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HomeMy WebLinkAboutVarious Purposes ;)~W/C{4u 9lJela/feld & If60d of? . ,. - '~''''...H.~.. , '-, 'i (,,''i?-. "7 I'" r,:J ".' I_~ ~"i f ~ j: 1'/ -', ," ' :1 . . "~'-----'~'':'''~-_.l..... ' : . . ;~PR ? 5 ?n07 . , t""1 ,';1: 'j . i_._ / ; "-N' ." l, "". . :..r:~c"~ t.,:", ,"; I,r..-" ",' . '."..- ONF: CHA3E MANHAT1AN OLAZA NEW YORK. NY 10005 \NW'h.""AWK:NS.COM April 19, 2007 The Town Board of the Town of Southold, in the County of Suffolk, New York Ladies and Gentlemen: We have examlned a record of proceedings relating to the authorization, sale and issuance of$14,650,000 Public Improvement Serial Bonds-2007 (the "Bonds"), of the Town of Southold (the "Town"), in the County of Suffolk, New York. The Bonds are issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, various bor:d resolutions duly adopted by the Town Board on their respective dates, authorizing the issuance of :;crial bonds of the Town to finance various purposes in and for the Town and the Certificate of Determination executed by the Supervisor as of March 27, 2007, determining the terms, form and details of issuance of said $14,650,000 serial bonds and providing for their public sale, The Bonds are dated April 15, 2007, mature on April 15 in the principal amounts in each of the following years, and bear interest at the respective rates per annum payable October 15, 2007 and semiannually thereafter on April 15 and October 15 in each year until maturity, as set forth below: Year of Principal Interest Year of Principal Interest ,Maturity Amount Rate ~aturit)' b.m.ount Rate 2008 $700,000 4,00% 2020 $675,000 4,25% 2009 725,000 4-1/8 2021 675,000 4,25 2010 575,000 4-1/8 2022 675,000 4,25 2011 575,000 4,25 2023 725,000 4.25 2012 600,000 4,25 2024 725,000 4,25 2013 625,000 4,25 2025 725,000 4,25 2014 625,000 4,25 2026 550,000 4,25 2015 625,000 4,25 2027 550,000 4,25 2016 625,000 4.25 2028 550,000 4,25 2017 675,000 4,25 2029 550,000 4.25 20]8 675,000 4,25 2030 550,0()() 4,25 2019 675,000 4,25 The Bonds maturing on or before April 15, 2017 will not be subject to redemption prior to maturity. The Bonds maturing on or after April 15, 2018 will be subject to redemption prior to maturity, at the option of the Town, on April 15, 2017 and thereafter, on any date, in whole or in part, at par, and subject to notice and other condition.s as stated in the Bonds. The Bonds are issued only in fully registered form without interest coupons, in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company, an automated depository for securities and clearinghouse for securities transactions which will maintain a book-entry system for recording the ownership interests in the Bonds. Only one Bond will be initially issued for each maturity in the aggregate principal amount of such maturity. Purchases of ownership interests in the Bonds will be made in book-entry form in denominations of $5,000 or any integral multiple thereof In our opinion, said Bonds are valid and legally binding general obligations of the Town for which the Town has validly pledged its faith and credit and, unless paid from other sources, all the taxable real property within the Town is subject to the levy of ad valorem real estate taxes to pay the Bonds and interest thereon without limitation of rate or amount. The enforceability of rights or remedies with respect to such Bonds may be limited by bankruptcy, insolvency or other laws affecting creditors' rights or remedies heretofore or hereafter enacted. The Internal Revenue Code of 1986, as amended (the "Code"), establishes certain requirements that must be met subsequent to the issuance and delivery of the Bonds in order that interest on the Bonds be and remain excludable from gross income under Section 103 of the Code. The Supervisor of the Town, in executing the Arbitrage and Use of Proceeds Certificate, has certified to the effect that the Town will comply with the provisions and procedures set forth therein and that it will do and perform all acts and things necessary or desirable to assure that interest paid on the Bonds is excludable from gross income under Section 103 of the Code. We have examined such Arbitrage and Use of Proceeds Certificate of the Town delivered concurrently with the delivery of the Bonds, and in our opinion, such certificate contains provisions and procedures under which such requirements can be met. In our opinion, under existing statutes and court decisions, (i) interest on the Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Code, and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering the opinion in this paragraph, we have (i) relied on the representations, certifications of fact, and statements of reasonable expectations made by the Town in the Arbitrage and Use of Proceeds Certificate and others in connection with the Bonds, and (ii) assumed compliance by the Town with certain provisions and procedures set forth in the Arbitrage and Use of Proceeds Certificate relating to compliance with applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. Further, in our opinion, under existing statutes, interest on the Bonds is exempt from personal income taxes of New York State and its political subdivisions, including The City of New York Except as stated above, we express no opinion regarding any other federal or state tax consequences with respect to the Bonds. We render our opinion under existing statutes and court decisions as of the issue date, and we assume no obligation to update our opinion after the issue date to reflect any future action, fact or circumstance, or change in law or interpretation, or otherwise We express no opinion on the effect of any action hereafter taken or not taken in reliance upon an opinion of other counsel on the exclusion from gross income for federal income tax purposes of interest on the Bonds, or on the exemption from state and local tax law of interest on the Bonds. Other than such record of proceedings, we have not been requested to examine or review and have not examined or reviewed the accuracy or sufficiency of the Official Statement, or any additional proceedings, reports, correspondence, financial statements or other documents, containing financial or other information relative to the Town which have been or may hereafter be furnished or disclosed to purchasers of said Bonds, and we express no opinion with respect to any such financial or other information or the accuracy or sufficiency thereof We have examined the executed