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HomeMy WebLinkAbout074-88 RESOLUTION NO. 74-88 A RESOLUTION DETERMINING UNPAID ASSESSMENTS AND PROVIDING FOR THE ISSUANCE OF BONDS ASSESSMENT DISTRICT NO. 88-1 SERIES 88-A RESOLVED, by the Town Council (the "Council") of the Town of Danville (the "Town"), Contra Costa County, California, that WHEREAS, the Council has conducted proceedings under and pursuant to its Resolution No. 29-88, A Resolution of Intention to Acquire and Construct Improvements, adopted March 31, 1988, providing that serial bonds will be issued to represent the unpaid assessments pursuant to the provisions of the Improvement Bond Act of 1915, being Division 10 of the California Streets and Highways Code; and WHEREAS, notice of the recordation of the assessment and of the time within which assessments were to be paid in cash has been duly published and mailed in the manner provided by law, and the time so provided for receiving payment of assessments in cash has expired, and the official who has been designated as Collection Officer for cash payments of said assessments has filed with the Treasurer a list of all assessments which remained unpaid; NOW, THEREFORE, THE COUNCIL HEREBY DETERMINES AND ORDERS, as follows: ARTICLE I DEFINITIONS Aqent. The term "Agent" means the person identified by Section 3.03 as the fiscal agent of the Town, and any successor pursuant to Article IX. Assessment Prepayment Subaccount. The term "Assessment Prepayment Subaccount" means the subaccount of the Redemption Fund so designated and established pursuant to Section 2.06. Bonds. The term "Bonds" means the obligations of the Town so identified by Section 3.01. Bond Administration Fund. The term "Bond Administration Fund" means the special fund administered by the Agent pursuant to Section 7.03. The Bond Administration Fund shall be identified by a name which shall include the name of the Bonds. ~- ~ ,---% Bond Law. The term "Bond Law" means the applicable provisions of the Improvement Bond Act of 1915, being Division 10 (commending with Section 8500) of the California Streets and Highways Code, and other applicable law. Bondowner or Owner. The term "Bondowner" or "owner" means the registered owner of a Bond as indicated on the Bond Register. Bond Reqister. The term "Bond Register" means the records maintained by the Agent pursuant to Section 5.01. Bond Resolution. The term "Bond Resolution" means this resolution providing for the issuance of the Bonds, as such may be amended pursuant to its terms. Clerk. The term "Clerk" means the City (Town) Clerk of the Town. Code. The term "Code" means the Internal Revenue Code of 1986, as amended, regulations thereunder and rulings and judicial decisions interpreting or construing it. Collection Officer. The Finance Director of the Town or other person charged with the cash collection of the assessments. Council. The term "Council" means the Town Council of the Town. County. The term "County" means Contra Costa County, a political subdivision of the State of California. Debt Service. The term "Debt Service" means the scheduled amounts of interest and amortization of principal payable on the Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. Delivery Date. The term "Delivery Date" means the date upon which there is an exchange of the Bonds for the price paid therefor by the Original Purchaser. Finance Director. The term "Finance Director" means the Finance Director of the Town. The Finance Director, with the approval of the Council, may appoint an assistant to act as and for the Finance Director in all matters under this Bond Resolution. Guidelines. "Guidelines" means the Guidelines For Compliance with Section 148 (f) of the Code, delivered on the Delivery Date and substantially in the form of Exhibit D hereto, as amended from time to time. Improvement Fund. The term "Improvement Fund" means the special trust fund administered by the Agent pursuant to Section 6.01. The Improvement Fund administered by the Agent shall be identified by a name which shall include the name of the Bonds. List of Unpaid Assessments. The list prepared by the Collection Officer and filed in the offices of the Treasurer and the Clerk, as corrected or amended from time to time. Oriqinal Purchaser. The term "Original Purchaser" means the underwriter or underwriters first purchasing the Bonds from the Town, as identified in the purchase contract therefor. Proceedinqs. The term "Proceedings" means the official actions and related petitions and certificates identified with or undertaken pursuant to the Resolution of Intention. Public Works Director. The term "Public Works Director" means the Director of Public Works of the Town. The Public Works Director, with the approval of the Council, may appoint an assistant to act as and for the Public Works Director in all matters under this Bond Resolution. Rebate Fund. The term "Rebate Fund" means the special trust fund administered by the Agent pursuant to Section 7.06. The Rebate Fund shall be identified by a name which shall include the name of the Bonds. Redemption Fund. The term "Redemption Fund" means the special trust fund administered by the Agent pursuant to Section 7.01. The Redemption Fund shall be identified by a name which shall include the name of the Bonds. Resolution of Intention. Resolution No. 29-88, A Resolution of Intention to Acquire and Construct Improvements, adopted by the Council, as such may be modified or changed pursuant to law. Reserve Fund. The term "Reserve Fund" means the special trust fund administered by the Agent pursuant to Section 7.02. The Reserve Fund shall be identified by a name which shall include the name of the Bonds. Superintendent of Streets. The term "Superintendent of Streets" means the City (Town) Engineer of the Town. Teeter Plan. The term "Teeter Plan" has the meaning assigned to that term in Section 2.05. Town. The term "Town" means the Town of Danville, a general law city and a municipal corporation organized and existing under the laws of the State of California. Treasurer. The term "Treasurer" means the City (Town) Treasurer of the Town. ARTICLE II GENERAL PROVISIONS SECTION 2.01. Law Applicable. The Bonds shall be issued pursuant to the provisions of the Bond Law. The Proceedings are conducted pursuant to the Bond Law and the applicable provisions of the Municipal Improvement Act of 1913, being Division 12 (commencing with Section 10000) of the California Streets and Highways Code, the Special Assessment Investigation, Limitation and Majority Protest Act of 1931, being Division 4 (commencing with Section 2800) of the California Streets and Highways Code, and Division 4.5 (commencing with Section 3100) of the California Streets and Highways Code. SECTION 2.02. Bonds Secured. The Bonds are secured by the moneys in the Redemption Fund, and by the then-unpaid portion of assessments made for the acquisitions, work and improvements described in the Proceedings. SECTION 2.03. Obliqations Issuable in Series. In addition to the Bonds, obligations may be issued by the Town in one or more series, bearing dates and series identification as shall be provided in one or more resolutions providing for the issuance of obligations of such series, which are secured on a parity with the Bonds as more particularly provided by Section 10.01. SECTION 2.04. List of Unpaid Assessments. The assessments now remaining unpaid are shown on the list of unpaid assessments and on Exhibit "A" attached hereto and by this reference made a part hereof; the aggregate amount thereof is $16,125,000; and for a particular description of the lots or parcels of land bearing the respective assessment numbers set 4 forth in said list of unpaid assessments, reference is hereby made to the assessment and to the diagram recorded in the office of the Superintendent of Streets. SECTION 2.05. Collection of Unpaid Assessments. The unpaid assessments shown on the List of Unpaid Assessments, together with the interest thereon, shall remain and constitute a trust fund for the redemption and payment of the principal of the Bonds and parity obligations issued pursuant to Section 10.01, and for the interest due thereon. An annual installment of the unpaid assessments shall be payable and be collected in each year corresponding in amount to the amount of the Bonds unpaid and to accrue that year, and which shall be sufficient to pay the Bonds when due, and such annual installments of unpaid assessments coming due in any year, together with the annual interest thereon, shall be payable in the same manner and at the same time and in the same installments as the general taxes of the Town on real property are payable, and become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property of the Town. A record of the several installments of principal and interest on said unpaid assessments which are to be collected in each year during the term of the Bonds shall be kept in the office of the County Auditor-Controller. Sums received from the collection of the principal of said unpaid assessments and of the interest thereon shall be transferred to the Agent and deposited in the Redemption Fund, except that, amounts representing principal and interest that have been advanced by the County pursuant to the provisions of Chapter 3 (commencing with Section 4701), Part 8, Division 1 of the California Revenue and Taxation Code, (the "Teeter Plan") shall be retained by the County, and except further that, amounts representing advances from the Reserve Fund to the Redemption Fund, made pursuant to Section 7.02(a), shall be deposited in the Reserve Fund. Any sums collected to represent the County's costs of such collection, and any penalties collected as a result of the late payment of said unpaid assessments that are payable to the County as a result of the County having made a payment pursuant to the Teeter Plan, shall be retained by the County. Any penalties that are collected that are not required to be paid to the County pursuant to the preceding sentence shall be transferred to the Agent and deposited in the Redemption Fund except that, by order of the Finance Director, such penalties may be transferred to the Bond Administration Fund. Any sums collected which represent fees and charges imposed by the Town to provide for payment or reimbursement of the administrative costs of collection of assessments separately from collection on the County's tax roll, of maintaining the record of installments to be collected on the County's tax roll, of maintaining the system of registration and transfer of the Bonds, of paying or calling and redeeming the Bonds and paying the interest thereon, of the deposit or investment of such moneys and of moneys in the Reserve Fund, the Earnings Fund and the Rebate Fund, and of complying with the Code with respect to the Bonds, shall be transferred to the Agent and deposited in the Bond Administration Fund. The provisions of Part 11.1 of the Bond Law are applicable to the collection of the unpaid assessments and the advance retirement of the Bonds. Pursuant thereto, whenever an owner, except the owner of land which has been ordered to judicial foreclosure pursuant to Section 8830 of the Bond Law, elects to pay off an unpaid assessment pursuant to said Part 11.1, the Treasurer shall collect from such owner the total of the following sums: (a) The amount of any delinquent installments of principal and interest, together with penalties accrued to the date of prepayment. (b) The unpaid, nondelinquent principal of the assessment, including principal posted to the tax roll for the current fiscal year but not yet paid. (c) An allowance for redemption premium, calculated by multiplying the amount of the unmatured principal by 3%. Unmatured principal excludes principal due during the fiscal year of prepayment. (d) A reasonable fee, fixed by the Treasurer, for the cost of administering the prepayment and the advance retirement of Bonds. (e) Interest accrued to the next call date of the Bonds. The next call date shall be the next bond interest payment date which is not less than 90 days after the date of prepayment. Credit shall be given, or a refund provided, for installments of interest posted to the current tax roll and actually paid. SECTION 2.06. Disbursement of Moneys Resulting From Prepayments of Assessments. Upon receiving a prepayment of an assessment, the Treasurer shall transfer same to the Agent who shall deposit it in the Assessment Prepayment Subaccount of the Redemption Fund, which subaccount is hereby established. All prepayments may be commingled in a single account. From the Assessment Prepayment Subaccount the Agent shall make disbursements, based upon written direction from the Treasurer, as follows: (a) The Town's administrative fee, if any, shall be transferred to the Town for deposit into its general fund. (b) Delinquent principal, interest and penalties shall be transferred to the Redemption Fund. If the Reserve Fund has been depleted on account of the delinquencies, the delinquent amounts and penalties shall be transferred instead to the Reserve Fund to the extent of such depletion. (c) The installment of principal due in the fiscal year of prepayment shall be transferred to the Redemption Fund. (d) Interest accrued to the next call date shall be transferred to the Redemption Fund. (e) The balance in the Assessment Prepayment Account shall be used to advance the maturity of Bonds to the next call date as provided herein. The amount of Bonds to be retired shall be the maximum for which principal and redemption premium may be paid in full from the Assessment Prepayment Subaccount. Accrued interest on Bonds to be