attested the same had remained in office. SECTION 13. Authentication. Only such of the Bonds as shall bear thereon a certifi- cate of authentication substantially in the form below, manually executed by the Fiscal Agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certifi- cate of the transfer agent and registrar shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder, and are entitled to the benefits of this Indenture. FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION This is one of the Bonds described in the Bond Indenture authorizing the issuance of the Bonds. as Fiscal Agent By: Authorized signatory Dated: SECTION 14. ownership of Bonds. The person in whose name any Bond shall be regis- tered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of the principal and redemp- tion premium, if any, of any such Bond, and the interest on any such Bond, shall be made only to or upon the order of the registered owner thereof or his legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond, including the redemption premium, if any, and interest thereon, to the extent of the sum or sums so paid. SECTION 15. Mutilated, Destroyed, Stolen or Lost Bonds. In case any Bond secured hereby shall become mutilated or be destroyed, stolen or lost, the Issuer shall cause to be executed and authenticated a new Bond of like 5 date and tenor in exchange and substitution for and upon the cancella- tion of such mutilated Bond or in lieu of and in substitution for such Bond mutilated, destroyed, stolen or lost, upon the owner's paying the reasonable expenses and charges in connection therewith, and, in the case of a Bond destroyed, stolen or lost, his filing with the Fiscal Agent and Issuer of evidence satisfactory to them that such Bond was destroyed, stolen or lost, and of his ownership thereof, and furnishing the Fiscal Agent and Issuer with indemnity satisfactory to them. SECTION 16. Cancellation of Bonds. All Bonds paid or redeemed, either at or before maturity, shall be cancelled upon the payment or redemption of such Bonds, and shall be delivered to the Fiscal Agent when such payment or redemption is made. All Bonds cancelled under any of the provisions of this Indenture shall be destroyed by the Fiscal Agent, which shall execute a certificate in duplicate describing the Bonds so destroyed, and shall retain said executed certificate in its permanent files for the issue. SECTION 17. Application of Bond Proceeds. The proceeds of the sale of Bonds and any good faith security deposit shall be received by the Fiscal Agent and deposited in accordance with written instructions of the Issuer to be provided at the time of, or prior to, the delivery of the Bonds. SECTION 18. Creation of Funds. The Fiscal Agent is hereby authorized and directed to establish the following Funds for purposes of making payment for the costs and expenses for the works of improvement and payment of principal and interest on the Bonds. The Funds to be created are designated as follows: IMPROVEMENT FUND: The proceeds from the sale of the Bonds, after deposit of required amounts in the Reserve 'Fund and Redemption Fund, shall be placed by the Fiscal Agent in the Fund hereby created, pursuant to Sections 10602 and 10424 of the California Streets and Highways Code, as amended, which shall be called the "Improvement Fund", and the monies in said Fund shall be used only for Project Costs as that term is defined hereinafter. "Project Costs" shall mean the costs of acquisition or construction of the works of improvement as author ized in the assessment proceedings and all incidental costs related thereto, all as more particular described in the Engineer's Report for Assessment District No. 977A on file in the office of the City Clerk. Upon receipt of a "Payment Request Form" in substantially the form attached hereto as Exhibit "B", duly executed by the l'layar , the Treasurer or the designee of either official (each an "Authorized Representative"), the Fiscal Agent shall pay the Project Costs from amounts in the Improvement Fund directly to the contractor of such other person, corporat ion or entity entitled to payment hereunder unless the Issuer requests payment to be made to the contractor or such other party jointly, in which case said Project Costs shall be paid jointly. The Fiscal Agent shall be responsible for the safekeeping and investment of the monies held in the Improvement Fund and the disposi- tion thereof in accordance with the written instructions of the Issuer and this Indenture. The Fiscal Agent may rely on an executed Payment Request Form as complete authorization for said payments. 6 Any surplus in the Improvement Fund after completion of the improve- ments shall remain in the Improvement Fund for a per led of not more than two (2) years from the receipt of Bond proceeds. Any such surplus shall be transferred by the Fiscal Agent at the written direction of the Treasurer to the Redemption Fund within such two (2) year period and shall thereafter be utilized by the Fiscal Agent pursuant to the written directions of the Treasurer to either call Bonds prior to maturity or to pay debt service on the Bonds on the next succeeding Interest Payment Date. REDEMPTION FUND: The Fiscal Agent is hereby authorized and directed to keep a Redemption Fund designated by the name of the proceedings, into which shall be placed (i) initially, an amount from proceeds of the Bonds which, together with accrued interest, if any, on the Bonds equals the interest on the Bonds to September 2, 1990, (ii) all sums received for the collection of the assessments and the interest thereon, together with all penalties, if applicable, and (iii) any surplus in the Improvement Fund authorized by the Issuer pursuant to Streets and Highways Code Section 10427.1 to be credited against unpaid assessments, or alternatively, to be utilized to call Bonds prior to maturity. The