AGENDA #7.1

MEMORANDUM

TO: Mayor and Town Council

FROM: W. Calvin Horton, Town Manager

SUBJECT: Authorization for the Sale of $4,250,000 of General Obligation Bonds on March 25, 2003

DATE: February 24, 2003

The attached resolution would authorize the final phase sale of $4,250,000 in General Obligation bonds to continue implementation of bond projects approved by referendum in November, 1996. The resolution sets forth the terms and conditions of the bonds sale, authorizes the use of an official statement for the sale, and authorizes the Mayor, Manager, Finance Director, Town Attorney and Town Clerk to take the actions necessary to sell the bonds on March 25, 2003.

BACKGROUND AND DISCUSSION

On February 10, 2003, the Council adopted a resolution prepared by bond counsel authorizing the Manager and staff to proceed with the final phase bond sale of $4,250,000 in General Obligation bonds on March 25, 2003.

The attached resolution sets forth the terms and conditions of the proposed bond sale and authorizes the use of an official statement to be used in connection with the sale. The proposed term of the bonds would be 20 years (the standard term for General Obligation bonds) with repayment of principal and interest through the year 2023. The official statement has been prepared by the Town, bond counsel and the Local Government Commission staff. We expect ratings on these bonds to be issued by Moody’s Investor Service and Standard and Poor’s, and anticipate no change from our current ratings of Aaa and AA+ respectively.

The bonds would be sold for the Town by the Local Government Commission, with payment of principal and interest beginning in the 2003-2004 fiscal year as previously planned by the Council.

We estimate the debt service cost of the bonds would be about $425,000 in the first year depending on the final interest rate obtained at the time of the sale. The cost of the additional debt service has been included in our financial forecasts, including the most recent financial outlook presented to the Council on January 17, 2003.

After the sale of the bonds on March 25, bond counsel would prepare resolutions for the Council’s final approval of the sale and interest rates obtained on the bonds.

RECOMMENDATION

That the Council adopt the attached resolution authorizing the Mayor, Manager, Attorney, Finance Director and Town Clerk to take necessary actions for the sale of $4,250,000 in General Obligation bonds on March 25, 2003.

RESOLUTION PROVIDING FOR THE ISSUANCE OF
$4,250,000 GENERAL OBLIGATION PUBLIC IMPROVEMENT BONDS,
SERIES 2003 OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA

(2003-02-24/R-8.1)

_____________________________________________________

WHEREAS, each of the Bond Orders described in Section 1 below has taken effect; and

WHEREAS, on March 24, 1998 the Town of Chapel Hill, North Carolina (the “Town”) pursuant to the authority of such Bond Orders issued $4,550,000 in aggregate principal amount of its General Obligation Public Improvement Bonds, Series 1998 (the “Series 1998 Bonds”); and

WHEREAS, on March 1, 2000 the Town pursuant to the authority of such Bond Orders issued $4,700,000 in aggregate principal amount of its General Obligation Public Improvement Bonds, Series 2000 (the “Series 2000 Bonds”), which Series 2000 Bonds are currently outstanding; and

WHEREAS, the Town Council of the Town of Chapel Hill, North Carolina (the “Town Council”) has determined pursuant to a resolution adopted by the Town Council on February 10, 2003 (the “Initial Resolution”) that it is in the best interests of the Town to issue an additional $4,250,000 in aggregate principal amount of the Bonds authorized by said Bond Orders;

NOW, THEREFORE, BE IT RESOLVED by the Town Council, as follows:

Section 1. Bond Orders. The Town shall issue its General Obligation Public Improvement Bonds, Series 2003 in the aggregate principal amount of $4,250,000 (collectively the “Bonds”) pursuant to and in accordance with the Bond Orders described below, each of which was adopted by the Town Council on September 23, 1996 and approved by a majority of the qualified voters of the Town who voted thereon at a referendum duly called and held on November 5, 1996:

“BOND ORDER AUTHORIZING THE ISSUANCE OF $5,000,000 RECREATION FACILITIES BONDS OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA”;

“BOND ORDER AUTHORIZING THE ISSUANCE OF $3,000,000 OPEN SPACES AND AREAS BONDS OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA”;

“BOND ORDER AUTHORIZING THE ISSUANCE OF $2,000,000 PUBLIC SAFETY BONDS OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA”;

“BOND ORDER AUTHORIZING THE ISSUANCE OF $3,000,000 STREET AND SIDEWALK BONDS OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA”; and

“BOND ORDER AUTHORIZING THE ISSUANCE OF $500,000 PUBLIC BUILDING BONDS OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA”.

The Bond Orders described above are hereinafter collectively referred to as the “Bond Orders”.

Section 2. Designation; Period of Usefulness; Maturity. The Bonds to be issued pursuant to the Bond Orders shall be designated “General Obligation Public Improvement Bonds, Series 2003. The Town Council has ascertained and hereby determines that the average period of usefulness of the capital projects described in the Initial Resolution and to be financed by the issuance of the Bonds is not less than twenty (20) years computed from the date of the initial issuance of the Bonds. Subject to the right of the Town to prior redemption of the Bonds as described below, the Bonds shall be stated to mature annually as indicated on Exhibit A attached hereto and incorporated herein by reference. The Town Council hereby authorizes and directs the Mayor or the Director of Finance of the Town after the date of adoption of this Resolution to make such minor changes and adjustments to the maturity dates and the amortization schedule as may be in the best interests of the Town in consultation with the Local Government Commission; provided, however, in no event shall the aggregate principal amount of the Bonds exceed $4,250,000.

Section 3. Date of Bonds; Interest Payment Dates. The Bonds shall be dated April 1, 2003 and shall bear interest from their date at a rate or rates that shall be hereafter determined upon the public sale thereof. Interest on the Bonds shall be payable semiannually on each April 1 and October 1, beginning October 1, 2003.

Section 4. Registered Bonds; Execution. The Bonds shall be registered as to principal and interest and shall bear the original or facsimile signatures of the Mayor or Town Manager and the Clerk of the Town. An original or facsimile of the corporate seal of the Town shall be imprinted upon each of the Bonds.

Section 5. Book-Entry System. The Bonds will be issued in fully registered form by means of a book-entry system with no physical distribution of bond certificates made to the public. One fully-registered bond certificate for each stated maturity of the Bonds will be issued to The Depository Trust Company, New York, New York (“DTC”), and immobilized in its custody. A book-entry system will be employed, evidencing ownership of the Bonds in principal amounts of $5,000 or any multiple thereof, with transfers of ownership effected on the records of DTC and its participants pursuant to rules and procedures established by DTC and its participants. Interest on the Bonds will be payable in clearinghouse funds to DTC or its nominee or any other person appearing as registered owner of the Bonds. The principal of and interest on the Bonds will be payable to owners of Bonds shown on the records of DTC at the close of business on the day immediately preceding an interest payment date or a bond payment date. The Town will not be responsible or liable for such transfers of payments or for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants.

In the event that (a) DTC determines not to continue to act as securities depository for the Bonds or (b) the Town determines that the continuation of the book-entry system of evidence and transfer of ownership of the Bonds would adversely affect the interests of the beneficial owners of the Bonds, the Town will discontinue the book-entry system with DTC. If the Town fails to identify another qualified securities depository to replace DTC, the Town will deliver replacement bonds in the form of fully-registered certificates.