retired shall be paid from the Redemption Fund. ARTICLE III THE BONDS SECTION 3.01. Issuance of Bonds. Bonds aggregating $15,620,000 in principal amount shall be issued upon the security of the assessments levied as security therefor in accordance with the provisions of the Bond Law, shall be issued in fully registered form, without coupons, shall be known as "Town of Danville Limited Obligation Improvement Bonds Assessment District No. 88-1, Series 88-A (the "Bonds" and singularly a "Bond"), shall be dated the Delivery Date, shall be numbered as determined by the Agent hereinafter designated, shall be of the denomination of $5,000 or an integral multiple thereof (except that one Bond of the earliest maturity may be of a different denomination, as necessary), and shall mature in 7 the principal amounts and on the dates set forth in Exhibit B attached hereto and by this reference made a part hereof; provided however that the principal amount of the Bonds may be reduced and the maturity schedule may be adjusted pursuant to the purchase contract between the Town and the Original Purchaser, no later than the Delivery Date, and in that event, the maturity schedule attached hereto as Exhibit B shall be revised and certified by the Finance Director on the Delivery Date and filed with the Clerk, and Bonds aggregating the total principal amount and maturing as so certified shall be issued instead of the principal amount and maturities herein stated. SECTION 3.02. Interest. The Bonds shall bear interest at the rate or rates determined by the Council at the time of award of sale thereof, not to exceed twelve percent (12%) per annum, payable commencing on September 2, 1988 and thereafter semiannually on March 2 and on September 2 in each year to maturity or the date of advanced maturity thereof. The Bonds shall bear interest (computed on a 360-day year, 30-day month, basis) from the interest payment date next preceding the date of authentication and registration thereof, unless authenticated and registered as of an interest payment date, in which event from such interest payment date, or unless authenticated and registered prior to September 2, 1988 in which event from their date; provided, however, that if interest is in default, a Bond shall bear interest from the last interest payment date to which interest has previously been paid or made available for payment. Each Bond will continue to bear interest after maturity at the rate stated therein, provided it is presented at maturity and payment thereof is refused on the sole ground that there is not sufficient money in the Redemption Fund with which to pay the same. If a Bond is not presented at maturity, interest thereon will run only until maturity. SECTION 3.03. Bonds Payable. The principal of the Bonds, any redemption premium, and the installment of interest payable upon redemption shall be payable in lawful money of the United States of America at the principal corporate trust office of Security Pacific National Bank, Los Angeles, California, or its successor, hereby designated as fiscal Agent of the Town, upon surrender of the Bonds at said office of the Agent. Interest (other than the installment payable upon redemption) shall be payable by check or draft mailed on the interest payment date to the owner of record at the owner's address, as such name and address appear in the Bond Register maintained by the Agent as of the close of business on the 15th day immediately preceding each interest payment date (the "Record Date"), or to such address as may have been filed with the Agent for that purpose as of the Record Date. 8 SECTION 3.04. Form of Bonds. The Bonds shall be substantially in the form set forth in Exhibit C attached hereto and by this reference made a part hereof, with the blank spaces therein completed to conform to the provisions of this Bond Resolution. Any portion of the text of any Bond may be set forth on the reverse thereof with an appropriate reference thereto on the face of the Bond. SECTION 3.05. Execution of Bonds. The Bonds shall be executed on behalf of the Town by the Treasurer and the Clerk, which signatures shall be engraved, printed or lithographed facsimiles thereof, and a facsimile of the corporate seal of the Town shall appear on the Bonds in like manner, provided that the signatures of said officers and the seal of the Town on any temporary Bond may be manually affixed thereto. Only Bonds authenticated and registered by the endorsement thereon of a certificate substantially in the form set forth in Exhibit C hereof, and dated and signed by the Agent, shall be valid and become obligatory for any purpose under and be entitled to the benefits of the Bond Law and this Bond Resolution, and every such certificate of the Agent upon any such Bond shall be conclusive evidence that the Bond so authenticated and registered has been duly issued hereunder and that the registered owner is entitled to the benefits of the Bond Law and this Bond Resolution. If any officer whose signature appears on the Bonds ceases to be such officer before the delivery of the Bonds, such signature shall be as valid as if such officer had remained in office until the delivery of the Bonds. SECTION 3.06. Preparation of Bonds. The Clerk is hereby directed to cause Bonds of a quality usually required by purchasers of municipal bonds to be prepared in accordance with this Bond Resolution and the purchase contract for the Bonds and the Clerk shall, upon their execution, cause their delivery to the Agent for safekeeping until ready for authentication, registration and delivery to the Original Purchaser. The Clerk shall also cause a suitable quantity of blank Bonds to be prepared which the Agent shall hold in safekeeping until needed to effect transfers, exchanges or replacements of lost, stolen, destroyed or mutilated Bonds. Until definitive Bonds shall be prepared, the Town may cause one or more typed, printed, lithographed or engraved temporary Bonds in fully registered form, to be executed and delivered in lieu of such definitive Bonds, and subject to the same provisions, limitations and conditions as are applicable in the case of definitive Bonds, except that such temporary 9 Bonds may be in any denominations (including denominations with multiple maturities and interest rates) as may be authorized by the Clerk, substantially of the same tenor, with such insertions, omissions, substitutions and other variations as the Clerk may deem appropriate, and, until exchanged for definitive Bonds, entitled and subject to the same benefits and provisions of the Bond Law and this Bond Resolution as definitive Bonds. If the Town issues one or more temporary Bonds it will execute and furnish definitive Bonds without unnecessary delay and thereupon the temporary Bonds shall be surrendered in exchange for such definitive Bonds, without expense to the holder or owner of the temporary Bonds. All temporary Bonds so surrendered shall be cancelled and shall not be reissued. If CUSIP identification numbers are assigned by the CUSIP Service Bureau for printing on the Bonds, neither the failure to print such number on any Bond nor any error with respect thereto shall constitute cause for a failure or refusal by the Original Purchaser to accept delivery of and pay for the Bonds in accordance with the terms of the purchase contract therefor. SECTION 3.07. Delivery of the Bonds. Upon the execution, authentication and registration of the Bonds, and upon compliance with the terms of the purchase contract for the Bonds, the Treasurer shall instruct the Agent to deliver the Bonds to the Original Purchaser thereof upon receipt of the amount to be paid therefor, and the Agent shall comply with such instructions. The Treasurer, the Clerk and the City (Town) Manager are hereby charged with the responsibility for the issuance and delivery of the Bonds. Said officers and other members of the Town staff are hereby authorized jointly and severally to execute any and all documents and do any and all things deemed necessary or advisable in order to consummate the delivery of the Bonds pursuant to the purchase contract therefor and otherwise to effectuate the purposes of this Bond Resolution. The City Manager is authorized to determine the amount and use of the proceeds of the Bonds and the payment and security therefor, and to certify for the Town facts, estimates and reasonable expectations, and to covenant for the Town with respect thereto, as in the determination of the City Manager may be necessary to establish and maintain the exclusion of the interest on the Bonds from federal income taxation, and any such covenant shall be as binding on the Town as though set forth in this Bond Resolution. 10 SECTION 3.08. Mutilated, Destroyed, Lost or Stolen Bonds. In case any Bond shall become mutilated or defaced in respect of the body of such Bond so as to impair its value to the registered holder or owner, or shall be believed by the Town and Agent to have been destroyed, lost or stolen, upon clear and unequivocable proof of ownership satisfactory to the Town and Agent and, upon the surrender at the named office of the Agent, of such mutilated or defaced Bond sufficiently identifiable by number and description, or upon the receipt of evidence satisfactory to the Town and Agent of such destruction, loss or theft, and upon payment of all expenses incurred by the Town and Agent in the premises and after compliance with such other reasonable regulations as the Town and Agent may prescribe, and, in the ease of a Bond claimed to have been destroyed, lost or stolen, upon receipt of indemnity satisfactory to the Town and Agent, and in the absence of notice to the Town or Agent that such Bond has been acquired by a bona fide purchaser, the Town shall execute and the Agent shall authenticate, register and deliver at the named office of the Agent a new Bond of like maturity and principal amount, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated or defaced Bond, or in lieu of and in substitution for the Bond so destroyed, lost or stolen. If any such destroyed, lost or stolen Bond has become or is about to become due and payable, payment of the amount due thereon may, in the discretion of the Town, be made by the Agent upon receipt of like proof, indemnity and payment of expenses, without delivery of a new Bond. Any such replacement Bond issued pursuant to this Section 3.08 shall be entitled to equal~ and proportionate benefits with all other Bonds issued hereunder. The Town and the Agent shall not be required to treat both the original Bond and any replacement Bond as being outstanding, but both the original and replacement Bond shall be treated as one and the s ams. ARTICLE IV ADVANCE RETIREMENT OF BONDS SECTION 4.01. Advancement of Bond Maturity. Subject to the provisions of this Article IV, the Treasurer may advance the maturity of (redeem) any Bond (or portions thereof in an integral multiple of $5,000) to the second day of March or September in any year and cause the Agent to pay and cancel the same whenever there is sufficient surplus available moneys in the Redemption Fund or otherwise in escrow or trust for its retirement. 11 SECTION 4.02. Notice of Advanced Maturity. Unless waived by the registered owner of a Bond proposed for advanced maturity, notice of advanced maturity shall be given in writing by personal service upon, or by mailing by registered or certified mail addressed to the registered owner, at least 30 days before the date fixed for advanced maturity, and the Bond shall mature and become payable on the date fixed for advanced maturity. If notice is mailed, it shall be mailed to the address shown on the Bond Register or to such other address as is furnished in writing by the registered owner to the Agent. More than one Bond may be included in a single notice of advanced maturity. The Treasurer shall give the notice of advanced maturity; provided, however, that the Treasurer may direct the Agent to give notice of advanced maturity by mail, by delivering written instructions to the Agent, accompanied by the notice specified by Section 4.07(c), at least 45 days before the date fixed for advanced maturity, and in that case, the Agent shall give the notice of advanced maturity. SECTION 4.03. Amount Due Upon Advanced Maturity. Each Bond, or any portion of a Bond in the amount of $5,000 or any integral multiple thereof, shall be subject to advanced maturity upon payment of the principal amount to be redeemed, together with a redemption premium equal to 3 percent of such principal amount, plus interest to the date of advanced maturity. The registered owner of the Bond all or a portion of which is proposed to be redeemed may, prior to the date fixed for advanced maturity, with the consent of the Treasurer, surrender the Bond and receive the principal thereof proposed to be redeemed, together with the redemption premium thereon, and interest on such principal amount to the date of payment. If the Bond is not sooner surrendered, on the date fixed for advanced maturity, the Agent shall set aside to the credit of the registered owner the amount of the principal thereof proposed to be redeemed, together with the redemption premium thereon, and interest then due on such principal amount, and the portion of the Bond proposed to be redeemed shall be deemed to have matured and interest shall cease to accrue thereon. The amount so set aside shall, upon demand and upon the surrender of the Bond, be paid to the registered owner. In the event only a portion of a Bond is redeemed, a new Bond or Bonds of like maturity and of authorized denominations, equal to the remaining portion of the Bond so