Issuer shall transfer or cause to be transferred all sums received for the collection of the assessments, interest and penalties thereon, and all Bums received for the prepayment of assessments to the Fiscal Agent within fifteen (15) business days of the receipt thereof by the Issuer. Principal of and interest on said Bonds shall be paid by the Fiscal Agent to the registered owners out of the Redemption Fund to the extent funds on deposit in said Redemption Fund are available therefor. In all respects not recited herein, said Bonds shall be governed by the provisions of the Act. Under no circumstances shall be the Bonds or interest thereon be paid out of any other fund except as provided by law. Prior to the first redemption date there shall be established by the Fisal Agent a prepayment subaccount within the Redemption Fund to be known as the Prepayment Account ("Prepayment Account"). The Fiscal Agent shall deposit in the Prepayment Account all monies received from the Treasurer and designated in writing by the Treasurer as represent- ing the principal of and redemption premium on any prepaid assessments or surplus monies transferred from the Improvement Fund to be utilized for the redemption of Bonds. The Treasurer shall direct the Fiscal Agent in writing to apply such monies either to the payment of principal of and premium on Bonds to be redeemed prior to maturity pursuant to the provisions of Section 8 of this Indenture or the payment of debt service on the Bonds payable on the next succeeding Interest Payment Date. RESERVE FUND: Pursuant to Part 16 of Division 10 of the California streets and Highways Code, as amended, there shall be created a special 7 reserve fund for the Bonds to be designated by the name of the Assess- ment District and specified as the "Reserve Fund". An amount equal to ten percent (10%) of the principal amount of the Bonds issued shall be deposited in the Reserve Fund out of the Bond proceeds. Monies in the Reserve Fund shall be applied by the Fiscal Agent as follows: A. Whenever there are insufficient funds in the Redemption Fund to pay the next matur ing installment of principal of or interest on the Bonds on the business day preceding such date of payment, the Fiscal Agent shall transfer the amount necessary to make up such def iciency from the Reserve Fund to the Redemption Fund. The amounts so advanced shall be reimbursed upon receipt thereof by the Issuer and transfer thereof to the Fiscal Agent for deposit into the Reserve Fund from the proceeds of redemption or sale of the parcels for which payment of delinquent installments of assessments and interest thereon have been made from the Reserve Fund. Such proceeds shall be transferred by the Treasurer to the Fiscal Agent within ten (10) business days of receipt thereof by the Treasurer and the Fiscal Agent shall immediately deposit such proceeds in the Reserve Fund. B. In the event an unpaid assessment is paid in cash in advance of the final Bond maturity date, the Issuer is required to credit such prepaid assessment with a proportionate share of the Reserve Fund, thus reducing the total amount of the Reserve Fund. The amount to be so credited is the pro-rata share of the original amount deposited in the Reserve Fund, less any amount previously trans- ferred from the Reserve Fund to the Redemption Fund as a result of the delinquency in the payment of assessment installments for the parcel for which the assessment is being prepaid. The Issuer shall direct the Fiscal Agent in writing to transfer the amount represent- ing such credit from the Reserve Fund to the Redemption Fund. c. Interest earned on permitted investments of Reserve Fund monies shall remain in the Reserve Fund so that the amount therein may accumulate to and subsequently be maintained at the "Reserve Requirement". "Reserve Requirement" means an amount equal to the lesser of (i) the maximum annual debt service on the Bonds, (1i) 125% of the average annual debt service on the Bonds, or (iii) 10% of the original principal amount of the Bonds. "Annual Debt Service" on the Bonds for each year ending September 2 shall equal the sum of (a) the interest falling due on the outstanding Bonds in such 12 month period, assuming that the outstanding Bonds are retired as scheduled, and (b) the principal amount of the outstand- ing Bonds falling due during such 12 month period. "Average Annual Debt Service" shall mean the average annual debt service during the term of the Bonds. "Maximum Annual Debt Service" shall mean, as computed from time to time, the largest annual debt service during the per iod from the date of such computation through the final maturity of any outstanding Bonds. 8 D. Prior to each interest payment date, any interest earned on the investment of monies on deposit in the Reserve Fund which would cause the amount therein to exceed the Reserve Requirement shall be transferred by the Fiscal Agent to the Redemption Fund and shall be credited towards unpaid assessments each year during which part of the Bonds remain outstanding. The auditor's record prepared pursuant to section 8682 of the Act shall reflect credits against each of the unpaid assessments in the manner provided in Sectlon 10427.1 therein in amounts equal to each assessment parcels' proportionate share of any Reserve Fund disbursement. Notwithstanding the foregoing, the Treasurer may direct the Fiscal Agent in writing to transfer the interest earnings described in the preceding paragraph to the Rebate Fund if such funds are required to be utilized to make payments to the United states in accordance wi th the Arbitrage Rebate Provisions attached hereto as Exhibit "cn. E. All sums remaining in the Reserve Fund in the year in which the last installments of the assessments become due and payable shall be credited toward the assessments as follows: Prior to June 30th of the Fiscal Year next preceding the