Section 6. Redemption. The Bonds maturing prior to April 1, 2014, will not be subject to redemption prior to maturity. The Bonds maturing on April 1, 2014 and thereafter will be subject to redemption prior to maturity, at the option of the Town, from any moneys that may be made available for such purpose, either in whole on any date not earlier than April 1, 2013, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus interest accrued to the date fixed for redemption. If less than all of the Bonds of any one maturity shall be called for redemption, the particular Bonds or portions of the Bonds to be redeemed shall be selected by lot in such manner as the Town may determine; provided, however, that the portion of any Bond to be redeemed shall be in the principal amount of $5,000 or some multiple thereof and that, in selecting Bonds for redemption, each Bond shall be considered as representing that number of Bonds which is obtained by dividing the principal amount thereof by $5,000. So long as a book-entry system with DTC is used for determining beneficial ownership of Bonds, if less than all of the Bonds within a maturity are to be redeemed, DTC and its participants shall determine which of the Bonds within a maturity are to be redeemed. If less than all of the Bonds stated to mature on different dates shall be called for redemption, the particular Bonds or portions thereof to be redeemed shall be called in the inverse order of their maturities. Whenever the Town shall elect to redeem Bonds, notice of such redemption of Bonds, stating the redemption date, redemption price and identifying the Bonds or portions thereof to be redeemed by reference to their numbers and further stating that on such redemption date there shall become due and payable upon each Bond or portions thereof so to be redeemed, the principal thereof, redemption premium and interest accrued to the redemption date and that from and after such date interest thereon shall cease to accrue, shall be given by not less than 30 days nor more than 60 days prior to the redemption date in writing to DTC or its nominee as the registered owner of the Bonds, by prepaid first class mail, at the address provided to the Town by DTC, but any failure or defect in respect of such mailing will not affect the validity of the redemption. The Town is not responsible for mailing notices for redemption to anyone other than DTC or its nominee unless no qualified securities depository is the registered owner of the Bonds.

Section 7. Form of Bonds. The Bonds and the provisions for the registration of Bonds and for the approval of the Bonds by the Secretary of the Local Government Commission shall be in substantially the following form:

(Form of Bond)

NO. R-___________ $__________

UNITED STATES OF AMERICA

STATE OF NORTH CAROLINA

TOWN OF CHAPEL HILL, NORTH CAROLINA
GENERAL OBLIGATION PUBLIC IMPROVEMENT
BOND, SERIES 2003

INTEREST RATE

MATURITY DATE

ORIGINAL

ISSUE DATE

CUSIP

________________

April 1, ____

April 1, 2003

_______________

REGISTERED OWNER: CEDE & CO.

PRINCIPAL AMOUNT:______________________________________ Dollars

The Town of Chapel Hill, North Carolina (hereinafter referred to as the “Town”), a municipal corporation of the State of North Carolina, is justly indebted and for value received hereby promises to pay in the manner hereinafter provided, to the registered owner named above or registered assigns or legal representative on the Maturity Date specified above, the principal amount shown above and to pay to the registered owner hereof interest thereon from the date of this Bond until this Bond is paid in full at the interest rate per annum specified above, payable on October 1, 2003 and semiannually thereafter on April 1 and October 1 of each year. Principal of and interest on this Bond are payable in clearinghouse funds to The Depository Trust Company (“DTC”) or its nominee as registered owner of the Bonds and are payable to the owner of the Bonds shown on the records of DTC at the close of business on the day immediately preceding an interest payment date or a principal payment date. The Town is not responsible or liable for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants.

This Bond is issued in accordance with the Registered Public Obligations Act, Chapter 159E of the North Carolina General Statutes, as amended, and pursuant to The Local Government Finance Act, the bond orders adopted by the Town Council of the Town on September 23, 1996 and approved by a majority of the qualified voters of the Town who voted thereon at a referendum duly called and held on November 6, 1996 and a bond resolution adopted by the Town Council on February 24, 2003. This Bond is one of a series of Bonds designated as “Town of Chapel Hill, North Carolina General Obligation Public Improvement Bonds, Series 2003” initially issued in the aggregate principal amount of $4,250,000 (the “Bonds”). The Bonds are being issued primarily for the construction of recreational facilities, renovation and improvements for public works, renovation and improvements for law enforcement facilities, the purchase of open space and greenways, and the renovation and construction of sidewalks and bridges and for street improvements.