redeemed, shall be issued without expense to the registered owner of the Bond so redeemed. SECTION 4.04. Contents of Notices of Advanced Maturity. All notices of advanced maturity shall be dated and shall state: 12 (1) the date fixed for advanced maturity, (2) the redemption price, based upon the payment of interest to the date fixed for advanced maturity, (3) if less than all outstanding Bonds are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Bonds to be redeemed, (4) that on the date fixed for advanced maturity the redemption price will become due and payable upon each such Bond or portion thereof called for redemption, and that interest thereon shall cease to accrue from and after said date, and (5) the place where such Bonds are to be surrendered for payment of the redemption price. SECTION 4.05. Setting Aside of Funds for Advance Retirement of Bonds. Prior to any advance retirement of a Bond or portion thereof, the Town shall set aside with the Agent an amount of money sufficient to pay the redemption price, based upon the payment of interest to the date fixed for advanced maturity or earlier payment date, of all the Bonds or portions of Bonds which are to be retired by advanced maturity on a particular date. SECTION 4.06. Vacation of Proceeding for Advance Retirement of Bonds. Prior to the surrender of any Bond or the setting aside of any funds for retirement of a Bond or portion thereof by advanced maturity, the Treasurer may waive and vacate any proceedings for such redemption upon being tendered for cancellation some other Bond or Bonds, or portion of a Bond, of an equivalent principal amount and of a maturity not earlier than that noticed, if 10 days' notice of the Treasurer's intention so to do is first given by mail or otherwise to the registered owner of the Bond noticed for advanced maturity and such owner has not objected to such action. SECTION 4.07. Procedure in Selecting Bonds for Retirement by Advanced Maturity. As provided by Section 2.05, the provisions of Part 11.1 of the Bond Law are applicable to the prepayment of assessments and the advancement of the maturity of the Bonds. If the amount of any prepayment of assessments together with prepayments of other assessments and other available moneys in the Redemption Fund, or otherwise in escrow or in trust, is sufficient to provide surplus available funds with which to retire an outstanding Bond or portion, the 13 ' M ' Treasurer shall select a Bond or portion to be retired by advanced maturity as provided in this Article IV. In order to select a Bond or portion for retirement by advanced maturity, the Treasurer shall: (a) Request from the Agent a list of the names and addresses of the registered owners of the Bonds and the numbers, denominations and maturities of the Bonds held by such owners; (b) Select Bonds for advanced maturity in such a way that the ratio of outstanding Bonds to issued Bonds shall be approximately the same in each annual series insofar as possible. Within each annual series, Bonds shall be selected for advanced maturity by lot. The decision of the Treasurer in selecting Bonds or portions thereof for advanced maturity shall be conclusive in the absence of fraud. (c) Immediately notify the Agent of the Bond selected for advanced maturity and provide written notice to the Agent of the terms of advanced maturity; and (d) Give or arrange for the Agent to give the notice of advanced maturity required by Sections 4.02 and 4.09. Upon notification to the Agent of the Bond or portion selected for advanced maturity (redemption) as provided in subdivision (c), no transfer or exchange of such Bond shall be permissible until the Bond shall have been surrendered for retirement or proceedings for its retirement by advanced maturity shall have been vacated. SECTION 4.08. Effect of Proceedings for Retirement by Advanced Maturity. Notice of advanced maturity having been given as provided by the preceding sections of this Article IV, the Bonds or portions of Bonds so to be retired shall, on the advanced maturity date, become due and payable at the redemption price therein specified, and from and after such date (unless the Town shall default in the payment of the redemption price) such Bonds or portions of Bonds shall cease to bear interest. The failure by the owner of a Bond to receive notice of advanced maturity shall not affect the validity of the proceedings for the retirement by advanced maturity of such Bond or the cessation of interest. Upon surrender of such Bonds for retirement in accordance with said notice, such Bonds or portions shall be paid by the Agent at the redemption price. Installments of interest due prior to the advanced maturity date shall be payable as provided by Article III for payment of interest. All Bonds which have been retired shall be cancelled and destroyed by the Agent and shall 14 not be reissued. A certificate by the Agent that notice of advanced maturity has been duly given shall be conclusive as against all parties. SECTION 4.09. Additional Notice. In addition to notice of advanced maturity as provided by Section 4.02, further notice shall be given by the Treasurer (or by the Agent, by arrangement by the Treasurer) as set out below, but no defect in said further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of the retirement by advanced maturity proceedings pursuant to any notice required by Section 4.02. 1. Each further notice of advanced maturity given hereunder shall contain the information required above for notice of advanced maturity plus (i) the CUSIP numbers of all Bonds being retired; (ii) the date of issue of the Bonds as originally issued; (iii) the rate of interest borne by each Bond being retired; (iv) the maturity date of each Bond being retired; (v) certificate numbers and called amounts of each certificate (for partial calls); (vi) publication date; (vii) redemption agent name and address; and (viii) any other descriptive information needed to identify accurately the Bonds being retired. 2. Each further notice of advanced maturity shall be sent, in a timely manner designed to assure that such notice is in the possession of the depositories and services no later than the close of business of the day before the day notice provided for by Section 4.02 is given or mailed to Bondowners, by telecopy or registered or certified mail or overnight delivery service to all registered securities depositories customarily so notified (such depositories now being Depository Trust Company, Garden City, New York, Midwest Securities Trust Company, Chicago, Illinois, Pacific Securities Depository Trust Company, San Francisco, California and Philadelphia Depository Trust Company, Philadelphia, Pennsylvania) and to one or more national information services that customarily disseminate notices of redemption of obligations such as the Bonds (such services now including Financial Daily Called Bond Service, Interactive Data Corporation's Bond Service, Kenney Information Service's Called Bond Service, Moody's Municipal and Government, and Standard & Poor's Called Bond Record). 15 3. Upon the payment of the redemption price of Bonds being retired by advanced maturity, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Bonds being retired with the proceeds of such check or other transfer. ARTICLE V REGISTRATION SECTION 5.01. Bond Register. The Town shall cause to be kept records (the "Bond Register") at the named office of the Agent indicating at all times the series, number, date, denomination, maturity date, rate of interest and the amount of each interest payment of the Bonds and the names, addresses and social security or other tax identification numbers of the owners of the outstanding Bonds that have been authenticated and registered by the Agent. The Agent shall, under such reasonable regulations as the Agent may prescribe, authenticate and register or transfer or exchange or cause to be authenticated and registered or transferred or exchanged, in said Bond Register, the Bonds as herein provided. The Bonds shall be registered only in the name of an individual (including joint owners), a corporation, a partnership or a trust. The Agent shall cancel or cause to be cancelled in the Bond Register each Bond paid or surrendered for transfer or exchange. The information contained in the Bond Register with regard to the ownership of or security interests in the Bonds shall. not be subject to inspection or copying by the public as provided in Section 5060(a) of Chapter 1.5 of Division 6 of Title 1 of the California Government Code, provided that such Bond Register shall be open for inspection by the Town during reasonable business hours, upon at least one business day advance written notice. SECTION 5.02. Transfer and Exchange of Bonds. Any duly authenticated and registered Bond may, in accordance with its terms, be transferred upon the Bond Register required to be kept pursuant to Section 5.01 hereof by the registered owner or by an attorney therefor duly authorized in writing upon surrender of the Bond to be transferred at the named office of the Agent, duly endorsed or accompanied by a duly executed written instrument of transfer satisfactory to the Agent, with signatures authenticated by a commercial bank or trust company 16 or by a member firm of a registered national securities exchange. The Agent shall forthwith cancel the Bond surrendered for transfer and the Town shall execute and the Agent shall authenticate, register and issue one or more new fully registered Bonds of like maturity and of authorized denominations, aggregating the principal amount of the Bond surrendered for transfer. The new Bond or Bonds shall be registered in one or more permissible names, as requested by the transferor. Any duly authenticated and registered Bond may, in accordance with its terms, be exchanged at the named office of the Agent for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity as the Bond surrendered for exchange. For any registration, transfer or exchange of Bonds (except initial registration of Bonds being delivered to the Original Purchaser), the Town or Agent may, as a condition precedent to the exercise of such privilege, require payment by the person requesting such registration, transfer or exchange, of an amount sufficient to reimburse it for any tax or other governmental charge that may be imposed in connection therewith but no other charge shall be made to any owner or the Town for the privilege of exchanging or registering the transfer of Bonds under the provisions of this resolution. The Town and the Agent may deem and treat the person in whose name any outstanding Bond shall be registered upon the Bond Register as the absolute owner of such Bond, whether such Bond shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal or redemption price, if any, and interest on such Bond and for all other purposes. All such payments so made to any such registered owner or upon the order of such owner shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid, and neither the Town nor the Agent shall be affected by any notice to the contrary. The Agent shall not transfer or exchange any Bond which the Town has selected for retirement by advanced maturity (redemption), as provided in Section 4.07, provided that the Agent has been notified that such Bond is being retired, and the transfer or exchange of any Bond shall not be required to be made between a Record Date and the subsequent interest payment date, or between the date of provision to the Treasurer of the list specified by Section 4.07(a) and the date of notification to the Agent of the Bonds selected for retirement by advanced maturity (redemption). 