first numbered Bond of said issue and, in our opinion, the form of said Bond and its execution are regular and proper Very tru~~~~.1 . n Il ~~ ;WPtJtf C (. tJ ~ q)eIa/Ud & 1ttod u(!f> ONE CHASE MANHATTAN PLAZA NEW YORK, NY 10005 'I'NI'N.HAWKIN$.COM April 19, 2007 Ambac Assurance Corporation One State Street Plaza New York, New York 10004 Dear Ladies & Gentlemen: We are bond counsel to the Town of Southold, in the County of Suffolk, New York (the "Town"), and are rendering today our final approving opinion with respect to the Town's $14,650,000 Public Improvement Serial Bonds-2007, dated April 15, 2007. We deliver to you herewith a copy of our approving opinion and advise you that you may rely on such opinion as if it were addressed to you. -ii:l~fliIjldlJ t.tfJ 11' REGISTERED NO. R-l UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 MATURITY DATE INTEREST RATE DATE OF ORIGI ISSUE CUSIP NUMBER April 15, 2008 4.00% 844572 JA6 REGISTERED OWNER: CEDE& CO. PRINCIPAL SUM: SEVEN HUNDRED ~ The TOWN OF S~' ~ the County of Suffolk, a municipal corporation of the State of New York, hereb ~tselfindebted and for value received promises to pay to the REGISTERED n d above, or registered assigns, on the MATURITY DATE (stated above), the IP M (stated above) upon presentation and surrender of this bond at the office of Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New Y ore. sc ent (herein cal led ".FiSCal Agent"), or any successor thereto, and to pay interest on s sum from April 15, 2007 or from the most recent interest payment date to which' t t has been paid at the INTEREST RATE (stated above), payable October 15, 2007 and semIannually thereafter on April 15 and October 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof at his address as it appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the close of business on the last day of the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 MATURITY DATE INTEREST RATE DATE OF ORIG ISS CUSIP NUMBER April 15, 2009 4-118% 844572 JB4 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: SEVEN HUNDRED ~ - VE THOUSAND DOLLARS The TOWN OF S .~ ; the County of Suffolk, a municipal corporation of the State of New York, hereb c ~tselfindebted and for value received promises to pay to the REGISTERED n d above, or registered assigns, on the MATURITY DATE (stated above), the. I M (stated above) upon presentation and surrender of this bond at the office of Clerk, Town of Southold, TownHall, 53095 Main Road, Southold, New Y oresc ent (herein called "Fiscal Agent"),. or any s.uccesso. r thereto, and to pay interest on s sum from April 15, 2007 or from the most recent interest payment date to which. t st has been paid at the INTEREST RATE (stated above), payable October 15, 2007 and semiannually thereafter on April 15 and October 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof at his address as it appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the close of business on the lastday of the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. i . z ~i! "'~ w~ 0", "- 9" . UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 MATURITY DATE INTEREST RATE DATE OF ORIG AL ISSUE CUSIP NUMBER April 15, 2011 4.25%. 844572 JDO REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: FIVE HUNDRED S~- VE THOUSAND DOLLARS The TOWN OF S -CD: the County of Suffolk, a municipal corporation of the State of New York, hereb c ~tself indebted and for value received promises to pay to the REGISTERED 0 ed above, or registered assigns, on the MATURITY DATE (stated above), the. . (stated above) upon presentation and surrender of this bond at the office 0 . rk, Town of South old, Town Hall, 53095 Main Road, . to pay interest on s 'p sum from April 15, 2007 or from the most recent interest payment date to whi int st has been paid at the INTEREST RATE (stated above), payable October.J5, 2007 and lannually thereafter on April 15 and October 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof at his address as it . appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the close of business on the last day of the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency of the United States of. America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTIlER PROVISIONS OF THIS BOND SET FORTH HEREIN. _.."'.....__._'c.".._.",. UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 MATURITY DATE INTEREST RATE DATE OF ORIG ISSUE CUSIP NUMBER 844572 JE8 April 15, .2012 4.25% REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: SIX HUNDRED TH~ ~D,: the County of Suffolk, a municipal corporation of the State of New York, hereb ~~tselfindebted and for value received promises to pay to the REGISTERED 0 n d above, or registered assigns, on the MATURITY DATE (stated above), th~e. . (stated above) upon presentation and surrender of this bond at the office of T C rk, Town of South old, Town Hall, 53095 Main Road, Southold, New Yor IS agent (herein called "Fiscal Agent"), or any successor thereto, and tQ pay interest on h . . . sum from April 15, 2007 or from the most recent interest payment date to whi mte t has been paid at the INTEREST RATE (stated above), payable October 15, 2007 and annually thereafter on April 15 and October 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof at his address as it appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the close of business on the last day of the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided,however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. ~J "'J! w... 0", :" REGISTERED NO. R-6 REGISTERED $625,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 MATURITY DATE INTEREST RATE DATE OF ORIGI ISSUE CUSIP NUMBER April 15, 2013 4.25% 844572 JF5 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: SIX HUNDRED The TOWN OF S T LD, the County of Suffolk, a municipal corporation to pay to the REGISTERED n d above, or registered assigns, on the MATURITY DATE (stated above), the (stated above) upon presentation and surrender of this bond at the office of Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New Y orss gent (herein called "Fiscal Agent''), or any successor thereto, and to pay interest on s sum from April 15, 2007 or from the most recent interest payment date to whic .nt st has been paid at the INTEREST RATE (stated above), payable October 15,2007 and semIannually thereafter on April 15 and October 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof at his address as it appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the