Fiscal Year in which the last unpaid assessment installment becomes due and payable, the Issuer shall determine the amount remaining in the Reserve Fund, if any, after all sums advanced and interest thereon have been reimbursed, and shall order the same to be distributed and/or credited pursuant to its written direction in the manner set forth in Section 10427.1 of the Act, provided only that where all or any part of such assessments remain unpaid and are payable installments, the amount apportioned to each parcel shall be credited against the last unpaid assessment installment, then such excess shall be credited against the next to last unpaid assessment installment. Whenever the balance in the Reserve Fund is sufficient to retire all remaining outstanding Bonds, whether by advance retirement or other- wise, collection of the principal and interest on the assessments shall be discontinued and the Reserve Fund shall be liquidated by the Fiscal Agent pursuant to the written direction of the Treasurer and utilized in the retirement of the Bonds. In the event that the balance in the Reserve Fund at the time of liqui- dation exceeds the amount required to retire all Outstanding Bonds in the issue, the excess shall be apportioned to each parcel upon which the individual assessment remained unpaid at the time the balance in the Reserve Fund was sufficient to retire all outstanding Bonds in the issue. The payments shall be made in cash by the Issuer to the respec- tive owners of the parcels except that, if the excess is not greater than one thousand dollars ($1,000), the excess may be transferred to the General Fund of the Issuer. 9 REBATE FUND: The Fiscal Agent shall transfer into the Rebate Fund all amounts required by the Treasurer to be transferred in acordance with the provisions of the Arbitrage Rebate provisions attached hereto as Exhibit "e". Subject to the provisions of said Arbitrage Rebate Provisions, amounts on deposit in the Rebate Fund shall only be applied to payments made to the United States in accordance with written instructions of the Issuer. Notwithstanding any other provisions of this Indenture, all earnings on amounts on deposit in the Rebate Fund shall remain therein until paid to the Federal government. SECTION 19. Investments. Obligations purchased as investments of monies in any of the funds and accounts in which investments are authorized shall be deemed at all times to be part of such funds and accounts. Except as provided in Section 18 hereof with respect to the Reserve Fund and the Rebate Fund, all investment earnings on monies held under this Inden- ture shall, prior to the earlier of (i) the substantial completion of the works of improvement, which shall be established by receipt by the Fiscal Agent of a written notice signed by the Treasurer stating that the authorized improvements have been completed, (ii) two (2) years from the date of delivery of the Bonds, or (iii) the date on which the Fiscal Agent receives written notice from the Treasurer stating that an amount equal to the Bond proceeds allocable to the works of improvement and authorized incidental expense have been expended ("Completion Date"), be deposited into the Improvement Fund. After the Completion Date, all such investment earnings shall be deposited in the Redemption Fund. Subject to the restrictions set forth herein, monies in said funds and accounts may from time to time be invested by the Fiscal Agent at the written direction of the Issuer, or if no such written direction is given, in Authorized Investments (as defined hereinafter) and described in (7) below, provided that: (a) Monies in the Improvement Fund shall be invested in obligations which will by their terms mature as close as practicable to the date the Issuer estimates the monies represented by the particular investment will be needed for withdrawal from such fund; (b) Monies in the Redemption Fund shall be invested only in obliga- tions which will by their terms mature on such dates so as to ensure the payment of principal of and interest on the Bonds as the same become due; and (c) Half of the monies in the Reserve Fund may be invested in obliga- tions which shall mature not more than five (5) years from the date of purchase by the Fiscal Agent and the balance may be invested in obligations which shall mature not more than ten years from the date of purchase by the Fiscal Agent, provided that no such obligation shall mature later than the final maturity of the bonds. The Fiscal Agent shall sell at the best price reasonably obtainable or present for redemption any obligations so purchased whenever it may be necessary to do so in order to provide monies to meet any payment or transfer for such funds and accounts or from such funds and accounts. 10 For the purpose of determining at any given time the balance in any such funds or accounts, any such investments constituting a part of such funds and accounts shall be valued at the lesser of their market value or cost. Notwithstanding anything herein to the contrary, the Fiscal Agent shall not be responsible for any loss from any investments pursuant to this Indenture. "Authorized securities District: Investments" means any of the following to the extent such are eligible for the legal investment of funds of the (1 ) United States indebtedness, United States interest; Treasury notes, bonds, bills or those for which the faith is pledged for the payment or certificates of and credit of the of principal and (2) Time certificates of deposit or negotiable certificates of deposit issued by a state or nationally chartered bank or trust company, including the Fiscal Agent, or a state or fed~ral savings and loan association; provided, that such certificates of deposit shall be (i) continuously and fully insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, or (ii) issued by any bank or trust company organized