17 Each Bond delivered under this Bond Resolution upon transfer of or in exchange for or in lieu of any other Bond shall carry all the rights to interest accrued and unpaid, and to accrue, which were carried by such other Bond, and each such Bond shall bear interest from such date that neither gain nor loss in interest shall result from such transfer, exchange or substitution. ARTICLE VI APPLICATION OF FUNDS SECTION 6.01. Improvement Fund. The Improvement Fund shall consist of the proceeds received from the sale of the Bonds, including any premium received by the Town on the sale of the Bonds (but not including any accrued interest, which shall be placed in the Redemption Fund; and not including any capitalized interest included as a cost incident to the issuance of the Bonds, which shall also be placed in the Redemption Fund), investment earnings on the Improvement Fund retained therein pursuant to the provisions hereof, and amounts transferred to the Improvement Fund pursuant to Section 7.07. Disbursement from the Improvement Fund shall be made to pay the costs of acquisitions and improvements, together with all expenses incidental thereto, as set forth in the Resolution of Intention. Disbursements shall be made by the Agent upon receipt of a payment request from the Town requesting such disbursements and certifying that the disbursements requested by the payment request are for the acquisitions and improvements, or incidental expenses related thereto, as set forth in the Resolution of Intention, and further certifying that funds are available in the Improvement Fund to make the disbursements requested. Disbursements shall be made by the Agent by check payable to the persons identified in the payment request, in the amount specified, and the checks shall be mailed by the Agent to the address specified in the payment request by regular mail, postage prepaid. Upon receipt from the Town of a certified resolution of the Council determining that no further amounts are to be disbursed for costs of the acquisitions and improvements, or incidental expenses, the Agent shall use any surplus remaining in the Improvement Fund, in such amounts as the Council may determine, for one or more of the following purposes: (a) The Agent shall transfer to the Town, and the Town shall deposit into its general fund, so much of the surplus as shall not exceed the lesser of $1,000 or 5% of the total amount expended from the Improvement Fund; 18 (b) The Agent shall transfer to the Town so much of the surplus as the Town certifies will be used for the maintenance of improvements acquired or constructed pursuant to the Resolution of Intention; or (c) Not sooner than two (2) years from the Delivery Date, the Agent shall transfer the remaining surplus to the Redemption Fund, except that the amount certified to the Agent by the Town as the amount that is to be returned in cash pursuant to Section 10427.1 of the California Streets and Highways Code, to the persons paying assessments or supplemental assessments in cash shall be disbursed by the Agent by check upon receipt of a payment request from the Town requesting such disbursement; provided, however, that such surplus may, if the Council so determines, also be applied as a credit on account of any contributions to the cost and expenses of the acquisitions and improvements and incidental expenses in the proportion which such contributions bear to the total amount of the assessment or supplemental assessment plus the sum of all such contributions, and the amount certified to the Agent by the Town as the amount that is to be returned to the agency or authority making such contributions shall be disbursed by the Agent by check to such agency or authority. ARTICLE VII PAYMENT AND SECURITY SECTION 7.01. Redemption Fund. The Redemption Fund shall consist of moneys received by the Town from the following sources: (a) Any accrued interest received by the Town from the sale of the Bonds; (b) Any capitalized interest included as a cost incident to the issuance of the Bonds; (c) Moneys received by the Town from the collection of the principal of the assessments and the interest and any penalties thereon, or advanced by the County pursuant to the Teeter Plan, as provided in Section 2.05; (d) Any amounts transferred from the Reserve Fund pursuant to Section 7.02(a); (e) Any amounts that the Town determines to advance, if any, from available funds of the Town, on account of delinquencies in the payment of installments of assessments and the interest thereon, pursuant to Section 7.05; 19 (f) Any amounts recovered by the Town from foreclosure of delinquent installments of assessments and the interest thereon which are not to be used to reimburse the Reserve Fund under Section 7.02(a), or the Town for any advances made under Section 7.05; (g) The amounts received by the Town to prepay in full any assessments, which shall be applied to the advance retirement of the Bonds, in the manner set forth in Section 4.01; (h) Any amounts transferred from the Reserve Fund to be credited as part of a prepayment of assessments pursuant to Section 7.02(b); (i) Any earnings and profits from the deposit or investment of moneys in the Redemption Fund, shall be retained therein pursuant to Section 7.04 or transferred thereto pursuant to Section 7.07; (j) Any amounts transferred from the Reserve Fund pursuant to Section 7.02(d) whenever all the remaining outstanding Bonds can be retired, which amounts are to be applied as credits to the unpaid assessments (after deducting therefrom the costs of computing such credits), and, under the circumstances hereinafter specified, to the advance retirement of the Bonds; (k) Any amounts transferred from the Investment Earnings Fund pursuant to Section 7.07; (1) Any amounts transferred from the Improvement Fund pursuant to Section 6.01(c); and (m) Any amounts transferred from the Reserve Fund for the payment of or advance retirement of Bonds pursuant to Section 7.02(c)(ii). Any of the foregoing amounts which are received by other than the Agent shall immediately be transferred to the Agent for deposit in the Redemption Fund. Amounts placed in the Redemption Fund (except amounts placed therein in connection with the prepayment of assessments and amounts received from the investment of moneys in the Redemption Fund) are to be expended in payment of the principal of and interest on the Bonds within thirteen (13) months from the date of deposit therein (except for a reasonable carryover amount not to exceed the greater of one yeards earnings on said 20 /~. /'~ Fund or one-twelfth of annual Debt Service), and amounts that cannot be so expended are to be applied at the earliest call date to the advance retirement of the Bonds. Amounts placed in the Redemption Fund from earnings and profits from the deposit or investment of moneys in said Fund or from the Investment Earnings Fund are to be spent within a 1-year period beginning on the date of receipt in payment of the principal of and interest on the Bonds, and, if not needed for such purpose, by applying same at the earliest call date to the advance retirement of the Bonds. Amounts placed in the Redemption Fund which are to be used to retire Bonds in advance of their stated maturities shall be accumulated therein until the amount available equals or exceeds the amount required to retire one or more of the Bonds, and, subject to the provisions of Article IV, are to be expended on the next ensuing March 2 or September 2 in payment of the principal, redemption premium and interest payable on that date, and the expenses of retirement by advanced maturity. In the event there are insufficient monies held in the funds and accounts established under this Bond Resolution to make any payment of principal or interest on the Bonds when due, the Treasurer shall provide written instructions to the Agent with respect to the payments to be made with the insufficient funds. The Agent may conclusively rely on such instructions. SECTION 7.02. Reserve Fund. The Treasurer shall, from the proceeds of the Bonds, transfer to the Agent an amount equal to five percent (5%) of the principal amount of the Bonds originally issued, for deposit into the Reserve Fund. Moneys in the Reserve Fund shall be used for the benefit of Bondowners. The Reserve Fund shall be valued semiannually at the fair market value thereof. If at any time the amount in the Reserve Fund exceeds the lesser of the following, the Town shall restrict the yield on the excess amount, as instructed in the Guidelines: (i) The maximum annual debt service of all Bonds issued; (ii) One and one-quarter (1.25) times the average annual debt service of all Bonds issued; or (iii) Ten percent (10%) of the principal amount of the Bonds originally issued. 21 Moneys in the Reserve Fund shall be paid and transferred in the following amounts and at the following times and under any of the following circumstances: (a) Whenever there are insufficient funds in the Redemption Fund to meet the next maturing installment of principal of or interest on the Bonds, an amount necessary to cover such deficiency shall be transferred as an advance from the Reserve Fund to the Redemption Fund. If such insufficiency is due to delinquent installments of assessments, the amount so advanced shall be reimbursed and deposited in the Reserve Fund from the proceeds of redemption or sale of the parcel with respect to which the advance of delinquent installments was made from the Reserve Fund. (b) Any unpaid assessment which is paid in cash prior to its final maturity date pursuant to the provisions of Section 2.05 hereof shall be proportionately reduced by an amount equal to the ratio of the total amount initially provided for the Reserve Fund to the total amount originally assessed in the proceedings for the Bonds, and an amount equal to the reduction in said assessment shall be transferred from the Reserve Fund to the Redemption Fund. (c) For the purposes of (1) assuring that the Bonds will not become arbitrage bonds as defined in the Code and regulations promulgated thereunder by the Department of Treasury, and (2) providing that the amount of money in the Reserve Fund during the term of the Bonds does not exceed five percent (5%) of the principal amount of the Bonds, moneys in the Reserve Fund, including investment income shall, subject to Section 7.07 hereof with respect to investments having a yield in excess of the Bond yield, be used in the following order of priority: (i) as a credit against any annual assessment levied to pay costs incurred by the Town and not otherwise reimbursed which result from the administration and collection of assessments or from the administration or registration of any associated bonds and reserve or other related funds; moneys in the amount of such credit shall be transferred to the Bond Administration Fund established pursuant to Section 7.03 hereof; (ii) as a credit upon the assessment in the manner directed by the Town (which direction shall comply with Section 10427.1 of the California Streets and Highways Code), or transferred to the Redemption Fund established pursuant to Section 7.01 hereof for advance retirement of the Bonds, as directed by the Town. 22 7 In the event that the crediting of any portion of such proceeds upon assessments not theretofore paid in full in cash would result in moneys in the Redemption Fund remaining therein for a period of more than twelve (12) months, then any portion of such proceeds which would otherwise remain in the Redemption Fund for a period of more than twelve (12) months shall be used to call Bonds prior to their maturity date on the earliest call date next succeeding the deposit thereof in the Redemption Fund. (d) Whenever the balance in the Reserve Fund is sufficient to retire all the remaining outstanding Bonds, including accrued interest and redemption premium, if any, collection of the principal and interest on the unpaid assessments shall be discontinued and the Reserve Fund shall be liquidated in retirement of the Bonds. The Council shall order the same to be credited against the remaining unpaid assessments in the manner set forth in said Section 10427.1 of the California Streets and Highways Code, and the amount apportioned to each such unpaid assessment shall be credited against the last unpaid assessment installment, and, if the amount apportioned to each such parcel exceeds the amount of said last installment, then such excess shall be credited against the next preceding unpaid assessment installment or installments until exhausted. In the event that the balance in the Reserve Fund at the time of liquidation exceeds the amount required to retire all outstanding Bonds, 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 as specified by the Town. The payments shall be made in cash to the respective 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 Town as provided by Section 6.01(a). SECTION 7.03. Bond Administration Fund. There is hereby created a special fund, herein called "Bond Administration Fund", to be designated and maintained by the Agent as a separate trust account, distinct from all other accounts of the Town. Any amount designated by the Town and on deposit in the Improvement Fund to pay the administrative costs of collection of assessments or the installments thereof, of maintaining the record of installments to be collected on the County's tax roll, of maintaining the system of registration and transfer of the Bonds, of paying or calling and redeeming the Bonds, of investment or deposit of moneys, and of complying with the Code with respect to the Bonds, other than any such costs which constitute Town administrative expenses payable as an expense of issuing the Bonds, shall, upon receipt of the proceeds of 23 the Bonds, be transferred upon the written request of the Town from the Improvement Fund and placed in the Bond Administration Fund. Fees or charges incurred by the Town payable to the Agent or to the County in satisfaction of the Town's liability to the Agent or such County for the Agent's or such County's services described herein, as well as other administrative costs hereunder, including those of the Town, shall be paid from the Bond Administration Fund, except that fees or charges payable to the County for the County's collection services described herein may be retained by the County and not transferred to the Agent. To the extent such Agent, County or Town costs are not funded out of Bond proceeds, they shall be reimbursed or satisfied by the collection of an annual assessment of such fees or charges or estimates thereof, such Agency and Town costs not to exceed the maximum annual assessment heretofore approved in the Proceedings, with the principal of and interest on the assessments which remain unpaid at the time of such collection. The amount of any such fees, charges, or estimates thereof shall be apportioned pro rata and shall be collected with the same collection and enforcement procedures and with the same priority and effect as with respect to the collection of the principal of and interest on the unpaid assessments, except that the annual assessment for Agency and Town administrative costs shall become a lien at the same time as the property tax becomes a lien each year. Any amount remaining in the Bond Administration Fund upon the retirement of the Bonds shall be disposed of as directed by the Town in accordance with Section 8783 of the Bond Law. SECTION 7.04. Deposit and Investment of Funds. Moneys in the Improvement Fund, the Redemption Fund and the Bond Administration Fund shall be deposited or invested in any obligations which are then authorized by the