close of business on the last day of the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. l ~J mil 0'" "a: u::;; REGISTERED NO. R-7 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 MATURITY DATE INTEREST RATE DATE OF ORIGI ISS CUSIP NUMBER 844572 JG3 April 15, 2014 4.25% REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: SIX HUNDREDr~ THOUSAND DOLLARS The TOWN OF ~ the County of Suffolk, a municipal corporation oftheSfute of New York, hereb ow dges itself indebted and for value received promises to pay to the REGISTERE ed above, or registered assigns, on the MATURITY DATE (stated above), th IP SUM (stated above) upon presentation and surrender of this bond at the offif2e wn Clerk, Town of Southold, Town Hall, 53095 Main Road, Southo.ld, New Yor . I ent (herein c~led "Fiscal Agent"), or any success~rthereto, and to pay mterest on suc al sum from Apn115, 2007 or from the most recent mterest . payment date to which rest has been paid at the INTEREST RATE (stated above), payable . October 15, 2007 and semiannually thereafter on April 15 and October 15 in eaclryear until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof at his address as it appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the close of business on the last day of the. month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. REGISTERED NO. R-8 REGISTERED $625,000 UMTED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 April 15, 2015 4.25% CUSIP NUMBER 844572 JHl .MATURlTY DATE INTEREST RATE REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: SIX HUNDRED r~ THOUSAND DOLLARS The TOWN OF T ~ the County of Suffolk, a municipal corporation of the State of New York, herel, ciw dges itself indebted and for value received promises to pay to the REGISTERE ed above, or registered assigns, on the MATURITY DATE (stated above), th IP SUM (stated above) upon presentation and surrender of this bond at the Offi~ wn Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New Yor. ent (herein called "Fiscal Agent"), or any succe. ssor thereto, and to pay interest on suc prin al sum from April 15, 2007 or from the most recent interest payment date to which est has been paid at the INTEREST RATE (stated above), payable October 15,2007 and semiannually thereafter on April 15 and October 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof at his address as it appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the close of business on the last day of the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. REGISTERED NO. R-9 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 MATURITY DATE INTEREST RATE CUSIP NUMBER April 15, 2016 4.25% 844572 JJ7 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: SIXHUNDREDr~ The TOWN OF ~ the County of Suffolk, a municipal corporation of the State of New York, hereS ow ges itself indebted and for value received promises to pay to the REGISTERE ed above, or registered assigns, on the MA TURlTY DATE (stated above), th IPA SUM (stated above) upon presentation and surrender of this bond at the offi~e wn Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New Yo ent (herein called "Fiscal Agent''), or any succe. ssor thereto, and to pay interest on suc ri aI sum from April 15,2007 or from the most recent interest . .payment date to which rest has been paid at the INTEREST RATE (stated above), payable October 15, 2007 and semiannually thereafter on April 15 and October 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof at his address as it appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the close of business on the last day of the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin Or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. '" .; ::; .. ~ REGISTERED NO. R-12 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 . MATURITY DATE INTEREST RATE April 15, 2019 4.25% CUSIP NUMBER 844572 JMO REGISTERED OWNER: CEDE & CO.X~ PRINCIPAL SUM: SIX HUNDRE~~- VE THOUSAND DOLLARS The TOWN OF U ~n the County of Suffolk, a municipal cOiporation of the State of New York, h 0 . dges itself indebted and for value received promises to pay to the REGISTE 0 ed above, or registered assigns, on the MATURITY DATE (stated above), the CIP, SUM (stated above) upon presentation and surrender of this. bond at the Offi~" 0 the wn Clerk, Town of South old, Town Hall, 53095 Main Road, - Southold, New Yo gent (herein called "Fiscal Agent"), or any successor the. reto,. an d to pay interest on such . pal sum from April 15 , 2007 or from the most recent interest . payment date to which mterest has been paid at the INTEREST RATE (stated above), payable October 15,2007 and semiannually thereafter on April 15 and October 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the town' or its agent on each interest payment date to the registered owner hereof at his address as it appears on the registration books of the Town maintained, by the Fiscal Agent mat such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the . close of business on the last day of the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid'by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. REGISTERED NO. R-15 .. .; ::i .. UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD ~ PUBLIC IMPROVEMENT SERIAL BOND-2007 . MATURITY DATE INTEREST RATE April 15, 2022 4.25% . CUSIP NUMBER 844572JQl REGISTERED OWNER: CEDE & CO. PRIj'I'CIP AL SUM: SIX HUNDRED VE THOUSAND DOLLARS The TOWN OF the County of Suffolk, a municipal cOfporation of the State of New York, here dges itself indebted and for value received promises to pay to the REGlSTE ed above, or registered assigns, on the MATURITY DATE (stated above),th IP SUM (stated above) upon presentation and surrender of this bond at the offi. tIi owri Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New Yo ent (herein called "Fiscal Agent"); or any successor thereto, and to pay interest on suc pal sum from April 15, 2007 or from the most recent interest payment date to whicn erest has been paid at the INTEREST RATE (stated above), payable October 15, 2007 and semiannually thereafter on April 15 and October 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof athis address as it appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished. in writing by such registered owner to the Fiscal Agent as of the close of business on the last day of the month preceding each interest payment date. The principal o.f and interest on this bond are payable in any coin or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. l ~l "'~ llj'" ",a: ..:;; ~) ffi! 0'" ",0: .." .