under the laws of any state of the United States of America or any national banking association (including the Fiscal Agent) having a combined capital and surplus of at least one hundred million dollars ($100,000,000), and such certificates shall have maturi- ties of six (6 )months or less, or (iii) continuously and fully secured by such securities as are described in clause (1) above, which securities shall have a market value (as determined on a marked-to-market basis calculated at least weekly, and exclusive of accrued interest) of not less than the principal amount of such certificates of deposit; (3) Bills of exchange or time drafts drawn on and accepted by a commer- cial bank (including the Fiscal Agent), otherwise known as bankers' acceptances, which are eligible for purchase by members of the Federal Reserve System; provided, that purchases of eligible bankers' acceptances may not exceed two hundred seventy (270) days' maturity; (4) Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided by either Moody's or Standard & Poor's, which commercial paper is limited to issuing corporations that are organized and operating within the United states of America and that have total assets in excess of five hundred million dollars ($500,000,000) and that have an "A" or higher rating for the issuer's debentures, other than commer- cial paper, as provided by either Moody's or Standard & Poor's; provided, that purchases of eligible commercial paper may not exceed one hundred eighty (180) days' maturity nor represent more than ten percent (10%) of the outstanding commerc ial paper of an issuing corporation; 11 (5) Any repurchase agreement with any bank or trust company organized under the laws of any state of the United states of America (including the Fiscal Agent) or any national banking association or government bond dealer reporting to, trading with and recog- nized as a primary dealer by, the Federal Reserve Bank of New York, which agreement is secured by anyone or more of the securities described in clause (1) above; provided, that the under- lying securities are (i) required by the repurchase agreement to be held by any such bank, trust company or primary dealer having a combined capital and surplus of at least one hundred million dollars ($100,000,000) and being independent of the issuer of such repurchase agreement, and (ii) maintained at a market value (as determined on a marked-to-market basis calculated at least weekly) of not less than 103% of the amount so invested; and, (6) Bonds, notes, warrants or other evidence of indebtedness of the state of California or of any political subdivision or public agency thereof which are rated in one of the two highest short- term or long-term rating categories by either Moody's or Standard & Poor's. (7) Units of a taxable government money market portfolio restricted to obligations issued or guaranteed as to payment of principal and interest by the full faith and credit of the United States govern- ment or repurchase agreements collateralized by such obligations. (8) The Local Agency Investment Fund established pursuant to Section 16429.1 of the Government Code of the State of California. SECTION 20. No Issuer Liability. It is hereby further determined and declared that the Issuer will not obligate itself to advance any available funds from its Treasury to cure any def ieieney or delinquency which may occur in the Bond Redemption Fund by failure of property owners to pay annual special assessments. This determination shall be clearly set forth and stated in the title of the Bonds to be issued pursuant to these proceed- ings as authorized and required by Section 8769 of the Streets and Highways Code of the State of California. SECTION 21. Covenant for Superior Court Foreclosure. In the event of delinquency in the payment of any installments of unpaid assessments, the Issuer does covenant for the benefit of the owners of the bonds that it will review assessment records of the County not later than August 1 of each year to determine the amount of the assessments collected in the prior fiscal year. If the cumulative delinquencies in the payment of assessment installments throughout the Assessment District exceed five percent (5%) of the Average Annual Debt Service on the Bonds, the Issuer will commence foreclosure action(s) in the Superior Court of the State of California (Part 14, Division 10, "Improvement Bond Act of 1915", Streets and Highways Code) on or before November 1 of each year, and diligently prosecute and pursue such foreclosure proceedings to judgment and sale. Initiation of such foreclosure actions may be deferred in any fiscal year if the Reserve Fund is maintained in an amount equal to the Reserve Requirement. 12 SECTION 22. Covenant to Maintain Tax-Exempt Status. The Issuer covenants that it will not make any use of the proceeds of the Bonds issued hereunder which would cause the Bonds to become "arbitrage bonds" subject to Federal income taxation pursuant to the provisions of Section 148(a) of the Code, or to become "Federally-guaranteed obligations" pursuant to the provisions of Section 149(b) of the Code, or to become "private activity bonds" pursuant to the provisions of section 14l(a) of the Code. To that end, the Issuer will comply with all applicable require- ments of the Code and all regulations of the United States Department of Treasury issued thereunder to the extent such requirements are, at the time, applicable and in effect. Additionally, the Issuer agrees to implement and follow each and every recommendation provided by bond counsel and deemed to be necessary to be undertaken by the Issuer to ensure compliance with all applicable provisions of the Code in order to preserve the exemption of interest on the Bonds from Federal income taxation. SECTION 23. Covenant Regarding Arbitrage. The Issuer shall not take or permit nor suffer to be taken