laws of the State of California for deposits or investments of local agencies, maturing on a date or dates prior to the need for such moneys, and moneys in the Reserve Fund shall be deposited or invested in such obligations maturing on a date or dates not later than the date of maturity of the last Bond then outstanding. Deposit or investment of moneys in the Investment Earnings Fund and in the Rebate Fund shall be made in any obligations which are then authorized by the laws of the State of California for deposits or investments of local agencies, maturing on a date or dates prior to the earlier of the first succeeding date of distribution to another fund (in the case of the Investment Earnings Fund) or to the United States (in the case of the 24 J Rebate Fund). Any income or interest earned on any fund or account held by the Agent under this Bond Resolution shall accrue to and be deposited in the fund or account from which said moneys were deposited or invested, except to the extent otherwise provided by Section 7.02(c), Section 7.06 and Section 7.07. The Agent shall be entitled to receive instructions from the Town as to each deposit or investment prior thereto, and to have such instructions confirmed in writing within two business days. In the absence of prior instructions the Agent shall invest moneys as they become available for deposit or investment in United States Treasury obligations for which there is an established market at fair market value, or if there is no established market then by purchase directly from the United States Treasury, which obligations shall either mature in no more than 2 weeks or may be sold within that period. SECTION 7.05. Advances from Available Funds. In the event of a delinquency in the payment of any installment of the assessment levied upon any property for the payment of the principal of and interest on the Bonds, the Town may be the purchaser of delinquent property upon which any of said assessments are levied in like manner in which it may become the purchaser of property sold for the nonpayment of general real property taxes, and in the event the Town does so become the purchaser of such property, shall pay and transfer from available funds into the Redemption Fund the amount of any delinquent assessment installment and interest thereon. The Town may also pay and transfer from available funds into the Redemption Fund the amount of any future delinquent assessment and interest thereon on such property pending redemption or sale. Any amounts so advanced shall be recoverable upon sale or redemption of the property. Except, however, to the extent of moneys in the Reserve Fund, the Town shall not be obligated to advance available funds to cure any deficiency in the Redemption Fund, but the Town shall be so obligated to the extent of available funds in the Reserve Fund. SECTION 7.06. Rebate Fund. There is hereby created, to be held by the Agent as a separate fund distinct from all other funds and accounts held by the Agent under this Bond Resolution, a Rebate Fund, and within such fund, Rebate Account and an Earnings Account. (a) Deposits. All money at any time received by the Agent for deposit in the Rebate Fund shall be held by the Agent in trust, to satisfy the Rebate Requirement (as defined in the Guidelines), for payment to the United States. All amounts deposited in or on deposit in the Rebate Fund shall be governed by Section 8.01 and this Section 7.06 and by the Guidelines. 25 The Agent shall cease to maintain the Rebate Fund upon receipt of an opinion of bond counsel that the Bonds are not subject to the Rebate Requirement. In that event, any remaining monies in the Rebate Fund shall be transferred to the Redemption Fund. (b) Disbursements. Any funds remaining in the Rebate Fund after redemption and payment of all Bonds outstanding and any amounts described in paragraph (2) below, or provision made therefor satisfactory to the Agent, including accrued interest and payment of any applicable fees and satisfaction of the Rebate Requirement, shall be withdrawn by the Agent and transferred to the Redemption Fund. Upon the Town's written direction, which shall specify each of the following, the Agent shall pay to the United States, out of amounts in the Rebate Fund: (1) not later than 30 days after the end of the fifth Bond Year (as defined in the Guidelines) and not less frequently than once each five years thereafter, an amount equal to at least 90% of the Aggregate Rebate Amount (calculated in accordance with Section 8 of Part C of the Guidelines for this purpose); (2) not later than 60 days after the retirement of the last Bond, an amount equal to 100% of the Aggregate Rebate Amount (calculated in accordance with Section 8 of Part C of the Guidelines for this purpose) (determined as of the date of the retirement of the last Bond). Each payment required to be made pursuant to this subsection shall be made to the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255 on or before the date such payment is due, and shall be accompanied by a statement summarizing the determination of the amount required to be paid pursuant to this subsection and by a copy of the Internal Revenue Service Form 8038-G, filed with respect to the Bonds; (3) notwithstanding anything to the contrary in this Bond Resolution, any amount received with respect to a Nonpurpose Obligation (as defined in the Guidelines) credited to the Rebate Fund that represents an amount earned shall be credited to and retained in the Earnings Account upon the receipt thereof; (4) in the event that on the first day of any Bond Year the amount credited to the Rebate Fund exceeds the Aggregate Rebate Amount, the Agent, upon written instructions from the Town, shall withdraw the excess from the Rebate Fund (with amounts first being withdrawn from the Earnings Account) and credit the excess to the Redemption Fund; and 26 (5) for purposes of crediting amounts to the Rebate Account or Earnings Account or withdrawing amounts from the Rebate Fund, Nonpurpose Obligations shall be valued in the manner provided in the Guidelines. (c) Credits. Within 25 days of each Determination Date (as defined in the Guidelines), upon the Town's written direction, an amount shall be credited to the Rebate Account, if and to the extent required, so that the balance of the Rebate Fund shall equal the Aggregate Rebate Amount for the Bond Year ending on such Determination Date. (d) Calculation of Rebate. The Town shall make, or arrange to have made, the calculations to determine whether any deposits need to be made into the Rebate Fund. SECTION 7.07. Investment Earninqs. There is hereby created, to be held by the Agent as a separate fund distinct from all other funds and accounts held by the Agent under this Bond Resolution, an Investment Earnings Fund. Interest earnings on investments having a yield no greater than the yield on the Bonds (as determined in the Guidelines) shall be retained in the fund or account on which they were earned, except as provided in Section 7.02(c). Interest earnings on investments having a yield greater than the yield on the Bonds (as determined in the Guidelines) shall be paid into the Investment Earnings Fund. The Town shall provide written directions to the Agent indicating whether an investment has a yield greater than the yield on the Bonds, upon which directions the Agent may conclusively rely for all purposes hereof. Upon the written direction of the Town, specifying the following amounts, within 25 days of each Determination Date (as defined in the Guidelines), an amount in the Investment Earnings Fund shall be credited to the Rebate Account, if and to the extent required, so that the balance of the Rebate Fund shall equal the Aggregate Rebate Amount for the Bond Year ending on such Determination Date. Following the transfer referenced in the preceding sentence, the Agent shall transfer all amounts remaining in the Investment Earnings Fund: (1) First, to the Improvement Fund, if the Improvement Fund has not been fully expended or disposed of in accordance with Section 6.01; 27 (2) Second, to the Redemption Fund to the extent necessary so that the amount in the Redemption Fund is sufficient to pay the Debt Service due on the next interest payment date; (3) Third, to the Reserve Fund to the extent necessary so that the amount in the Reserve Fund is equal to 5% of the principal amount of the Bonds originally issued; and (4) Fourth, as directed by the Town either: (a) to the Redemption Fund to be applied to the advance retirement of the Bonds in the manner provided by Section 4.01, or, (b) provided that the amount would not remain in the Redemption Fund for a period of more than twelve (12) months, credited as directed by the Town, in the manner required by Section 10427.1 of the California Streets and Highways Code. The Trustee may conclusively rely on directions and instructions of the Town with respect to the requirements of Sections 7.06 and 7.07 and shall be deemed to have complied with such Sections if it follows such instructions and directions. ARTICLE VIII COVENANTS SECTION 8.01. Bonds Not to Become Arbitraqe Bonds. The Town hereby certifies that it reasonably expects that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be classified as "arbitrage bonds" under Section 148(a) of the Code. To the best knowledge and belief of the Town, there are no facts or circumstances that would materially change the foregoing conclusion. The Town covenants with all purchasers and owners of the Bonds from time to time outstanding that so long as any of the Bonds remain outstanding, moneys on deposit in any fund or account in connection with the Bonds, whether or not such moneys were derived from the proceeds of the sale of the Bonds or from any other sources, will not be used in a manner which will cause the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the Code. The Town covenants and agrees that it will comply with the Guidelines, as the same may be amended from time to time and the Agent covenants and agrees that it will comply with the directions of the Town given to it pursuant to the Guidelines. Pursuant to such covenant, the 28 Town obligates itself to comply throughout the term of the issue of the Bonds with the requirements of Section 148 of the Code. The foregoing covenants shall extend throughout the term of the Bonds, to all funds and accounts created under this Bond Resolution and all moneys on deposit to the credit of any such fund or account, and to any other amounts which are Bond proceeds for purposes of Section 148 of the Code. The Town covenants that it will take no action and permit no action within its control to be taken which would adversely affect the exclusion of interest on the Bonds from gross income for Federal income tax purposes, the exemption of interest on the Bonds from State of California personal income taxes or the determination of a bondowner's alternative minimum tax or environmental tax liability. SECTION 8.02. Foreclosure Covenant. The Town will order and cause to be commenced within 150 days following the date of delinquency, and thereafter diligently prosecuted to completion, court foreclosure proceedings upon the lien of any and all delinquent installments of the annual proportion of any assessments and interest, pursuant to and as provided by Part 14 (commencing with Section 8830) of the Bond Law. SECTION 8.03. Good Faith Covenant. The Town will proceed in good faith to complete the acquisitions and improvements in a timely manner pursuant to the Bond Law and the Municipal Improvement Act of 1913, being Division 12 (commencing with Section 10000) of the California Streets and Highways Code, reserving the right to make.changes and'modifications as permitted by the latter act. In furtherance thereof, the Town will act in good faith to schedule the future sale of obligations in such a manner that the proceeds thereof become available as necessary to pay for the acquisitions and improvements and will do so and will endeavor to sell such obligations even if the Town is advised by bond counsel that the interest on such obligations may not be excludable from gross income for purposes of federal income taxation. SECTION 8.04. Further Assurances. The Town will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Bond Resolution, and for the better assuring and confirming to the registered owners of the Bonds the rights and benefits provided by this Bond Resolution. 