The Bonds maturing prior to April 1, 2014 will not be subject to redemption prior to maturity. The Bonds maturing on April 1, 2014 and thereafter will be subject to redemption prior to maturity, at the option of the Town, from any moneys that may be made available for such purpose, either in whole on any date not earlier than April 1, 2013, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus interest accrued to the date fixed for redemption.

If less than all of the Bonds of any one maturity shall be called for redemption, the particular Bonds or portions of Bonds of such maturity to be redeemed shall be selected in such manner as the Town in its discretion may determine; provided, however, that the portion of any Bond to be redeemed shall be in the principal amount of $5,000 or some multiple thereof and that, in selecting Bonds for redemption, each Bond shall be considered as representing that number of Bonds which is obtained by dividing the principal amount thereof by $5,000. So long as a book-entry system with DTC is used for determining beneficial ownership of Bonds, if less than all of the Bonds within a maturity are to be redeemed, DTC and its participants shall determine which of the Bonds within a maturity are to be redeemed. If less than all of the Bonds stated to mature on different dates shall be called for redemption, the particular Bonds or portions thereof to be redeemed shall be called in the inverse order of their maturities.

Whenever the Town shall elect to redeem Bonds, written notice of the redemption of such Bonds, stating the redemption date, redemption price and identifying the Bonds or portions thereof to be redeemed by reference to their numbers and further stating that on such redemption date there shall become due and payable upon such Bond or portions thereof so to be redeemed, the principal thereof, redemption premium and interest accrued to the redemption date and that from and after such date interest thereon shall cease to accrue. Such notice of redemption shall be given by certified or registered mail to DTC or its nominee as the registered owner of the Bond not more than 45 days nor less than 30 days prior to the redemption date at the address provided to the Town by DTC, but any failure or defect in respect of such mailing will not affect the validity of the redemption. The Town is not responsible for mailing notices of redemption to anyone other than DTC or its nominee unless no qualified securities depository is the registered owner of the Bonds.

It is hereby certified and recited that all conditions, acts and things required by the Constitution or laws of the State of North Carolina to exist, be performed or happen precedent to and in the issuance of this Bond, exist, have been performed and have happened, and that the amount of this Bond, together with all other indebtedness of the Town, is within every debt and other limit prescribed by said Constitution or statutes. The faith and credit of the Town are hereby pledged to the punctual payment of the principal of and interest on this Bond in accordance with its terms.

This Bond shall not be valid or become obligatory for any purpose until this Bond has been authenticated by the Director of Finance of the Town and the certifications hereon shall have been signed by authorized representatives of the Local Government Commission of North Carolina.

IN WITNESS WHEREOF, the Town of Chapel Hill, North Carolina has caused this Bond to be manually signed by its Mayor and its Clerk and its official seal to be imprinted hereon, all as of the 1st day of April 2003.

(SEAL)

Town Clerk Mayor

Town of Chapel Hill, North Carolina Town of Chapel Hill, North Carolina

CERTIFICATE OF LOCAL GOVERNMENT COMMISSION

The issuance of the within Bond has been approved under the provisions of The Local Government Bond Act, of North Carolina as amended.

( signature )
JANICE T. BURKE

Interim Secretary of the Local Government Commission

CERTIFICATE OF AUTHENTICATION

This Bond is one of the Series of Bonds designated herein and issued under the provisions of the Bond Resolution referenced herein.

By:

James M. Baker

Director of Finance

Town of Chapel Hill, North Carolina

ASSIGNMENT

FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto _________________, the within Bond and irrevocably appoints _________________, attorney-in-fact, to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises.

Dated: ________________________ _________________________________________

NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without any alteration whatsoever.