any action with respect to the gross proceeds of the Bonds as such term is defined under the Code which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Bonds, would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code and the regulations promulgated thereunder. SECTION 24. Order to Print and Authenticate Bonds. The Treasurer is hereby instructed to cause Bonds, as set forth above, to be printed, and to proceed to cause said Bonds to be authenticated and delivered to an author ized representative of the purchaser, upon payment of the purchase price as set forth in the accepted proposal for the sale of Bonds. SECTION 25. Arbitrage Certificate. On the basis of the facts, estimates and circum- stances now in existence and in existence on the date of issue of the Bonds, as determined by the Treasurer, said Treasurer is hereby autho- rized to certify that it is not expected that the proceeds of the issue will be used in a manner that would cause such obligations to be arbitrage Bonds. Such certification shall be delivered to the purchaser together with the Bonds. SECTION 26. Fiscal Agent. The Issuer hereby appoints Security Pacific as Fiscal Agent for the Bonds and approves the Fiscal Agent Agreement by and between the Issuer and said Fiscal Agent, which Agreement is on file in the office of the City Clerk of the Issuer. The Fiscal Agent is hereby authorized to and shall mail interest payments to the Bondowners, select Bonds for redemption, give notice of redemption of Bonds, maintain the Bond register and maintain and administer the Redemption Fund, the Reserve Fund, the Improvement Fund and the Rebate Fund. The Fiscal Agent is hereby authorized to pay the principal of and premium, if any, on the Bonds when the same are duly presented to it for payment at maturity or on call and redemption, to provide for the registration of transfer and exchange of Bonds presented to it for such purposes, to provide for the cancellation of Bonds, all as provided in this Indenture, and to provide for the authentication of 13 Bonds, and shall perform all other duties assigned to or imposed on it as provided in this Indenture. The Fiscal Agent shall keep accurate records of all funds administered by it and all Bonds paid and discharged by it. The Fiscal Agent initially appointed, and any successor thereto, may be removed by the Issuer and a successor or successors may be appointed. So long as any Bonds are outstanding and unpaid the Fiscal Agent and any successor or successors thereto designated by the Issuer shall continue to be Fiscal Agent of the Issuer for all of said purposes until the designation of a successor or successors as Fiscal Agent. The Issuer shall compensate the Fiscal Agent for the performance of its services hereunder pursuant to the Fiscal Agent Agreement. A Fiscal Agent appointed hereunder may resign at any time upon 90 days' wr itten notice and after appointment of a successor. Upon merger, consol idat ion or reorganization of a Fiscal Agent, the Issuer will appoint a new Fiscal Agent, which may be the corporation resulting from such reorganization. SECTION 27. Liability of Fiscal Agent. The recitals of fact and all promises, covenants and agreements contained herein and in the Bonds shall be taken as statements, promises, covenants and agreements of the Issuer, and the Fiscal Agent assumes no responsibility for the correctness of the same and makes no representations as to the validity or sufficiency of this Indenture or of the Bonds, and shall incur no responsibility in respect thereof other than in connection with its duties or obligations herein, or in the Bonds or in the certificate of authorization assigned to or imposed upon the Fiscal Agent. The Fiscal Agent shall be under no responsibility or duty with respect to the issuance of the Bonds for value. The Fiscal Agent shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Fiscal Agent shall be protected in acting on any notice, resolution, request, consent, certificate or other document believed by it to be genuine and to have been signed or presented by the proper party. SECTION 28. Defeasance. If all outstanding Bonds shall be paid and discharged in anyone or more of the following ways: (a) by paying or causing to be paid the principal of and interest with respect to all Bonds outstanding, as and when the same become due and payable; (b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the Redemption Fund and the Reserve Fund, is fully sufficient to pay the principal of and interest on all Bonds outstanding as and when the same shall become due and payable; or (c) by depositing with the Fiscal Agent, in trust, direct obligations of, or obligations guaranteed by, the United States of America, in which the Issuer may lawfully invest its money, in such amount as a firm of certified public accountants selected by the Issuer shall determine, at the expense of the Issuer, will, together with 14 the interest to accrue thereon and monies then on deposit in the Redemption Fund and the Reserve Fund together with the interest to accrue thereon, be fully sufficient to pay and discharge the principal of and interest on all Bonds outstanding as and when the same shall become due and payable; then, at the election of the Issuer, and notwithstanding that any Bonds shall not have been surrendered for payment, all obligations of the Issuer under this Indenture with respect to the Fiscal Agent shall cease and terminate, except for the obligation to pay the fees and expenses of the Fiscal Agent incurred to such date of deposit and any indemnifications which by their terms survive the termination of this Indenture, and with respect to all outstanding Bonds shall cease and terminate, except for the obligation of the Fiscal Agent to payor cause to be paid to the owners of the Bonds not so surrendered and paid, all sums due thereon. Notice of such election shall be