---------,-, -,,_.-: REGISTERED NO. R-19 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2007 . MATURITY DATE INTEREST RATE CUSIP NUMBER April 15, 2026 4.25% . 844572 JU2 REGISTERED OWNER: PRI.NCIPAL SUM: FIVE HUNDRE The TOWN OF. ill the County of Suffolk, a municipal cOIporation of the State of New York, here dges itself indebted and for value received promises to pay to the REGlSlERE; . ed above, or registered assigns, on the MATURITY DAlE (stated above), th IP SUM (stated above) upon presentation and surrender of this bond at the offi th oWIi Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New Yo ent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on su pal sum from April 15, 2007 or from the most recent interest payment date to whicn rest has been paid at the INTEREST RAlE (stated above), payable October 15, 2007 and semiannually thereafter on April 15 and October 15 in each year until mahirity. Interest hereon shall be payable by wire transfer or clearinghouse funds by the Town or its agent on each interest payment date to the registered owner hereof at his address as it appears on the registration books of the Town maintained by the Fiscal Agent or at such other address as may be furnished in writing by such registered owner to the Fiscal Agent as of the close of business on the last day of the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency of the United States of America which, at the date of payment, is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire transfer or clearinghouse funds as set forth above. REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. . .; :; ~ ~ ~-- <( .. =i .. ~ J ~! ..J! W... 00: "'- ,," -,-_.~",..~.--~_...,.._"." Town of South old, New York Public Improvement Serial Bond-2007 This bond is one of an authorized issue, the aggregate principal amount of which is $14,650,000, the bonds of which are of like tenor, except as to number, denomination, interest rate and maturity, and is issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York (the "Law"), various bond resolutions duly adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds of the Town to finance various purposes in and for the Town, and the Certificate of Determination executed by the Supervisor as of March 27, 200; termining the terms, form and details of issuance of said '$14,650,000 serial bonds (the" d providing for the _ . public sale thereof (the "Certificate of Determination")~ . . .. The Bonds are iss~able in the f?rm of b s WIthout coupons in denommatlOns of $5,000, or any mtegral multIple the . This Bond is transferable or e~ provided in the Certificate of Determination, only upon the books of th 0 k for that purpose at the office of the Fiscal Agent, by the registered owner hereof i erson y his attorney duly authorized in writing, upon the surrender of this Bond tog th with a 'tten instrument of transfer or exchange satisfactory to the Fiscal Agent. e e the registered owner or his attorney duiy authorized in writing, and ther ne Bond or Bonds, in the same aggregate jJrincipal . amount and of the same. ; issued to the transferee or the registered owner in charges, If any, ther~e ed. . The s turing on or before April 15, 2017 will not be subject to redemption prior to maturity, The s maturing on or after April 15, 2018 will be subject to redemption prior to maturity, at the option of the Town, on April 15, 2017 and thereafter on any date, in whole or in part, and if in part, in any order of their maturity and in any amount within a maturity (selected by lot within a maturity), at par, plus accrued interest to the date of redemption. The Bonds shall be redeemable prior to maturity upon the giving of notice which identifies the bonds to be redeemed, by mailing such notice to the registered holders thereof at their respective addresses as shown upon the registration books of the Fiscal Agent at least 30 days prior to the dates set for any such redemption. If notice of redemption shall have been given as aforesaid, the Bonds so called for redemption shall become due and payable at the applicable redemption price on the redemption date designated in such notice, and interest on such Bonds shall cease to accrue from and after such redemption date. I il ifli 0", "'- Qo: Hawkins Delafield & Wood LLP One Chase Manhattan Plaza New York, New York 10005 The Town Board of the Town of Southold, in the County of Suffolk, New York Interest Year of Principal Interest Rate Maturity Amount Rate 2008 $700,000 4.00% 2020 $675,000 4.25% 2009 725,000 4-1/8 2021 675,000 4.25 2010 575,000 4-1/8 2022 675,000 4.25 2011 575,000 4.25 2023 725,000 4.25 2012 600,000 4.25 2024 725,000 4.25 2013 625,000 4.25 2025 725,000 4.25 2014 625,000 4.25 2026 550,000 4.25 2015 625,000 4.25 2027 550,000 4.25 2016 625,000 4.25 2028 550,000 4.25 2017 675,000 4.25 2029 550,000 4.25 2018 675,000 4.25 2030 550,000 4.25 2019 675,000 4.25 The Bonds maturing on or before April 15, 2017 will not be subject to redemption prior to maturity. The Bonds maturing on or after April 15, 2018 will be subject to redemption prior to maturity, at the option of the Town, on April 15, 2017 and thereafter, on any date, in whole or in part, at par, and subject to notice and other conditions as stated in the Bonds. The Bonds. are issued only in fully registered form without interest coupons, in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company, an automated depository for securities and clearinghouse for securities transactioris which will maintain a book-entry system for recording the ownership interests in the Bonds. Only one Bond will be, initially issued for each maturity in the aggregate prinCipal amount of such maturity. Purchases of ownership interests in the Bonds will be made in book-entry form in denominations of $5,000 or any integral multiple thereof. In our opinion, said Bonds are valid and legally bin . Town for which the Town has' validly pledged its faith and cr . _sources, all the taxable real property within the Town is su ct estate taxes to pay the Bonds and interest thereon Witho . tlo '.enforceability of rights or remedies .with respect to s s insolvency or other laws affecting creditors' rights or general obligations of the ess paid from other e of ad vworem real f rate or amount. The be limited by bankruptcy, eretofore or hereafter enacted. The Internal Revenue Code o~ ended (the "Code''), establishes certain