Signature Guaranteed:

______________________________

(Bank, Trust Company or Firm)

(Authorized Officer)

Section 8. Covenants. The Town covenants to comply with the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) to the extent required to preserve the exclusion from gross income of interest on the Bonds for federal income tax purposes. The Town also covenants to take such action as may be required in the opinion of nationally recognized bond counsel to cause the Bonds and all actions of the Town with respect to the proceeds thereof to comply with the Code. In particular, the Town covenants as follows:

(a) At least one of the following two conditions will be satisfied: (i) less than 10% of the proceeds of the Bonds reduced by costs of issuance will be used directly or indirectly in the business of a person other than a state or local governmental unit or (ii) less than 10% of the principal or interest on the Bonds is (under the terms of such issue or any underlying arrangement) directly or indirectly (A) secured by an interest in property used or to be used in a private business or any interest in payments made with respect to such property or (B) to be derived from payments made with respect to property, or borrowed money, used or to be used in a private business;

(b) Less than 5% of the proceeds of the Bonds reduced by costs of issuance will be used by nongovernmental persons for a use unrelated to the purposes for which the Bonds are issued;

(c) It will not loan directly or indirectly more than 5% or $5 million (whichever is less) of the Bond proceeds to nongovernmental persons;

(d) It will not enter into any management contract with respect to the project financed with the proceeds of the Bonds unless it obtains an opinion of nationally recognized bond counsel that such management contract will not impair the exclusion from a recipient’s gross income for federal income tax purposes of the interest on the Bonds;

(e) The Town acknowledges that the continued exclusion of interest on the Bonds from a recipient’s gross income for federal income tax purposes depends, in part, upon compliance with the arbitrage limitations imposed by Section 148 of the Code. The Town covenants to comply with all the requirements of Section 148 of the Code, including the rebate requirements, and it shall not permit at any time any of the proceeds of the Bonds or other funds of the Town to be used, directly or indirectly, to acquire any asset or obligation, the acquisition of which would cause the Bonds to be “arbitrage bonds” for purposes of Section 148 of the Code;

(f) The Bonds are not and shall not be “federally guaranteed” as defined in Section 149(b) of the Code; and

(g) The Town covenants to file or cause to be filed Form 8038G in accordance with Section 149(e) of the Code.

Section 9. Continuing Disclosure Requirement. The Town hereby undertakes, for the benefit of the beneficial owners of the Bonds, to provide:

(a) by not later than seven months from the end of each fiscal year of the Town, to each nationally recognized municipal securities information repository (“NRMSIR”) and to the state information depository for the State of North Carolina (“SID”), if any, audited financial statements of the Town for such fiscal year, if available, prepared in accordance with Section 159-34 of the General Statutes of North Carolina, as it maybe amended from time to time, or any successor statute, or, if such audited financial statements of the Town are not available by seven months from the end of such fiscal year, unaudited financial statements of the Town for such fiscal year to be replaced subsequently by audited financial statements of the Town to be delivered within 15 days after such audited financial statements become available for distribution;

(b) by not later than seven months from the end of each fiscal year of the Town, to each NRMSIR, and to the SID, if any, (i) the financial and statistical data as of a date not earlier than the end of the preceding fiscal year for the type of information included under heading “The Town - Debt Information and - Tax Information” in the Official Statement relating to the Bonds and (ii) the combined budget of the Town for the current fiscal year, to the extent such items are not included in the audited financial statements referred to in (a) above;

(c) in a timely manner, to each NRMSIR or to the Municipal Securities Rulemaking Board (“MSRB”), and to the SID, if any, notice of any of the following events with respect to the Bonds, if material:

(1) principal and interest payment delinquencies;

(2) non-payment related defaults;

(3) unscheduled draws on debt service reserves reflecting financial difficulties;

(4) unscheduled draws on any credit enhancements reflecting financial difficulties;

(5) substitution of credit or liquidity providers, or their failure to perform;

(6) adverse tax opinions or events affecting the tax-exempt status of the Bond;

(7) modification to the rights of the beneficial owners of the Bonds;

(8) bond calls;

(9) defeasances;

(10) release, substitution or sale of any property securing repayment of the Bonds;

(11) rating changes; and

(d) in a timely manner, to each NRMSIR or to the MSRB, and to the SID, if any, notice of a failure of the Town to provide required annual financial information described in (a) or (b) above on or before the date specified.