filed with the Fiscal Agent. Any funds held by the Fiscal Agent, at the time of receipt of such notice from the Issuer, which are not required for the purpose above mentioned, shall be paid over to ~he Treasurer. SECTION 29. Purpose. Proceeds from the Bonds shall be used for payment of the costs and expenses of the authorized public capital facilities, and all appurtenances and incidental costs as set forth above. SECTION 30. Provisions Constitute Contract. The provisions of this Indenture and the Bonds shall constitute a contract between the Issuer and the bondowners and the provisions hereof and thereof shall be enforceable by any bondowner for the equal benefit and protection of all bondowners similarily situated by mandamus, accounting, mandatory injunction or any other suit, action or proceeding at law or in equity that is now or may hereafter be authorized under the laws of the state of California in any court of competent jurisdiction. Said contract is made under and is to be construed in accordance with the laws of the State of California. After the issuance and delivery of the Bonds this Indenture shall not be subject to recission, but shall be subject to modification to the extent and in the manner provided in this Indenture, but to no greater extent and in other manner. SECTION 31. Unclaimed Funds. Notwithstanding any provisions of this Indenture, subject to applicable state escheat laws, any monies held by the Fiscal Agent in trust for the payment of the principal or premium, if any, or interest on, any Bonds and remaining unclaimed for four years after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption or by declaration as provided in this Indenture), if such monies were held at such date, or four years after the date of deposit of such monies if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Issuer free from the lien created by this Indenture, and all liability of the Fiscal Agent with respect to such monies shall thereupon cease and the bondowners shall, upon such payment, look only to the Issuer for payment; provided r however, that before the repayment of such monies to the Issuer as aforesaid, the Fiscal Agent may (at the cost of 15 the Issuer) first publish at least once in a nationally recognized financial publication published in New York, New York, and Los Angeles, California, a notice, in such form as may be deemed appropriate by the Fiscal Agent, with respect to the provisions relating to the repayment to the Issuer of the monies held for the payment thereof. SECTION 32. Arbitraqe Rebate Exemption Covenant. The term "bond proceeds" as used in this Section shall mean amounts actually or constructively received by the Issuer from the sale of the Bonds. The term "investment proceeds" as used in this Section means amounts actually or construc- tively received from the investment of the bond proceeds. The Issuer shall expend all of the bond proceeds, other than bond proceeds deposited in the Reserve Fund, and all of the investment proceeds (including investment proceeds received from the investment of bond proceeds deposited in the Reserve Fund) for the purposes for which the Bonds have been authorized to be issued, within six (6) months following the date of delivery of the Bonds to the initial purchaser thereof. In determining the amount to be expended in accordance with the previously described requirement, investment proceeds shall be limited to amounts earned on the bond proceeds before the close of the six (6) month period described hereinabove. In the event that the Issuer does not satisfy the expenditure require- ments of this Section, the Issuer shall assure compliance with applic- able requirements contained in the Code for rebate to the Federal government of excess investment earnings, if any, with respect to earnings on the bond proceeds, the investment proceeds, and on other applicable funds. Notwithstanding any other provision of this Section, the Issuer shall assure compliance with applicable requirements contained in the Code for rebate to the Federal government of excess investment earnings, if any, with respect to earnings on the Reserve Fund and on other applic- able funds after the date which is six (6) months from the date of delivery of the bonds to the initial purchaser thereof. IN WITNESS WHEREOF, the Issuer has executed this Bond Indenture effective the date first written hereinabove. 16 EXHIBIT "A" MATURITY SCHEDULE Maturity September 2 Principal Annual Rate Interest Debt Service 1991 $ 13 , 412 6.20% $ 44,832.23 $ 58,244.23 1992 20,000 6.30% 48,225.00 68,225.00 1993 20,000 6.40% 46,965.00 66,965.00 1994 20,000 6.50% 45,685.00 65,685.00 1995 20,000 6.60% 44,385.00 64,385.00 1996 . 25,000 6.70% 43,065.00 68,065.00 1997 25,000 6.80% 41,390,00 66,390.00 1998 25,000 6.90% 39,690.00 64,690.00 1999 30,000 7.00% 37,965.00 67,965.00 2000 30,000 7.10% 35,865.00 65,865.00 2001 35,000 7.20% 33,735.00 68,735.00 2002 35,000 7.25% 31,215.00 66,215.00 2003 35,000 7.30% 28,677.50 63,677.50 2004 40,000 7.35% 26,122.50 66,122.50 2005 45,000 7.40% 23,182.50 68,182.50 2006 45,000 7.45% 19,852.50 64,852.50 2007 50,000 7.50% 16,500.00 66,500.00 2008 55,000 7.50% 12,750.00 67,750.00 2009 55,000 7.50% 8,625.00 63,625.00 2010 60.000 7.50% 4.500.00 64.500.00 Total $683,412 633,227.23 1,316,639.23 17 EXHIBIT "B" PAYMENT REQUEST FORM (Attach duplicate original of Payee's statement(s) or invoice(s)) PROGRESS PAYMENT FULL/FINAL PAYMENT The Fiscal Agent is hereby requested to pay from the City of San Bernardino, Assess- ment District No. 977A Improvement Fund established by the Bond Indenture dated April 2, 1990, to the person, corporation or other entity designated below as Payee, the sum set forth below such designation, in payment of the Project Costs described below. The amount shown below is due and payable under a purchase order, contract or other authorization with respect to