requirements that must be met subseque . . ss ce and delivery of the Bonds in order that interest on the Bonds be and remain.' cluda e om gross income under Section 103 of the Code. The Supervisor of the To i ecu' g the Arbitrage and Use of Proceeds Cllrtificate, has certified to the effect that 0 mply with the provisions and procedures set forth therein and that it will do and acts and things necessary or desirable to assure that interest paid on the Bond' I '. m gross income under Section 103 of the Code. We have examined such . e an Use of Proceeds Certificate of the Town' delivered provisions and pro' d which such requirements can be met. . In our lOn, under existing statutes and court decisions, (i) interest on the Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Code, and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax imposed. on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering the opinion in this paragraph, we have (i) relied on the representations, certifications of fact, and statements of reasonable expectations made by the Town in the Arbitrage and Use of Proceeds Certificate and others in connection with the Bonds, and (ii) assumed compliance by the Town with certain provisions and procedures set forth in the Arbitrage and Use of Proceeds Certificate relating to compliance with applicable requirements of the Code to assure the exclusion of interest on the . Bonds from gross income under Section 103 of the Code. Further, in our opinion, under existing statutes, .interest on the Bonds is exempt from personal income taxes of New York State and its political subdivisions, including The City of New York. J ~'" <.OJ! w... g", g'! ...._-,-~.~".~_.....,-...... 7 THE DEPOSITORY TRUST COMPANY 5 5 Water Street New York, New York 10041 Attention: Phone: Telecopy: Underwriting Packaging Department (212) 558-8520 (212) 344-1533 SUBJECT TO COUNT AND EXAMINATION SAFEKEEPING AGREEMENT Ref: (Description of issue, number of certificates, number of CUSIPs assigned to issue and $ value of securities) Town of Soutbold, in tbe County of Suffolk, New York $14,650,000 Public Improvement Serial Bonds-2007, dated April 15, 2007, maturing April 15, 2008-2030 CUSIP # 844572 JA6-JY4 (TWENTY-THREE CERTIFICATES) $ VALUE $14,650,000 The Depository Trust Company (DTC) acknowledges receipt from Hawkins Delafield & Wood LLP (the trustee, transfer agent, underwriter or other agent of tbe issuer, hereafter referred to as tbe "Agent") of possession, custody and control of tbe above securities for safekeeping. DTC is autborized to hold tbese securities in safekeeping until DTC is instructed by telephone or in writing by one of the below designated representatives of the Agent eitber to: (1) deliver tbe securities by book-entry to the DTC account of tbe lead underwriter (or to tbe DTC account of its clearing agent) or (2) return tbe said securities to tbe Agent. In tbe event DTC is instructed to return said securities, DTC shall return tbe securities to tbe Agent as soon as practicable, but, in any event, no later !ban tbe DTC business day following tbe day such instruction is received. DTC shall hold tbe Agent, its officers and employees, hannless from any liability, loss, damage, and reasonable expense of any kind in connection witb any loss, damage, tbeft or destruction of any kind of said securities while tbey are in tbe possession, custody or control of DTC, its officers or employees or in tbe event securities are released from tbe control of DTC witbout tbe specific approval of tbe Agent pursuant to this Safekeeping Agreement. mE AGENT The Depository Trust Company By: By: \4Qf;hf~ Title: Title: SUPERVISOR Date: Date: /f- (~ r of PRINT NAME ORGANIZATION t'.,'-_ ~EPiIDNE NO. ~ -'. "" = = ~ c':>,o. ~ Authorized Representative of Trustee/Agent PRINT NAME ORGANlZA TION PRINT NAME ORGANIZATION -rnLEpHONE NO m .., "..," DTC accepts authorization of closings on the phone number listed below: (212) 855-3752 (212) 855-3753 (212) 855-3755 (212) 855-3754 "'@LEDHONE NO ~ ...:~--' C& c..: r~) "'-""-" -:-:;::) ..:.~ ;; z ..., 521107.1030614 MSC ........, IU"....YI Y.....y"t rnn LIL "tOY 03oJO;J nuuo)!:. veL. I 01 ....nuo)o) IgJ VVij/VVij , CIH' PSN r.UP OSN 08:39:27 0100 .. Goe iNQUIRY CVRRENT 1 OF .* PGFP V 7~57 RN SEQ 0000300 DATE 07/04/19(109) 10 G REC ENTER 08:00.49 ) MAL SITE lllU<L AI,ERT ~T REGN 0100 ' INl'VT [{EY 0419 B1QGC02C 000825 !\ECYCLE 00 l\,Ssoc"i'trn ',--.-- . REF I KEY .~~TUS eo - DE8IT/ 0666~~530 f'J;C FE 01 7' NON E ROOSEVELT & caoss INC ONE EXCHl\NeE E'LAz:A * + 55 BROADWAY 22ND FLOOR NBW YORK NY 10007- DR VAL DATE OR AnV caclI CR VAJ., DATt 19 APR 07 FONDS S CBJIM ORG DATE 19 APR 07 ORG TRN MAIL OF 07/0V1.9 AMOONt 31,000.00 ORO cus ORO SK Cllil:lnT ABA/02100008!l CITIBANK NYC OR PAY CI'l'IBANK FE OJ . . NON E . . NEW YORK NY 10043-0001. llN RRN MAIL OF 07/01/19 ell. ADV r:F1CH CBl\M Tl' ADV SNTYP N CMCH CM/lM AeCNT /40609486 AHBAC PARTY ~ ~_.,. OT.T BENE DETATL REF TOWll OF 50UTII01.O NY PAYMT 8ANKI BANK PRIORITy PRE APPROVE 0 PHONED MESSAGE INvt NEXT SEQ 10 DATE ERR TEXT Al"rION eTS INFO PROCESS DATE 2007/109 E'R5SS I'FG TO l\ETtlIlN V d 8~l000008v 'oN/we '.LS/5y:e LO ,61 'y (OHL) !'lOR.!! oV'T1 ''''1 "-YV' V....Y.,. ,nn "-,"- .,....v ............. nuu<,)t;. y t;.L I 01 ,-,nu<,)<,) Ift:I VV~I VVo,) 19Apr07 08,39: ..f)-l;{)O .. GOC INQUIRY C(lR!lENT 1 Of 1 TYPE TRN SEQ 0000200 DATE 07/04/19(109) IO G! REC E CE MAL SITE SRKL ALERT COST eHP PSN INPUT KEY 0419 BIQGC06C 000847 RECYCLE 00 ASSOC TRN Clip OSN RJ::, I n;y '::~TUS 80 ROOSEVELT ~ CROSS INC ONE EltClIANGE PLAZA . . 55 BROADNAY 22ND FLOOR NEW YORK NY 10007. OR VAL DATE DR ADV caCH ell. VAL DATE 19 Aii'll. 07 FUNDS S CBAM ORG DATE U Ali'R 07 DEBIT/ 06662~~30 Rec FE 01 .. NON E ORG TRN HAIL OF 07/04/19 AMOUNT 14,363,880,54 ORD CUS ORO BK CREDIT ABA/021107912 OR 1'1\'( FE 01 . + NON E . . BN RRN MIll I, OF 07/04/19 CR ADV II? AUV BNTYP N ACCNT /0124108630 PARTY ULT BENE DETArL REF T/O SOUTHOLD NY I?AYMT <" ~--. BANK/ BANK PRIORITY MESliAClE NEXT SEQ ACTION CTS PRE APPROVE D IC DATE INFO PllESS l'F6 TO RETURN PROCESS DATE 2007/109 NORTH fORK BANK 1001 AVENU~ OF THE AMERICAS NElli YORl< NY CIlCH CIlAM CMCH CMAM TOWN OF SOUTROLD Nr PHONE:D ItlV. ERR TEXT l d e~lOOOOOeV 'ON/vH 'lS/~v: e LO ,61 'v (ORI) WOHd - l SUPERVISOR'S CERTIFICATE OF A WARD I, SCOTT A. RUSSELL, Supervisor of the Town of Southold, in the County of Suffolk, New York (the "Town"), HEREBY CERTIFY AND REPORT AS FOLLOWS: I. On April 10, 2007, at 11 :00 0' clock A.M. (Prevailing Time), bids were received at the offices of Munistat Services, Inc., 12 Roosevelt Avenue, Port Jefferson Station, New York. 2. At that time and place, six (6) sealed bids were received for the purchase of $14,650,000 Public Improvement Serial Bonds-2007 of the Town (the "Bonds") pursuant to the Notice of Sale of said Bonds heretofore duly published in conformity with the requirements of the Certificate of Determination executed by the Supervisor as of March 27, 2007, and said bids were thereupon opened and publicly read. 3. The sealed bids so opened and publicly read were each in legally acceptable form and were each accompanied by the check required by said Notice of Sale and constituted signed proposals to purchase all of the Bonds. 