If the Town fails to comply with the undertaking described above, any beneficial owner of the Bonds may take action to protect and enforce the rights of all beneficial owners with respect to such undertaking, including an action for specific performance; provided, however, that failure to comply with such undertaking shall not be an event of default under the Bonds and shall not result in any acceleration of payment of the Bonds. All actions shall be instituted, had and maintained in the manner provided in this paragraph for the benefit of all beneficial owners of the Bonds.

The Town reserves the right to modify from time to time the information to be provided to the extent necessary or appropriate in the judgment of the Town, provided that any such modification will be done in a manner consistent with Rule 15c2-12 issued under the Securities Exchange Act of 1934, as it may be amended from time to time (“Rule 15c2-12), and provided further that:

(a) any such modification may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the Town;

(b) the information to be provided, as modified, would have complied with the requirements of Rule 15c2-12 as of the date of the Official Statement relating to the Bonds, after taking into account any amendments or interpretations of Rule 15c2-12, as well as any changes in circumstances; and

(c) any such modification does not materially impair the interests of the beneficial owners, as determined either by parties unaffiliated with the Town (such as bond counsel), or by the approving vote of the registered owners of a majority in principal amount of the Bonds pursuant to the terms of this bond resolution, as it may be amended from time to time, at the time of the amendment.

Any annual financial information containing modified operating data or financial information shall explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided.

The provisions of this Section shall terminate upon payment, or provision having been made for payment in a manner consistent with Rule 15c2-12, in full of the principal of and interest on all of the Bonds.

Section 10. Construction Fund. The Director of Finance is hereby directed to create and establish a special fund to be designated “Town of Chapel Hill, North Carolina General Obligation Public Improvement Bonds, Series 2003 Construction Fund” (the “Construction Fund”). The proceeds from the sale of the Bonds shall be deposited in the Construction Fund. Any moneys held in the Construction Fund shall be invested and reinvested by the Director of Finance as permitted by the law of the State of North Carolina, and the income therefrom to the extent permitted by the Code shall be retained in the Construction Fund and used to pay the Cost of Construction, as directed by the Director of Finance. The Director of Finance shall keep and maintain adequate records pertaining to the Construction Fund and all disbursements therefrom. “Cost of Construction” shall include payment of or reimbursement for the following items:

(a) obligations incurred or assumed for the Project in connection with the construction, acquisition, installation and equipping thereof;

(b) the cost of construction, acquisition, installation and equipping of the Project; including, without limitation, legal fees and expenses, inspection costs, permit fees, filing and recording costs and advertising expenses in connection with the acquisition of the Project;

(c) the costs incurred in connection with the Bonds, the initial compensation and expenses of the Registrar and Paying Agent, legal fees and expenses, costs of publication, printing and engraving, and compensation to any financial consultant;

(d) all other costs which are considered to be a part of the costs of the construction, acquisition, installation and equipping of the Project in accordance with generally accepted accounting principles and which will not affect the exclusion from gross income of the recipient thereof for federal income tax purposes of the interest on the Bonds, including sums required to reimburse the Town for advances made by the Town that are properly chargeable to the construction, acquisition, installation and equipping of the Project and interest on the Bonds prior to the date the Project is completed (the “Completion Date”).

Section 11. Rebate Fund. The Director of Finance is hereby directed to create and establish a special fund to be designated “Town of Chapel Hill, North Carolina General Obligation Public Improvements Bonds, Series 2003 Rebate Fund” to which deposits shall be made as provided hereafter if moneys remain in the Construction Fund on a date six (6) months from the date of issuance of the Bonds. Within said Rebate Fund there is hereby created two accounts (i) the Rebate Principal Account and (ii) the Rebate Income Account. The Director of Finance shall make the calculation(s) required by the Investment Instructions provided by bond counsel (the “Investment Instructions”) and shall make deposits and disbursements from the Rebate Fund in accordance with the Investment Instructions. The Director of Finance shall invest the Rebate Fund pursuant to said Investment Instructions and shall deposit income from such investments immediately upon receipt thereof in the Rebate Income Account. The Investment Instructions may be superseded or amended by new Investment Instructions delivered to the Town and accompanied by an opinion of nationally recognized bond counsel addressed to the Town to the effect that the use of said new Investment Instructions will not cause the interest on the Bonds to become taxable to the recipient thereof.