29 ARTICLE IX THE FISCAL AGENT SECTION 9.01. Agent. Pursuant to Section 3.03, Security Pacific National Bank, at its principal corporate trust office in Los Angeles, California, has been appointed the fiscal Agent of the Town. The Agent shall exercise the rights and perform such duties as are specifically set forth herein, and no implied covenants or obligations shall be read into this Bond Resolution against the Agent. SECTION 9.02. Successor Agent. The Agent may at any time resign, which resignation shall become effective upon the appointment of a successor Agent. Upon receiving notice of such resignation the Town shall promptly appoint a successor Agent, except that if no successor Agent shall have been appointed by the Town within thirty (30) days of receiving such notice, the resigning Agent may petition any court of competent jurisdiction for the appointment of a successor Agent. The Town may at any time in its sole discretion, except when an event of default has occurred and is continuing, remove the Agent initially appointed and any successor thereto and may appoint a successor or successors thereto by an instrument in writing; provided that the Town agrees that it will at all times maintain an Agent with a principal corporate trust office in San Francisco or in Los Angeles, California, which successor Agent shall be either the Treasurer, or a bank or trust company having a combined surplus of at least twenty-five million dollars ($25,000,000) and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section, the combined surplus of such bank or trust company shall be deemed to be its combined surplus as set forth in its most recent report of condition so published. Upon merger or consolidation of the Agent, if the resulting organization meets the requirements of the preceding two sentences, such organization shall be authorized to act as successor Agent without any further action by the Town. Upon any succession as Agent, the predecessor shall deliver all cash, deposits, investments, Bonds, the Bond Register and other record which are in its possession to the successor Agent. SECTION 9.03. Compensation of Aqent. The Town shall from time to time, upon request of the Agent and subject to any agreement between the Town and the Agent then in force, pay the Agent compensation for its services, reimburse the Agent for all its advances and expenditures, including but not limited to 30 advances to and fees and expenses of independent accountants, counsel and engineers or other experts employed by it in the exercise and performance of its rights and obligations hereunder, and indemnify and save the Agent harmless against liabilities, costs or claims either (a) not arising from its own negligence or willful misconduct which it may incur in the exercise and performance of its rights and obligations hereunder, or (b) arising out of breach by the Town of any covenants, conditions or other obligations to be performed or observed by the Town hereunder; provided that the Agent shall not have any lien for such compensation, reimbursement, indemnity or hold harmless against any moneys held by it in any of the funds established hereunder, although it may take whatever legal actions are lawfully available to it directly against the Town. SECTION 9.04. Limitations on Responsibilities of Aqent. The statements, agreements, conditions, covenants and terms contained herein or in the Bonds shall be taken as statements, agreements, conditions, covenants and terms of the Town, and the Agent does not assume any responsibility for the correctness of the same or for the observance or performance by the Town of the same and does not make any representation as to the sufficiency or validity hereof or of the Bonds. The Agent shall have no responsibility to see to the deposit with the Agent of amounts to be deposited under this Bond Resolution. The Agent may conclusively rely on the written instructions, representations and calculations received by it from the Council or from any officer of the Town or from any officer of the County hereunder. SECTION 9.05. Protection of Aqent. The Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, Bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Agent may consult with counsel, who may be counsel to the Town or bond counsel, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered hereunder in good faith and in accordance herewith. SECTION 9.06. Evidence of Matters. Whenever, in the performance of its duties under this Bond Resolution the Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith on the part of the Agent, be deemed to be conclusively proved or 31 established by a certified resolution of the Council, and such resolution shall be full warrant to the Agent for any action taken or suffered under the provisions of this Bond Resolution upon the faith thereof, but in its discretion the Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. SECTION 9.07. Report on Delinquencies. In furtherance of the Town's covenant to foreclose on properties on which the assessment becomes delinquent (see Section 8.02), Agent shall, semi-annually, following each delinquent date for the payment of taxes, obtain from the County and file with the Treasurer a list of any and all properties on which the installment of assessment remains unpaid on said delinquent date. ARTICLE X MISCELLANEOUS SECTION 10.01. Reservation of Jurisdiction. The Town hereby reserves jurisdiction to make changes and modifications in the acquisitions and improvements and otherwise, as permitted by the Bond Law and the Municipal Improvement Act of 1913, being Division 12 (commencing with Section 10000) of the California Streets and Highways Code, and in particular, to increase assessments and issue obligations additional to the Bonds, for the purpose of completing the acquisitions and improvements, which additional obligations will be on a parity of lien with respect to the unpaid assessments and the moneys in the Redemption Fund and Reserve Fund as the Bonds. In connection with the issuance of any such additional obligations the Town will increase the amount in the Reserve Fund by at least the same percentage of the principal amount of such additional obligations as the percentage of the principal amount of the Bonds specified by this Bond Resolution as to be funded therein from the proceeds of the Bonds. SECTION 10.02. Refundinq of the Bonds. The Bonds may be refunded upon determination of the Council that the public interest or necessity requires the refunding of the Bonds and the levy of assessments as security for the refunding bonds, the assessments securing the refunding bonds shall supersede and supplant the assessments securing the Bonds, the Reserve Fund may be liquidated, and thenceforth, the Bonds shall be secured by an escrow or trust sufficient, together with any interest or other gain to be derived from the investment of all or a portion thereof in Federal Securities (as defined by the Refunding Act of 1984 for 1915 Improvement Act Bonds (Division 11.5 of the California Streets and Highways Code), to 32 pay the principal of, and interest and redemption premiums on, the Bonds; provided, however, that the Bonds may not be refunded pursuant to said Refunding Act, or Division 11 of said Code, prior to September 2, 1993. SECTION 10.03. Amendment. This Bond Resolution may be amended, without the consent of any of the Bondowners, by the Council, by resolution, for any of the following purposes: (1) to add to the covenants for the benefit of the Bondowners or to surrender any right or power conferred upon the Town; (2) to cure any ambiguity, to correct or supplement any provision which may be inconsistent with any other provision or to make any other provision, with respect to matters or questions arising with respect to the Bonds, which shall not be inconsistent with the provisions of this Bond Resolution and applicable law, provided that such action shall not adversely affect the interests of the Bondowners; (3) to provide for the holding of the Improvement Fund or portion thereof by either the Agent, the Treasurer, or each (as to identified portions) and for the administration of moneys so held; (4) to make such additions, deletions or modifications as may be necessary to provide for compliance with Section 148(f) of the Code relating to the required rebate to the United States or to enable the Town to comply with such provision by alternative means selected by the Town as may be provided by the Code, or otherwise as may be necessary to assure exclusion from federal income taxation of the interest on the Bonds; and (5) to provide for the issuance of additional obligations of the Town, from time to time and in one or more series, which are secured on a parity with the Bonds as contemplated by Sections 2.03 and 10.01 hereof and to add funds, accounts or subaccounts hereunder or to cure any ambiguity or correct or supplement any provision hereof necessary or convenient as a result of any such additional obligations. This Bond Resolution shall, by the adoption of any such resolution, be amended in accordance therewith. Bonds authenticated and delivered after the adoption of any such resolution may bear a notation as to any matter provided for in such resolution. If the Council shall so determine, new Bonds 33 so modified as to conform to any such resolution may be prepared and executed by the Town and authenticated and delivered in exchange for Bonds outstanding. SECTION 10.04. Partial Invalidity. If any one or more of the covenants or agreements, or portions thereof, of this Bond Resolution, on the part of the Town (or of the Agent) to be performed, should be contrary to law, then such covenants or agreements, or such portions, shall be null and void and shall be deemed separable from the remaining covenants and agreements, or portions thereof, and shall in no way affect the validity of this Bond Resolution or of the Bonds; but the registered owners of the Bonds shall retain all rights and benefits accorded to them under the Bond Law and any other applicable provisions of law. The Town hereby declares that it would have adopted this Bond Resolution, and each and every other section, paragraph, subdivision, sentence, clause and phrase hereof, and would have authorized the issuance of the Bonds pursuant hereto, irrespective of the fact that any one or more sections, paragraphs, subdivisions, sentences, clauses or phrases of this Bond Resolution, or the application thereof to any person or circumstances, may be declared to be unconstitutional, unenforceable or invalid. SECTION 10.05. Repeal of Inconsistent Resolutions. Any resolution of the Town, and any part of such resolution, inconsistent with this Bond Resolution is repealed to the extent of such inconsistency. SECTION 10.06. Certified Copies. The Clerk shall provide a certified copy of this Bond Resolution to the Auditor and the Tax Collector of the County who shall take such action as shall be neoessary to assure compliance by the County with the terms and conditions hereof. The Clerk shall also provide a certified copy of this Bond Resolution to the Treasurer and to the Agent. SECTION 10.07. Authority of Treasurer. All actions mandated by this Bond Resolution to be performed by the Treasurer may be performed by the designee thereof or such other official of the Town, or independent contractor, including the Agent, duly authorized by the Issuer to perform such action or actions in furtherance of all or a specific portion of the requirements hereof. * * * * * 34 I hereby certify that the foregoing is a full, true and correct copy of a resolution duly passed and adopted by the Town Council of the Town of Danville, California, at a meeting thereof held on the 20th day of June , 1988 by the following vote: AYES, and in favor thereof, Councilmembers: Greenberg, Jagger, Lane, Ritchey, Schlendorf NOES, Councilmembers: None ABSENT, Councilmembers: None Mayor ATTEST: Ci~ (~wn) Clerk 35 EXHIBIT A LIST OF UNPAID ASSESSMENTS TOWN OF DANVILLE ASSESSMENT DISTRICT NO. 88-1 AMOUNT OF ASSESSMENT ASSESSOR'S ASSESSMENT NO. PARCEL NO. UNPAID 1 206-010-009 $ 1,170,488 2 206-010-010 2,685,823 3 206-010-011 800,554 4 206-010-013 1,582,083 5 206-010-012 2,231,123 (PTN)* 6 206-010-012 1,560,354 (PTN)* 7 206-010-012 0 (PTN)* 8 206-010-012 3,551,664 (PTN)* 9 206-020-058 1,030,329 10 206-020-056 1,512,582 11 206-010-012 0 (PTN)* 12 206-010-012 0 (PTN)* 13 206-010-012 0 (PTN)* Totals 16,125,000 *Parcel 206-010-012 is to be subdivided - refer to Assessment Diagram. A-1 EXHIBIT B MATURITY SCHEDULE TOWN OF DANVILLE LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO. 88-1 SERIES 88-A Maturity Date Principal (SeDtember 2) Amount 1989 5,000 1990 150,000 1991 250,000 1992 275,000 1993 290,000 1994 310,000 1995 340,000 1996 365,000 1997 395,000 1998 425,000 1999 465,000 2000 505,000 2001 545,000 2002 590,000 2003 640,000 2004 695,000 2005 745,000 2006 810,000 2007 875,000 2008 945,000 2009 1,025,000 2010 1,105,000 2011 1,190,000 2012 1,290,000 2013 1,390,000 TOTALS 15,620,000 B-1 EXHIBIT C BOND FORM. The Bonds shall be substantially in the following form: UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF CONTRA COSTA REGISTERED REGISTERED NUMBER R- $ TOWN OF DANVILLE LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO. 88-1 SERIES 88-A INTEREST RATE MATURITY DATE BOND DATE CUSIP NUMBER REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS Under and by virtue of the Improvement Bond Act of 1915, Division 10 (commencing with Section 8500) of the California Streets and Highways Code (the "Bond Law"), the Town of Danville (the "Town"), in the County of Contra Costa, State of California, will, out of the redemption fund for the payment of the bonds issued upon the unpaid portion of the assessments made for the acquisition, work and improvements more fully described in proceedings taken pursuant to Resolution of Intention No. 29-88, adopted by the Town Council of the Town on the 31st day of March, 1988, pay to the registered owner stated above, or registered assigns, on the maturity date stated above, the principal amount stated above, in lawful money of the United States of America, and in like manner will pay interest from the interest payment date next preceding' the date on which this bond is authenticated and registered, unless this bond is authenticated and registered as of an interest payment date, in which event it shall bear interest from such interest payment date, or unless this bond is authenticated and registered prior to September 2, 1988, in which event it shall bear interest from its date, until payment of such principal C-1 amount shall have been discharged, at the rate per annum stated above, payable semiannually on March 2 and September 2 in each year, commencing on September 2, 1988; provided, however, that if interest is in default, this