4. Forthwith upon receiving, opening, reading and considering said sealed bids, I caused to be publicly announced that Roosevelt & Cross, Inc., and Associates, New York, New York was the successful bidder to whom the bonds are to be awarded, at the purchase price of $14,650,000.00 together with interest at the rates to be borne by the Bonds from the date of the Bonds to the date of payment of the purchase price, said bid of said successful bidder being the best bid received under the terms of the Notice of Sale therefor and providing the lowest net interest cost over the life ofthe Bonds, computed as follows: '''_'''.~'C l Gross Interest ..... ..... .... ... .............. ............... ... ...... ........ Less Premium Bid Over Par......................................... Net Interest Cost. ......... ..... .............. ........... ... ... ............. Net Interest Rate....... ......... ........................................... $7,358,468.75 0.00 $7,358,468.75 4.2467% 5. As designated by the aforementioned successful bidder, said Bonds shall bear interest from their date in each year until maturity at the respective rates per annum stated in the following table: Bonds maturing in the year 2008, at 4.00%; Bonds maturing in the years 2009 and 2010, at 4-1/8%; and Bonds maturing in each of the years 2011 to 2030, inclusive, at 4.25%, such rates of interest being the rates necessary for the Town to sell said Bonds. 6. I thereupon returned to said other bidders the Good Faith Check (as defined in the Notice of Sale of the Town dated March 27, 2007) received, if any, with their aforesaid sealed bids. 7. Said Bonds will be delivered to the said successful bidder hereinabove referred to upon receipt of payment in accordance with the provisions of the Notice of Sale. IN WITNESS WHEREOF, I have hereunto set my hand as of the IOth day of April'2007'/~~ Supervisor ~""'Jl ---- TOWN CLERK'S CERTIFICATE I, ELIZABETH A. NEVILLE, Town Clerk of the Town of Southold, in the County of Suffolk, New York, HEREBY CERTIFY that I have compared the foregoing Certificate of Award of the Supervisor and the same is a true and complete copy of said Certificate filed with the Town Board on or before April 19, 2007. I FURTHER CERTIFY that no resolution electing to reassume any of the powers or duties delegated to the Supervisor by the resolutions cited in the Certificate of Determination referred to in said Certificate of Award, has been adopted by said Town Board. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the r-- corporate seal of said Town, this 10 day of April, 2007. (SEAL) D,i~AdIO rt-"jA~ Town Cler . UNDERTAKING TO PROVIDE CONTINUING DISCLOSURE Section 1. Definitions "Annual Information" shall mean the information specified in Section 3 hereof. "GAAP" shall mean generally accepted accounting principles as in effect from time to time in the United States. "Holder" shall mean any registered owner of the Securities and any beneficial owner of Securities within the meaning of Rule l3d-3 under the Securities Exchange Act of 1934. "Issuer" shall mean the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York. "MSRB" shall mean the Municipal Securities Rulemaking Board established in accordance with the provisions of Section l5B(b )(1) of the Securities Exchange Act of 1934. "NRMSIR" shall mean each nationally recognized municipal securities information repository within the meaning of Rule 15c2-12. "Rule l5c2-12" shall mean Rule 15c2-12 under the Securities Exchange Act of 1934, as amended through the date of this Undertaking, including any official interpretations thereof. "Securities" shall mean the Issuer's $14,650,000 Public Improvement Serial Bonds-2007, dated April 15, 2007, maturing in various principal amounts on April 15 in each of the years 2008 to 2030, inclusive, and delivered on the date hereof. "State Information Depository" shall mean the New York State Information Depository, if and when created. Section 2. Obligation to Provide Continuing Disclosure. (a) The Issuer hereby undertakes, for the benefit of Holders of the Securities, to provide or cause to be provided either directly or through Munistat Services, Inc., 12 Roosevelt Avenue, Port Jefferson Station, New York 11776: (i) to each NRMSIR and to the State Information Depository, no later than 180 days after the end of each fiscal year, the Annual Information relating to such fiscal year, together with audited financial statements of the Issuer for such fiscal year if audited financial statements are then available; provided, however, that if audited financial statements are not then available, unaudited financial statements shall be provided with the Annual Information, and audited financial statements, if any, shall be delivered to each NRMSIR and to the State Information Depository within thirty (30) days after they become available and in no event later than 360 days after the end of each fiscal year; and (ii) to (a) each NRMSIR, or to the MSRB, and to (b) the State Information Depository, in a timely manner, notice of any of the following events with respect to the Securities, if material: (I) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on 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 Securities; (7) modifications to rights of Securities holders; (8) bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Securities; and (II) rating changes. (iii) to (a) each NRMSIR, or to the MSRB, and to (b) the State Information Depository, in a timely manner, notice of a failure to provide by the date set forth in Section 2(a)(i) hereof any Annual Information required by Section 3 hereof. (b) Nothing herein shall be deemed to prevent the Issuer from disseminating any other information in addition to that required hereby in the manner set forth