The Director of Finance shall annually make the computation of the Rebate Deposit described in Section 4 of the Investment Instructions. If a deposit to the Rebate Principal Account is required as a result of such computation, the Director of Finance shall, not later than each April 1, deposit an amount sufficient to make such payment. If a withdrawal from the Rebate Principal Account is permitted as a result of such computation, the amount withdrawn shall be applied to the next payment of interest on the Bonds. Records of the determinations required by this Section and Section 4 of the Investment Instructions must be retained by the Director of Finance until six (6) years after the final retirement of the Bonds.

Not later than thirty (30) days after the end of the fifth Bond Year (thirty (30) days after April 1, 2008) and every five (5) years thereafter, the Director of Finance shall pay to the United States ninety percent (90%) of the amount required to be on deposit in the Rebate Principal Account as of such payment date and one hundred percent (100%) of the amount on deposit in the Rebate Income Account as of such payment date. Not later than sixty (60) days after the final retirement of the Bonds, the Director of Finance shall pay to the United States one hundred percent (100%) of the balance remaining in the Rebate Principal Account and the Rebate Income Account. Each payment required to be paid to the United States pursuant to this Section shall be filed with the Internal Revenue Service Center, Ogden, Utah 84201. Each payment shall be accompanied by a statement summarizing the determination of the amount to be paid to the United States.

Section 12. Other Agents. Actions taken by officials of the Town to select paying and transfer agents, and a bond registrar, or alternate or successor agents and registrars pursuant to Section 159E-8 of the Registered Public Obligations Act, Chapter 159E of the General Statutes of North Carolina, are hereby authorized and approved.

Section 13. Purchase of Bonds. The Local Government Commission of North Carolina is hereby requested to (1) sell said Bonds, and (2) state in the Notice of Sale of said Bonds that bidders may name one rate of interest for part of said Bonds and another rate or rates for the balance of said Bonds. Subject to the ensuing sentences in this paragraph, said Bonds shall bear interest at such rates as may be named in the proposals to purchase said Bonds which shall be accepted by said Local Government Commission.

Section 14. Qualified Tax-Exempt Obligation. The Town hereby represents that it reasonably expects that the Town, together with all subordinate entities thereof and any other entities which issue obligations on behalf of the Town, will not issue more than $10,000,000 of tax-exempt obligations (other than private activity bonds, except for qualified 501(c)(3) bonds) during calendar year 2003. The Town hereby designates the Bonds as “qualified tax-exempt obligations” with the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. The Town further represents that it will take no action which will directly or indirectly adversely affect the tax-exempt character of the Bonds, including, but not limited to, the issuance of more than $10 million of tax-exempt obligations during calendar year 2003.

Section 15. Execution and Delivery of Bonds. The Mayor, the Town Manager, the Director of Finance and the Clerk of the Town are hereby authorized and directed to cause said Bonds to be prepared and, when they shall have been duly sold by said Local Government Commission, to execute said Bonds and to turn said Bonds over to the registrar and transfer agent of the Town for delivery to the purchaser or purchasers to whom they may be sold by said Local Government Commission.

Section 16. Actions Ratified; Official Statement Approved. The actions of the Mayor, the Town Manager and the Director of Finance of the Town in applying to the Local Government Commission (the “Commission”) to advertise and sell the Bonds and the action of the Commission in asking for sealed bids for such Bonds by publishing notices and printing and distributing an Official Statement and a Supplement to such Official Statement relating to the sale of such Bonds are hereby ratified and approved. Such Official Statement, to be dated on or about March 14, 2003 and substantially in the form presented at this meeting, is hereby approved, and the Mayor, the Town Manager, and the Director of Finance of the Town are each hereby authorized to approve changes in such Official Statement, to approve such Supplement thereto, and to execute such Official Statement and such Supplement for and on behalf of the Town.