bond shall bear interest from the last interest payment date to which interest has previously been paid or made available for payment. Both the principal hereof and redemption premium hereon, and the installment of interest payable upon redemption, are payable at the principal corporate trust office of Security Pacific National Bank, Los Angeles, California, or its successor, as fiscal agent of the Town (the "Agent"), upon surrender of this bond at said office of the Agent. Interest (other than the installment payable upon redemption) is payable by check or draft mailed to the owner hereof at the owner's address as it appears in the bond register maintained by the Agent for the Town, or at such address as may have been filed with the Agent for that purpose, as of the close of business of the 15th day immediately preceding each interest payment date. This bond will continue to bear interest after maturity at the rate above stated, provided it is presented at maturity and payment thereof is refused upon the sole ground that there are not sufficient moneys in said redemption fund with which to pay same. If it is not presented at maturity, interest hereon will run only until maturity. This bond is one of, and the series (designated Series 88-A) of which it is a part includes, several annual series of bonds of like date, tenor and effect (except for such differences as may be required to designate maturities, interest rates and amounts), issued by the Town under the Bond Law and a Resolution Providing for the Issuance of Bonds, and any amendments thereto (the "Bond Resolution"), for the purpose of providing means for paying a portion of the cost and expenses of the acquisitions and improvements described in the proceedings. The proceedings permit the issuance of one or more other series of bonds of different date but of like tenor and effect (except for such differences as may be required to designate maturities, interest rates and amounts) for the purpose of providing means for paying all of the cost and expenses of said acquisitions and improvements. This bond, the series of which it is a part, and the bonds of any such other series will be secured by the moneys in said redemption fund and by the unpaid portion of said assessments made for the payment of said improvements, and, including principal and interest, each is payable exclusively out of said fund. This bond is transferable only upon said bond register, upon surrender of this bond duly endorsed or accompanied by a written instrument of transfer satisfactory to the Agent with C-2 signatures authenticated by a commercial bank or trust company or by a member firm of a registered national securities exchange, executed by the registered owner hereof or by an attorney therefor duly authorized in writing, at said office of the Agent subject to the terms and conditions provided in the Bond Resolution, including the payment of certain charges, if any, and thereupon one or more new fully registered bonds of like maturity and of authorized denominations, aggregating the principal amount of this bond, will be issued in exchange therefor. No transfer or exchange of this bond will be made after the Town has notified the Agent of the selection of this bond for redemption, nor shall any transfer or exchange of this bond be required to be made between the 15th day next preceding an interest payment date and such interest payment date, nor between the date of the furnishing of a bondowner list by the Agent to the Town and notification to the Agent of the bonds selected for redemption. Bonds shall be registered only in the name of an individual (including joint owners), a corporation, a partnership, or a trust. The Town and Agent may treat the registered owner hereof as the absolute owner for all purposes and shall not be affected by any notice to the contrary. This bond or any portion of it in the amount of five thousand dollars ($5,000), or any integral multiple thereof, may be redeemed and paid in advance of maturity upon the second day of March or September in any year by giving at least 30 days' notice by registered or certified mail or by personal service to the registered owner hereof at the owner's address as it appears in said bond register, or at such address as may have been filed with the Agent for that purpose, and by paying the principal amount to be redeemed and accrued interest together with a premium equal to three (3) percentum of such principal, unless sooner surrendered, in which event interest will be paid to the date of payment. This bond is not subject to refunding pursuant to the procedures of Division 11 (commencing with Section 9000) or Division 11.5 (commencing with Section 9500) of the California Streets and Highways Code prior to September 2, 1993. This bond shall not be entitled to any benefit under the Bond Law or the Bond Resolution, or become valid or obligatory for any purpose, until the certificate of authentication and registration hereon shall have been dated and signed by the Agent. C-3 IN WITNESS WHEREOF, the Town of Danville has caused this bond to be signed in facsimile by the Treasurer of the Town and by its Clerk· and has caused its corporate seal to be reproduced in facsimile hereon· all as of the day of · 1988. TOWN OF DANVILLE (facsimile) (facsimile) Clerk Treasurer (facsimile seal) CERTIFICATE OF AUTHENTICATION AND REGISTRATION This bond is one of the bonds described in the within mentioned Bond Resolution. Authenticated and registered on: SECURITY PACIFIC NATIONAL BANK, as Fiscal Agent By Authorized Signature ABBREVIATIONS The following abbreviations· when used in the inscription on the face of this bond, shall be construed as though they were written out in full according to applicable laws or regulations: C-4 TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF TRAN MIN ACT - . ............. Custodian .............. (Cust) (Minor) under Uniform Transfers to Minors Act (State) Additional abbreviations may be used although not in the above list. C-5 ASSIGNMENT FOR VALUE RECEIVED, the undersigned do(es) hereby sell, assign and transfer unto (Print or typewrite name, address and social security or other tax identification number of assignee) the within bond and all rights thereunder· and hereby irrevocably constitute(s) and appoint(s) · attorney· to transfer the same on the bond register maintained by the Fiscal Agent with full power of substitution in the premises. Dated: Note: Signature(s) must correspond exactly to name(s) on face hereof. When assignment is made by a guardian, trustee· executor or administrator, an officer of a corporation· or anyone in a representative capacity· proof of such person's authority to act must accompany this assignment. Signature Guaranty: Note: The signature(s) to the Assignment must be guaranteed by a member firm of a registered national securities exchange or a commercial bank or trust company. I hereby certify that the following is a correct copy of the signed legal opinion of Brown & Wood, San Francisco, California. Clerk C-6 EXHIBIT D GUIDELINES FOR COMPLIANCE WITH SECTION 148(f) OF THE INTERNAL REVENUE CODE OF 1986 Re: $ Town of Danville Limited Obligation Improvement Bonds (Assessment District No. 88-1) Series 88-A In the Resolution of the Town Council of the Town .of Danville dated as of , 1988 (the "Resolution") we have covenanted and hereby covenant, among other things, that we will take all action necessary and permitted by law to assure that the interest paid and to be paid on the $ To%~ of Danville Limited Obligation Improvement Bonds (Assessment District No. 88-1) Series 88-A (the "Bonds"), dated 1988 remains excludable from gross income for federal income tax purposes, that we will observe and not violate the requirements of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and any applicable regulations promulgated from time to time thereunder or under its predecessor provision, Section 103(c) of the Internal :Revenue Code of 1954, as amended, and that we will take all reasonable steps to assure compliance with certain requirements of Section 148 of the Code relating to limitations on the yield tZhat may be obtained from certain investments made with proceeds of the Bonds and certain other money in funds and accounts held by Security Pacific National Bank, Los Angeles, California (the "Agent"). To enable the Town of Danville (the "Town") to perform its obligations under the covenants described above and otherwise and to rebate all necessary amounts to the United States Treasury, the undersigned, , City (Town) Manager of the Town, hereby certifies that the Town shall adhere to the following instructions regarding the investment and use of money in various funds and accounts held by the Agent, so that such investments and the use of such money will comply with applicable limitations on the yield permitted with respect to the same and with the requirement, described above, to pay certain amounts to the United States, both as contained in Section 148 of the Code. All capitalized terms not otherwise defined herein are to be defined by reference to the Resolution or the Certificate as to Arbitrage executed by the Town on the date hereof in D-1 connection with the issuance of the Bonds (the "Certificate as to Arbitrage"). These guidelines for compliance are divided into three parts: Part A sets forth the guidelines with respect to the investment of money in various funds and accounts; Part B sets forth the guidelines with respect to the calculation and payment of certain amounts required under the rebate provisions of Section 148 of the Code; and Part C sets forth the guidelines with respect to the amendment of any guidelines contained herein. The guidelines set forth in Parts A, B and C will be followed in order to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds. Part A. Investment. 1. NonpurDose Obligations. These rules shall apply to the investment of Gross Proceeds, as defined below, in any security, obligation, annuity contract or any other investment-type property that is not acquired to carry out the governmental purpose of the Bonds ("Nonpurpose Obligations"). Nonpurpose Obligations shall not include: (a) United States Treasury - State and Local Government Series, Demand Deposit securities; (b) tax-exempt obligations, including stock in a qualified regulated investment company. For purposes of these guidelines, a qualified regulated investment company is a corporation that (i) is a regulated investment company within the meaning of Code Section 851(a) and meets the requirements of Code Section 852(a) for the calendar year; (ii) has only one class of stock authorized and outstanding; (iii) invests all of its assets in tax-exempt obligations to the extent practicable; and (iv) has at least 98% of (A) its gross income derived from interest on, or gain from the sale of or other disposition of, tax-exempt obligations, or (B) the weighted average value of its assets represented by investments in tax-exempt obligations. Additionally, for purposes of these guidelines, the term "tax-exempt obligation" shall include only obligations the interest on which is (A) excludable from gross income for federal income tax purposes, and (B) not treated as an item of tax preference under Section 57(a)(5) of the Code. For purposes of these guidelines, the term "Gross Proceeds" means: D-2 (i) proceeds derived from the sale of the Bonds; (ii) amounts that are reasonably expected to be or are in fact used to pay debt service on the Bonds; (iii) amounts on deposit in the Reserve Fund; (iv) other amounts pledged as security for the payment of debt service on the Bonds; and (v) investment earnings on amounts described in (i)-(iv) above. 2. Temporary Period Investments. Certain money deposited in the following accounts may be invested at an unrestricted yield for the following temporary periods: a. proceeds derived from the sale of the Bonds deposited in the Improvement Fund to be expended to pay the costs of issuance of the Bonds are entitled to a temporary period not to exceed three years from the date hereof; b. proceeds derived from the sale of the Bonds initially deposited in the Redemption Fund to pay accrued interest are entitled to a temporary period ending when such funds are expended on September 2, 1988; c. proceeds derived from the sale of the Bonds deposited in the Improvement Fund to be expended to pay costs of acquisitions and improvements, together with all expenses incidental thereto as contemplated by the Proceedings are entitled to a temporary period not: to exceed three years from the date hereof. d. earnings on amounts described in a., b. and c. are entitled to a temporary period ending the greater of three years from the date hereof or one year from the date of receipt; e. amounts deposited in the Redemption Fund (other than as Accrued Interest described in paragraph 2(b)) are entitled to a temporary period ending thirteen months from the date of receipt; and f. earnings on amounts in the accounts described in paragraph 2(e) are entitled to a temporary period ending one year from the date of receipt. 3. Reserve Fund. Amounts deposited in the Reserve Fund may, to the extent not in excess of 10 percent of the proceeds D-3 of the Bonds, be invested without yield restriction. The balance must not be invested in any Nonpurpose Obligation that has a yield greater than the yield on the Bonds. 