herein or in any other manner. If the Issuer disseminates any such additional information, the Issuer shall have no obligation to update such information or include it in any future materials disseminated hereunder. (c) Nothing herein shall be deemed to prevent the Issuer from providing notice of the occurrence of certain other events, in addition to those listed above, if the Issuer determines that any such other event is material with respect to the Securities; but the Issuer does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above. Section 3. Annual Information. (a) The required Annual Information shall consist of the financial information and operating data for the preceding fiscal year, in a form generally consistent with the information contained or cross-referenced in the Issuer's final official statement relating to the Securities under the headings: "The Town," "Economic and Demographic Information," "Indebtedness ofthe Town,"" Finances of the Town," "Real Property Tax Information," and "Litigation," and in Appendix A. (b) All or any portion of the Annual Information may be incorporated in the Annual Information by cross reference to any other documents which have been filed with (i) the NRMSIRs and the State Information Depository, or (ii) the Securities and Exchange Commission. If such a document is a final official statement, it also must be available from the MSRB. (c) Annual Information for any fiscal year containing any modified operating data or financial information (as contemplated by Section 7(e) hereof) for such fiscal year shall explain, in narrative form, the reasons for such modification and the effect of such modification on the Annual Information being provided for such fiscal year. If a change in accounting principles is included in any such modification, such Annual Information shall present a comparison between the financial statements or information prepared on the basis of the modified accounting principles and those prepared on the basis of the former accounting principles. Section 4. Financial Statements. The Issuer's annual financial statements for each fiscal year shall be prepared in accordance with GAAP as in effect from time to time. Such financial statements shall be audited by an independent accounting firm. Section 5. Remedies. If the Issuer shall fail to comply with any provision of this Undertaking, then any Holder of Securities may enforce, for the equal benefit and protection of all Holders similarly situated, by mandamus or other suit or proceeding at law or in equity, this Undertaking against the Issuer and any of the officers, agents and employees of the Issuer, and may compel the Issuer or any such officers, agents or employees to perform and carry out their duties under this Undertaking; provided that the sole and exclusive remedy for breach of this Undertaking shall be an action to compel specific performance ofthe obligations of the Issuer hereunder and no person or entity shall be entitled to recover monetary damages hereunder under any circumstances. Failure to comply with any provision of this Undertaking shall not constitute an event of default on the Securities. Section 6. Parties in Interest. This Undertaking is executed and delivered solely for the benefit of the Holders. No other person shall have any right to enforce the provisions hereof or any other rights hereunder. Section 7. Amendments. Without the consent of any holders of Securities, the Issuer at any time and from time to time may enter into any amendments or changes to this Undertaking for any of the following purposes: (a) to comply with or conform to any changes in Rule 15c2-12 (whether required or optional); (b) to add a dissemination agent for the information required to be provided hereby and to make any necessary or desirable provisions with respect thereto; (c) to evidence the succession of another person to the Issuer and the assumption of any such successor of the duties of the Issuer hereunder; (d) to add to the duties of the Issuer for the benefit of the Holders, or to surrender any right or power herein conferred upon the Issuer; (e) to modify the contents, presentation and format of the Annual Information from time to time to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the Issuer or to reflect changes in the identity, nature or status of the Issuer or in the business, structure or operations of the 'Issuer or any mergers, consolidations, acquisitions or dispositions made by or affecting any such person; provided that any such modifications shall comply with the requirements of Rule 15c2-12 or Rule 15c2-12 as in effect at the time of such modification; or (f) to cure any ambiguity, to correct or supplement any provision hereof which may be inconsistent with any other provision hereof, or to make any other provisions with respect to matters or questions arising under this Undertaking which, in each case, comply with Rule 15c2-12 or Rule 15c2-12 as in effect at the time of such amendment or change; provided that no such action pursuant to this Section 7 shall adversely affect the interests of the Holders in any material respect. In making such determination, the Issuer shall rely upon an opinion of nationally recognized bond counsel. Section 8. Termination. This Undertaking shall remain in full force and effect until such time as all principal, redemption premiums, if any, and interest on the Securities shall have been paid in full or the Securities shall have otherwise been paid or legally defeased pursuant to the their terms. Upon any such legal defeasance, the Issuer shall provide notice of such defeasance to each NRMSIR or the MSRB, and the State Information Depository. Such notice shall state whether the Securities have been defeased to maturity or to redemption and the timing of such maturity or redemption. Section 9. Undertaking to Constitute Written Agreement or Contract. This Undertaking shall constitute the written agreement or contract for the benefit of Holders of Securities, as contemplated under Rule 15c2-l2. Section 10. Governing Law. This Undertaking shall be governed by the laws of the State of New York determined without regard to principles of conflict of law. IN WITNESS WHEREOF, the undersigned has duly authorized, executed and delivered this Undertaking as of April 19, 2007. B:OWNOFS~k~ Supervisor and Chief Fiscal Officer ~--- - .....-.."^"..." .----".--.-...