Section 17. Letter of Representations. The Letter of Representations, as requested by DTC in connection with the issuance of the Bonds and in substantially the form presented at this meeting, is hereby approved, and the Mayor, the Town Manager and the Director of Finance of the Town are each hereby authorized to complete and execute such Letter of Representations and to deliver the same to DTC for and on behalf of the Town.

Section 18. Other Actions Authorized. The Mayor, the Town Manager, the Director of Finance, the Town Clerk and the Town Attorney of the Town and such other officers or employees of the Town as are designed by any of them are hereby authorized to do all acts and things required of them by or in connection with this Resolution and all other agreements or documents entered into or executed by the Town in connection with the issuance of the Bonds for the full, punctual and complete performance of all of the terms, covenants and agreements contained in the Bonds and the documents.

Section 19. Amendments and Supplements. This Resolution may be amended or supplemented, from time to time, if in the opinion of nationally recognized bond counsel, such amendment or supplement would not adversely affect the interests of the Bondholders or would not cause the interest on the Bonds to be included in the gross income of a recipient thereof for federal tax purposes.

Section 20. Governing Law. This Resolution shall be construed and governed in accordance with the laws of the State. Jurisdiction for the resolution of any conflict arising from this Resolution shall lie with the General Court of Justice of the State of North Carolina with venue in Orange County, North Carolina.

Section 21. Severability of Invalid Provisions. In case anyone or more of the provisions contained in this Resolution or in the Bonds shall be held to be invalid, illegal or unenforceable in any respect and for any reason, then such invalidity, illegality or unenforceability shall not effect any other provision of this Resolution, and this Resolution shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.

Section 22. Resolution Effective Immediately. This Resolution shall take effect immediately upon its passage.

* * * * * *

Following discussion of the Resolution set forth above, Council Member ________________ moved that the Resolution be adopted by the Town Council, which motion was seconded by Council Member __________________. The resolution was adopted by the following vote:

AYES:

NAYS

* * * * * *

STATE OF NORTH CAROLINA )

)

TOWN OF CHAPEL HILL )

I, Joyce A. Smith, Town Clerk of the Town of Chapel Hill, North Carolina, DO HEREBY CERTIFY, as follows:

1. A regular meeting of the Town Council (the “Council”) of the Town of Chapel Hill, North Carolina (the “Town”), a municipal corporation of the State of North Carolina, was duly held on February 24, 2003, proper notice of such meeting having been given as required by North Carolina statutes, and minutes of said meeting have been duly recorded in the Minute Book kept by me in accordance with law for the purpose of recording the minutes of the Council.

2. I have compared the attached extracts with said minutes so recorded and said extracts are a true copy of said minutes and of the whole thereof insofar as said minutes relate to matters referred to in said extracts.

3. Said minutes correctly state the time when said meeting was convened and the place where such meeting was held and the members of the Council who attended the meeting.

IN WITNESS WHEREOF, I have hereunto set my hand and have hereunto affixed the corporate seal of the Town, this the 24th day of February, 2003.

(SEAL)

Joyce A. Smith, Town Clerk

Town of Chapel Hill, North Carolina

EXHIBIT A

Year of Maturity	Principal Amount	Year of Maturity	Principal Amount

2004	$150,000	2014	$300,000
2005	$150,000	2015	$300,000
2006	$ 75,000	2016	$300,000
2007	$150,000	2017	$300,000
2008	$150,000	2018	$300,000
2009	$150,000	2019	$300,000
2010	$300,000	2020	$300,000
2011	$300,000	2021	$125,000
2012	$300,000
2013	$300,000