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V. Rebate 5.1 Undertakings. The City and the Authority have covenanted, or hereby covenant, to comply with certain requirements of the Code relating to the Rebate Requirement as discussed in this Article V. The City and the Authority acknowledge that the United States Department of the Treasury has issued regulations with respect to certain of these undertakings, including the proper method for computing whether any rebate amount is due the federal government under Section 148(f) of the Code (Treasury Regulations Sections 1.148-0 through 1 .148-11 and 1.150-1). The City and the Authority covenant that they will undertake to determine precisely what is required with respect to the rebate provisions contained in Section 148(f) of the Code and said regulations from time to time and will comply with any requirements that may be applicable to the 1994 Bonds. Except to the extent inconsistent with any requirements of the Code or the regulations or future regulations, the City and the Authority will undertake the methodology described in this Tax Certificate. 5.2 Rebate Fund. A special fund designated the "Rebate Fund" has been established pursuant to the Indenture. The City and the Authority have agreed in the Indenture to keep the Rebate Fund separate and apart from all other funds and moneys held by any of the Trustee, the City, or the Authority. 5.3 Recordkeeping. The City and the Authority shall maintain or cause to be maintained detailed records with respect to each Nonpurpose Investment attributable to Gross Proceeds of the 1994 Bonds, including: (a) purchase date; (b) purchase price; (c) information establishing fair market value on the date such investment became a Nonpurpose Investment; (d) any accrued interest paid; (e) face amount; (f) coupon rate; (g) periodicity of interest payments; (h) disposition price; (i) any accrued interest received; and (j) disposition date. Such detailed recordkeeping is required to facilitate the calculation of the Rebate Requirement. 5.4 Exceptions to the Rebate Requirement. 5.4.1 Bona Fide Debt Service Funds. Subject to the representations and certifications made in Section 3.8 of this Tax Certificate, no rebate calculations will need to be made with respect to any moneys in the Bona Fide Debt Service Funds in any Bond Year. 5.4.2 Penalty in Lieu of Rebate Election. (i) In General. Under the authority of Code Section 148(f)(4)(C)(vii) and Treasury Regulations Section 1.148-7(k)(1), the City and the Authority hereby elect to pay the one and one-half percent penalty in lieu of arbitrage rebate (the "Penalty") with respect to any Available Construction Proceeds that are not spent according to the following two-year spenddown schedule (the "Two-Year Expenditure Schedule"): End of first six months 10% End of first year 45% End of first 18 months 75% End of second year and thereafter 100% The City and the Authority covenant that the City and the Authority will pay, or cause to be paid, the Penalty (being 1.5 percent times the underexpended proceeds as of the end of each of six-month spending period following the Closing Date, including each semiannual period after the end of the fourth spending period set forth in the Two-Year Expenditure Schedule; for each spending period, underexpended proceeds equal the amount of Available Construction Proceeds required to be LA1-69477.4 13