the Project Costs described below and has not formed the basis of any prior request for payment. Payee: Address: Amount: $ Description of Project Costs or portion thereof accepted by the Treasurer on behalf of Assessment District No. 977A, and authorized to be paid to the Payee: Executed by Authorized Representative of the City of San Bernardino Signature: Name: Title: Dated: Payment Request No. 18 EXHIBIT 'c' ARBITRAGE REBATE PROVISIONS This document sets forth instructions regarding the investment and disposition of monies deposited in various funds and accounts established for the city of San Bernardino ("Issuer") Assessment District No. 977A in aggregate principal amount of $ 683,412.00 ("Bonds"). THE INSTRUCTIONS SET FORTH IN THIS DOCUMENT SHALL APPLY ONLY TO THE PROCEEDS OF THE BONDS DEPOSITED INTO THE RESERVE FUND PROVIDED THAT THE CITY HAS COMPLIED WITH THE EXPENDITURE REQUIREMENT CONTAINED IN SECTION 32 OF THE BOND INDENTURE. The purpose of these instructions is to provide the Issuer with information necessary to ensure that the investment of the monies in the funds and accounts described herein will comply with the arbitrage limitations imposed by the Internal Revenue Code of 19B6. DEFINITIONS For purposes of these instructions, the following terms shall have the meanings set forth below: Bond Year. The term "Bond Year" means the 12 month period commencing on the Delivery Date of the Bonds and each 12 month period thereafter. Code. The term "Code" means the Internal Revenue Code of 1986. Delivery Date. The term "Delivery Date" means the date the Bonds are delivered to the initial purchaser. Excess Investment Earnings. equal to the sum of: The term "Excess Investment Earnings" means an amount (1) The excess of (a) The aggregate amount earned from the date of delivery of the Bonds on all Non-purpose Obligations in which Gross Proceeds of the Bonds are invested (other than amounts attributable to an excess described in this paragraph ( 1) ), over (b) The amount that would have been earned if the Yield on such Non-purpose Obligations (other than amounts attributable to an excess described in this paragraph (1)) had been equal to the Yield on the Bonds, plus (2) Any income attributable to the excess described in paragraph (1). 19 Gross Proceeds. The term "Gross Proceeds" means the sum of the following amounts: (1) Original proceeds, i.e., the net amount after payment of all expenses of issuance of the Bonds received by the Issuer as a result of the sale of the Bonds, excluding original proceeds of the Bonds which become transferred proceeds (determined in accordance with applicable Regulations) of obligations issued to refund in whole or in part the Bonds; (2) Investment proceeds, i.e., amounts received at any time by the Issuer, such as interest and dividends, resulting from the investment of any original proceeds (as referenced in (I-! above) or investment proceeds in Non-purpose Obligations, increased by any profits and decreased (if necessary, below zero) by any losses on such investments, excluding investment proceeds which become transferred proceeds (determined in accordance with applicable Regulations) of obligations issued to refund in whole or in part the Bonds; (3) Sinking fund proceeds, i.e., amounts, other than original proceeds, investment proceeds or transferred proceeds (as referenced in (1) above) of the Bonds, which are held in the Redemption Fund and any other fund to the extent that the Issuer reasonably expects to use such other funds to pay principal or interest on the Bonds; (4) Amounts in the Reserve Fund and in any other fund established as a reasonably required reserve or replacement fund; (5) Amounts, other than as specified in this definition, used to pay principal and interest on the Bonds; and, (6) Amounts received as a result of investing amounts described in this definition. Investment Property. The term "Investment Property" means any security (as def ined in Section 165(g)(2)(A) or (B) of the Code), obligation, annuity or investment-type property within the meaning of Section 148(b)(2) of the Code in which Gross Proceeds are invested, but, excluding, however, obligations of the type described in Notice 87-22 published in the Internal Revenue Bulletin 1987-10 on March 9, 1987, and other property excluded under the Regulations. Non-purpose Obligation. The term "Non-purpose Obligation" means any Investment Property which is acquired with the Gross Proceeds of the Bonds and is not acquired in order to carry out the governmental purpose of the Bonds. Purchase Price. The term "Purchase Price", for the purpose of computation of the Yield of the Bonds, has the same meaning as the term "Issue Price" in Sections l273(b) and 1274 of the Code, and, in general, means the initial offering price to the public (not including bond houses and brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of the Bonds are sold. The term "Purchase Price", for the purpose of computation of Yield of Non-purpose Obligations means the fair market value of the Non-purpose Obligation on the date of use of Gross Proceeds of the Bonds for acquisition thereof, or if later, on the date that Investment Property constituting a Non-purpose Obligation becomes a Non-purpose Obligation of the Bonds. 