4. Restricted Investments. Gross Proceeds, other than amounts eligible for a temporary period as described in paragraph 2, amounts in the Reserve Fund described in paragraph 3, and an amount not in excess of $100,000, will be invested in tax-exempt obligations or in Nonpurpose Obligations with a composite yield not in excess of the yield on the Bonds (in the case of Nonpurpose obligations acquired with Gross Proceeds derived from the sale of the Bonds and investment earnings thereon, the yield on the Bonds plus 1/8 of one percent). 5. Yields and Debt Service. Yields shall be calculated by means of an actuarial method of yield calculation whereby the term "yield" means that discount rate which when used in computing the present worth of all payments of principal and interest to be paid on the obligation produces an amount equal to the purchase price of the obligation. The yield on. investments must be computed by the use of the same frequency interval of compounding interest on the Bonds. For purposes of calculating the yield on the Bonds, the purchase price of the Bonds is the issue price of the Bonds, which is defined in Section 1273 of the Code as the initial offering price to the public (not including bond houses, brokers and similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount (at least 10 percent) of each maturity of the Bonds was sold. For purposes of calculating the yield on Nonpurpose Obligations, the purchase price will be the amount paid for such obligations or, if different, the fair market value of such obligation on the date it becomes Gross Proceeds. 6. Market Price. For purposes of our calculation of the yield on any obligation as required under these guidelines, the purchase price of the obligation will be the fair market price of the obligation on an established market. This means that the Town will not pay a premium and will not accept a lower interest rate than is usually paid to adjust the yield on an obligation. (a) The market price of certificates of deposit issued by a commercial bank may be regarded as being at a fair market price if they are determined by reference to the bona fide bid price quoted by a dealer who maintains an active secondary market in such certificates, or, if no secondary market exists, by satisfying subparagraph (b) below relating to investment agreements. D-4 (b) Investments pursuant to an investment agreement may be regarded as being made at a fair market price if (i) at least 3 bids are received on the investment contract from persons without an interest in the Bonds; (ii) the winning bidder provides a certificate that, based on its reasonable expectations on the date the contract is entered into, investments will not be purchased or sold at a price other than their fair market value; (iii) the yield on the investment contract is at least equal to the yield offered under the highest bid received from a noninterested party; and (iv) the yield on the investment contract is at least equal to the yield offered on similar contracts. (c) For other obligations traded on an established market, the fair market value shall be the mean between the bid and offered prices for such obligations on the date of purchase or, if subsequent, the date the obligation becomes a Nonpurpose Obligation. Where amounts must be restricted to a certain yield and obligations cannot be purchased on an established market or a bona fide fair market price cannot be established at a yield that does not exceed the maximum permissible yield, the Town may acquire or hold tax-exempt securities, currency, or United States Treasury Certificates of Indebtedness, Notes and Certificates -- State and Local Government Series ("SLGs") which yield no more than the maximum permissible yield[. SLGs are available at the Federal Reserve Bank. The Town is aware that, under current Treasury Department Regulations governing SLGs, such obligations may not be purchased until 15 calendar days (3 business days in the case of demand deposit SLGs) after a subscription for them is tendered and received by a Federal Reserve Bank or Branch. Accordingly, the Town shall act promptly in subscribing for SLGs in the event it determines such restricted investments are necessary. Part B. Rebate Requirement. Notwithstanding any unrestricted investment pursuant to a temporary period set forth in paragraph 2 of Part A or any unrestricted investment of amounts on deposit in the Reserve Account as described in paragraph 3 of Part A, Section 148(f) of the Code requires that an amount equal to the sum of (i) the excess of the aggregate amount earned on all Nonpurpose Obligations over the amount that would have been earned if such Nonpurpose Obligations had a yield equal to the yield on the Bonds, plus (ii) any income attributable to the excess described in (i), be paid to the United States Treasury (the "Rebate Requirement"). We have covenanted in the Resolution to comply with the requirement of Section 148 of the Code. D-5 Accordingly, we shall comply with the Rebate Requirement as provided below. To enable us to fulfill our obligation under such covenant and to make the necessary payments to the United States Treasury, (i) we shall prepare within 25 days after the close of each Rebate Year (defined as the one-year period beginning on the day after the expiration of the preceding Rebate Year), with the first Rebate Year beginning on the date hereof and ending the day before the one-year anniversary of the issuance of the Bonds, and within 45 days after retirement of the last obligation in the issue, a statement setting forth the Rebate Amount (as defined below in this Part B) and the Aggregate Rebate Amount (as defined below in this Part B) as of the end of such Rebate Year, in any form or statement prescribed therefor by the Internal Revenue Service or the United States Treasury to the extent such form or statement is available and required to be used. To comply with the Rebate Requirement, the procedures described below will be followed. 1. With respect to all Nonpurpose Obligations acquired in any fund or account established and held by the Agent pursuant to instructions of the Town to the extent set forth in. the Resolution, the Town shall cause the Agent to record or cause to be recorded the following information: (i) purchase date, (ii) purchase price, (iii) information establishing that the purchase price is the fair market value as of such date (e.g., the published quoted bid by a dealer in such an investment on the date of purchase), (iv) any accrued interest paid, (v) face amount, (vi) coupon rate, (vii) periodicity of interest payments, (viii) disposition price, (ix) any accrued interest received, (x) disposition date. To the extent any investment becomes a Nonpurpose Obligation by becoming Gross Proceeds after it was originally purchased, it shall be treated[ as if it were acquired at its fair market value at the time it becomes a Nonpurpose Obligation. 2. The last day of each Rebate Year and the date on which the Bonds are redeemed or mature shall constitute a "Determination Date." Within 25 days after each Determination Date, the Town shall determine or cause to be determined the amount of earnings received during the period beginning on the date hereof and ending with the Determination Date with respect to each investment described in paragraph 1 of this Part B. In calculating the amount of such earnings, the Town shall take into account (i) the purchase price of each investment; in accordance with Part A above, (ii) any discount or premium on the purchase price on the Nonpurpose Obligation amortized over the period from its date of purchase, or if different,, the date on which it becomes Gross Proceeds, to its date of scheduled D-6 A maturity in accordance with the method of amortization of the discount applicable under federal income tax law, and (iii) any gain or loss on the date of disposition of any investment, determined by subtracting from the disposition price of the investment the purchase price thereof or, if applicable, the fair market value thereof on the date it became Gross Proceeds. The Town may not take into account any transaction costs incurred in acquiring, carrying, selling or redeeming such obligations. 3. Within 25 days after each Determination Date, the Town shall calculate the hypothetical amount of earnings, based upon the respective purchase prices of the Nonpurpose Obligations, that would have been earned with respect to each Nonpurpose Obligation described in paragraph 1 of this Part B during the period commencing with the date hereof and ending with such Determination Date if the annual yield on such Nonpurpose Obligations had been equal to the yield on the Bonds. The hypothetical amount determined hereunder will, where applicable, be based on corresponding and contemporaneous reductions in the amounts invested in Nonpurpose Obligations. The purpose of the calculations under this paragraph is to determine the amount that would have been earned on all Nonpurpose Obligations, if the composite yield on all such Nonpurpose Obligations, had been equal to the composite yield on the Bonds, for the period beginning on the date of issue and ending on the Determination Date. 4. Within 25 days after each Determination Date, the Town shall calculate the net amount equal to the sum of all amounts determined in paragraph 2 of this Part B on each Determination Date less the sum of all amounts determined in paragraph 3 of this Part B on the most recent Determination Date. Such excess, if any, shall be the "Rebate Amount." The Rebate Amount in no case shall be less than zero. 5. As of each Determination Date, the Town shall determine the "Aggregate Rebate Amount." The Aggregate Rebate Amount as of the first Determination Date shall be the Rebate Amount. The Aggregate Rebate Amount as of the second Determination Date and subsequent Determination Dates shall be the Rebate Amount as of the then current Determination Date (i) reduced, but not below zero, by the amount of any payments made to the United States Treasury as described in paragraph 8 of this Part B, and (ii) increased by the amount of earnings during the Rebate Year and all preceding Rebate Years on the Aggregate Rebate Amount determined, for a particular Rebate Year, as of the Determination Date on which the immediately preceding Rebate Year ends (and as reduced by any payments to D-7 the United States Treasury during the Rebate Year for which earnings are being calculated). 6. Any amount earned on the Redemption Fund shall not be taken into account for purposes of determining the amounts described in paragraphs 2, 3, 4 and 5 of this Part B if the gross earnings on the Redemption Fund are less than $100,000 for the Rebate Year. 7. The amount of earnings on the Aggregate Rebate Amount includes all income attributable to the excess described in paragraph 5 of this Part B whether or not that income exceeds the yield on the Bonds, and neither the amount of such. earnings nor the hypothetical amount of earnings on the Nonpurpose Obligations producing the actual earnings shall be taken into account in the calculation of the Rebate Amount. The Town shall determine the amount of such earnings as of each. Determination Date by treating the Aggregate Rebate Amount to that date as being invested in cash or a specified investment (but only to the extent such cash or specified investment is actually held). To the extent there are no investments or cash allocable to the Aggregate Rebate Amount, the Aggregate Rebate Amount shall be deemed to have been invested at the Bond yield for purposes of determining the succeeding Aggregate Rebate Amount. 8. The Aggregate Rebate Amount shall be paid to the United States Treasury in installments. The first payment shall be made not later than 30 days after the end of the fifth Rebate Year after the date of issuance of the Bonds; each subsequent payment must be made not later than 5 years after the preceding payment was due. Payments shall be made first from the Earnings Account of the Rebate Fund and then from the Rebate Account of the Rebate Fund. Each payment must be in an amount not less than 90 percent of the Aggregate Rebate Amount (determined without regard to clause (i) of paragraph 5 above) as of the close of the last Rebate Year prior to payment, less all amounts described in clause (i) of paragraph 5 above. All of the Aggregate Rebate Amount must be paid to the United States Treasury within 60 days after the last payment of principal of the Bonds. Payment shall be made to the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255 and be accompanied by a copy of Form 8038-G filed in connection with the Bonds and a statement summarizing the determination of the amount required to be paid to the United States Treasury. If the net amount determined in paragraph 3 exceeds the net amount determined in paragraph 2 of Part B for any Rebate Year, the Town shall not recover the amount of such deficit from any Aggregate Rebate Amount previously paid to the United States Treasury or from amounts on deposit in the Earnings Account. D-8 ? , & Records of the determinations made hereunder shall be retained until six years after the retirement of the last obligation of the Bonds. Part C. Amendment. In order to comply with the Resolution regarding compliance with the requirements of the Code and the exclusion from gross income for federal income tax purposes of the interest paid and to be paid on the Bonds, the guidelines set forth herein may be modified by the Town as necessary, without the consent of Bondowners, and based on the opinion of nationally recognized bond counsel acceptable to the Town, to comply with rulings, regulations, legislation or judicial decisions as may be applicable to the Bonds. The Town may rely conclusively on the advice of its counsel with respect hereto. WITNESS my hand this th day of , 1988. TOWN OF DANVILLE By: City (Town) Manager D-9