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5.4.3 Penalty Account. The City and the Authority hereby agree to cause to be established, and agree to cause to be maintained for the purposes set forth in this Section 5.4.3, a "Penalty Account" within the Acquisition Fund. The City and the Authority will cause the positive arbitrage, calculated as set forth in Section 5.5 hereof, earned with respect to investment of amounts held in the Acquisition Fund to be deposited in the Penalty Account. Amounts deposited in the Penalty Account will be used (i) first, to pay Penalty, and (ii) second, to the extent no Penalty liability exists or will exist, to pay costs of the Project. As forth in Section 5.9 hereof, the City and the Authority have retained or will retain a qualified firm to perform, on or about the end of each of the six month periods set forth in Section 5.4.2 above, such calculations as necessary to determine the amount of Penalty, if any, that must be paid to the United States with respect to such six month period. The City and the Authority covenant that they will take such steps as necessary to ensure that such Penalty is paid in a timely fashion. 5.5 Rebate Requirement Calculation and Payment. 5.5.1 The City and the Authority hereby covenant to prepare or cause to be prepared in a reasonable and prudent fashion an annual calculation of the Rebate Requirement consistent with the rules described in this Section 5.5. (The interim calculations not falling at the close of the periods referred to in Section 5.5.3 below may be made as of the close of the Bond Years involved or as of other dates more convenient to the City and the Authority and such dates shall be treated as the close of Bond Years for purposes of this Section 5.5.) The City and the Authority will complete the annual calculation of the Rebate Requirement within 55 days after the close of each Bond Year and within 55 days after the first date on which there are no outstanding 1994 Bonds. Concurrent with the preparation of such calculation, the City and the Authority shall deposit in the Rebate Fund an amount which when added to amounts already on deposit therein will equal the Rebate Requirement or, if appropriate, decrease the sum held in the Rebate Fund to the Rebate Requirement. 5.5.2 For purposes of calculating the Rebate Requirement (i) the aggregate amount earned with respect to a Nonpurpose Investment shall be determined by assuming that the Nonpurpose Investment was acquired for an amount equal to its fair market value (determined as provided in Section 1.148-5(d)(6) of the Treasury Regulations as applicable) at the time it becomes a Nonpurpose Investment, and (ii) the aggregate amount earned with respect to any Nonpurpose Investment shall include any unrealized gain or loss with respect to the Nonpurpose Investment (based on the assumed purchase price at fair market value and adjusted to take into account amounts received with respect to the Nonpurpose Investment and earned original issue discount or premium) on the first date when there are no outstanding 1994 Bonds or when the investment ceases to be a Nonpurpose Investment. Any amounts held in any Bona Fide Debt Service Fund shall be excluded from the Rebate Calculation. 5.5.3 The City and the Authority shall pay to the United States Department of the Treasury from the Rebate Fund, not later than 60 days after the end of the fifth Bond Year and each succeeding fifth Bond Year, an amount equal to 90 percent, and not later than 60 days after the first date when there are no outstanding 1994 Bonds, an amount equal to 100 percent of the Rebate Requirement (determined as of the first date when there are no outstanding 1994 Bonds) plus any actual or imputed earnings on such Rebate Requirement, all as set forth in Section 1.148-3 of the Treasury Regulations. 5.5.4 Each payment required to be made pursuant hereto shall be filed with the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255, on or before the date such payment is due, and shall be accompanied by Form 8038-T. The City and the Authority shall retain records of the calculations required by this Section 5.5 until 6 years after the retirement of the last of the 1994 Bonds. LA1-69477.4 15