20 Requlations. The term "Regulations" means temporary and permanent Regulations promulgated under Section 148 of the Code. Yield. The term "Yield" means that yield which, when used in computing the present worth of all payments of principal and interest (or other payments in the case of Non-purpose Obligations which require payments in a form not characterized as princi- pal and interest) on a Non-purpose Obligation or on the Bonds produces an amount equal to the Purchase Pr ice of such Non-purpose Obligation or the Bonds, all computed as prescribed in applicable Regulations. REBATE PROVISIONS Creation of Rebate Fund. The Fiscal Agent must create a Rebate Fund. Annually, on the last day of each Bond Year, or on the preceding business day in the event that such last day is not a business day, the Issuer shall provide written instructions to the Fiscal Agent directing the Fiscal Agent to transfer from the Improvement Fund, Reserve Fund and Redemption Fund, as appropriate, for purposes of ultimate rebate to the United States, an amount equal to Excess Investment Earnings. Calculation of Excess Investment Earnings. Prior to the last day of the first Bond Year, the Issuer shall calculate the Excess Investment Earnings. Thereafter, prior to the last day of each Bond Year and on the date of retirement of the Bonds, the Issuer shall calculate the amount of Excess Investment Earnings. This calculation shall be made or caused to be made by the Issuer in accordance with the following rules: (1) Except as provided in paragraph (2) below, in determining the amount described in paragraph (l)(a) of the definition of Excess Investment Earnings, the aggre- gate amount earned on Non-Purpose Obligations shall include (i) all income realized under Federal. income tax accounting principles (whether or not the person earning such income is subject to Federal income tax) with respect to such Non-purpose Obligations and with respect to the reinvestment of investment receipts from such Non-purpose obligations (without regard to the transaction costs incurred in acquiring, carrying, selling or redeeming such Non-purpose Obligations), including, but not limited to, gain or loss realized on the dispo- sition of such Non-purpose Obligations (without regard to when such gains are taken into account under Section 453 of the Code relating to taxable year of exclusion of gross income), and income under Section 1272 of the Code (relating to original issue discount) and (ii) any unrealized gain or loss as of the date of retirement of the Bonds in the event that any Non-purpose Obligation is retained after such date. (2) Investment Property shall be treated as acquired for its fair market value at the time it becomes a Non-purpose Obligation, so that gain or loss on the dispo- sition of such Investment Property shall be computed with reference to such fair market value as its adjusted basis. (3) In determining the amount described in paragraph (1) (b) of the definition of Excess Investment Earnings, the Yield on the Bonds shall be determined based on the actual Yield of the Bonds during the period between the date of issuance of the Bonds and the date the computation is made (with adjustments for discount). 21 (4) In determining the amount described in paragraph (ii) of the definition of Excess Investment Earnings, all income attributable to the excess described in paragraph (1) of said definition must be taken into account, whether or not that income exceeds the Yield on the Bonds, and no amount may be treated as "negative arbitrage". (5) In determining the amount described in the definition of Excess Investment Earn- ings, there shall be excluded any amount earned on any fund or account which is used primarily to achieve a proper matching of revenues and debt service within each Bond Year and which is depleted at least once a year, except for reason- able carryover amount not in excess of the greater of one year's earnings on such fund or account or 1/12 of annual debt service, as well as amounts earned on said earnings. Payment to United States. The Issuer shall provide the Fiscal Agent with written instructions directing the Fiscal Agent to pay from the Rebate Fund an amount equal to Excess Investment Earnings to the United States in installments with the first payment to be made not later than thirty (30) days after the end of the fifth Bond Year, and with subsequent payments to be made not later than five (5) years after the preceding payment was due. The Issuer shall assure that each such installment is in an amount equal to at least ninety percent (90%) of the Excess Investment Earnings with respect to the Bonds as of the close of the computation period. Not later than sixty (60) days after the retirement of the Bonds, the Issuer shall provide the Fiscal Agent with written instructions directing the Fiscal Agent to pay from the Rebate Fund to the United states one hundred percent (100%) of the thereto- fore unpaid Excess Investment Earnings of the Bonds. In the event that there are any amounts remaining in the Rebate Fund following the payment required by the preceding sentence, the Issuer shall request in writing that the Fiscal Agent transfer such funds to the Issuer and use such amount for any lawful purpose of the Issuer. The Issuer shall cause the Fiscal Agent to remit payments to the United States at the address prescribed by the Regulations as the same may be from time to time in effect with such reports and statements as may be prescribed by such Regula- tions. In the event that, for any reason, amounts in the Rebete Fund are insuffi- cient to make the payments to the United states which are required hereunder, the Issuer shall assure that such payments are made to the United States on a timely basis from any funds lawfully available therefor. Further Obliqation of Issuer. The Issuer shall assure that Excess Investment Earnings are not paid or disbursed except as provided in these instructions. To that end, the Issuer shall assure that investment transactions are on an arms-length basis. In the event that Non-purpose Obligations consist of certificates of deposit or investment contracts, investment in such Non-Purpose Obligations shall be made in accordance with the procedures described in applicable Regulations as from time time in effect. MAINTENANCE OF RECORDS. The Issuer shall keep and retain for a period of six (6) years following the retirement of the Bonds, records of all determinations made pursuant to these Instructions. * * * * 22