- - --",_.,.......... CLOSING CERTIFICATES RELATING TO THE BONDS OF THE TOWN OF SOUTHOLD, IN THE COUNTY OF SUFFOLK, NEW YORK ** ** ** OFFICERS' CERTIFICATE AS TO SIGNATURES AND LITIGATION WE, the undersigned officers of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Issuer", HEREBY CERTIFY that on or before the date hereof, each of the Issuer's $14,650,000 Public Improvement Serial Bonds-2007 (the "Bonds"), dated April 15, 2007, and more fully described in Schedule X attached hereto and hereby made a part hereof, were duly and completely executed in the name and on behalf of the Issuer by the manual signatures of the undersigned officers of the Issuer, each of whom did and does hereby adopt such respective signatures, and the impressing thereon of the official seal of the Issuer, and that on the date hereof, we are the duly chosen, qualified and acting officers of the Issuer holding the respective offices indicated by the official titles set opposite our several signatures hereto, for terms expiring on the respective dates set opposite such titles. WE FURTHER CERTIFY that the seal which is impressed upon this certificate has been impressed upon each of the Bonds and is the legally adopted, proper and only official corporate seal of the Issuer. WE FURTHER CERTIFY that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of said Bonds or the levy or collection of any taxes to pay the interest on or principal of said Bonds, or in any manner questioning the authority or proceedings for the issuance of said Bonds or the levy or collection of said taxes, or relating to said Bonds or affecting the validity thereof or the levy or collection of said taxes, that neither the corporate existence or boundaries of the Issuer nor the title of any of the present officers thereof to their respective offices is being contested, that no authority or proceedings for the issuance of said Bonds has or have been repealed, revoked or rescinded, and that no Bonds of the Issuer have been heretofore issued under or pursuant to such proceedings. IN WITNESS WHEREOF, we have hereunto set our hands and said corporate seal has hereunto been affixed as of the 19th day of April, 2007. S~ATURE ~~ ~"J)A f'JO:'lzd() --q~~.,jJ,/ OFFICIAL TITLE TERM OF OFFICE EXPIRES Supervisor December 31, 2007 Town Clerk December 31, 2007 (SEAL) ATTORNEY'S CERTIFICATE I, Patricia Finnegan, HEREBY CERTIFY that I am a licensed attorney at law of the State of New York, having offices at 53095 Main Road, Southold, New York, and am the duly chosen, qualified and acting Town Attorney of the Issuer hereinafter named, that I am familiar with the acts and proceedings heretofore had and or taken by said Issuer or by its officers relative to the authorization, sale and issuance of $14,650,000 Public Improvement Serial Bonds-2007, of the Town of South old, in the County of Suffolk, a municipal corporation of the State of New York, and herein referred to as the "Issuer", all as described and set forth in Schedule X annexed hereto and by this reference made a part hereof; that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of said Bonds or the levy or collection of any taxes to pay the interest on or principal of said Bonds, or in any manner questioning the authority or proceedings for the issuance of said Bonds or for the levy or collection of said taxes, or relating to said Bonds or affecting the validity thereof or the levy or collection of said taxes; that neither the corporate existence or boundaries of the Issuer nor the title of any of the present officers thereof to their respective offices is being contested; and that no authority or proceedings for the issuance of said Bonds has or have been repealed, revoked or rescinded. I HEREBY FURTHER CERTIFY that there is no controversy or litigation of any nature now pending or threatened by or against the Issuer, wherein an adverse judgment or ruling could have a material adverse impact on the financial condition of the Issuer or adversely affect the power of the Issuer to levy, collect or enforce the collection oftaxes or other revenues for the payment of the Bonds, which has not been disclosed in the Official Statement relating to the Bonds. IN WITNESS WHEREOF, I have hereunto set my hand as of the 19th day of April, 2007. CERTIFICATE OF DELIVERY AND PAYMENT I, SCOTT A. RUSSELL, the duIy elected, qualified and acting Supervisor ofthe Issuer hereinafter named, HEREBY CERTIFY that on the 19th day of April, 2007, I delivered or caused to be delivered to Roosevelt & Cross, Inc., and Associates, New York, New York, the purchaser thereof, $14,650,000 aggregate principal amount of Public Improvement Serial Bonds- 2007 (the "Bonds") of the Town of South old, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Issuer", each duly and completely executed by or on behalf of the Issuer and all as described and set forth in Schedule X annexed hereto and by this reference made a part hereof, and that at or before the time of such delivery of said Bonds, I received from said purchaser the following amounts: Received prior to such delivery .....................................................$ Received at time of such delivery ..................................................$ Total amount received..................... .................... ..... ..... .... ....... ......$ 293,000.00 14.363.880.54 14,656,880.54 being full payment for said Bonds in accordance with the contract of sale thereof, computed as follows: Contract Price... .... ......... ........... ...... .... ....... .... ..... .... ..... ..... .... ......... ...$14,650,000.00 Interest on said Bonds accrued to the date of delivery ...................... 6.880.54 Total .... ........... .... .......... .................. ...... .... .... ..... .... ..... ..... .... ... ... ... ...$14,656,880.54 I FURTHER CERTIFY that at the time of such delivery of said Bonds, a written opinion was rendered by the law firm of Hawkins Delafield & Wood LLP, dated as of the date of such delivery, as to the validity of said Bonds, said opinion (except as to omission of the date of such delivery) having been printed on each of said Bonds. IN WITNESS WHEREOF, I have hereunto set my hand as of the 19th day of April, 2007. ,~~ ,.-V/ Supervisor SCHEDULE X Bonds of the TOWN OF SOUTHOLD, NEW YORK, substantially in form, and offered for sale and sold, as provided by the Certificate of Determination executed by the Supervisor as of March 27, 2007 and to be delivered thereunder in the aggregate principal amount of$14,650,000. Number ofIssues: 1 Amount and Title: $14,650,000 Public Improvement Serial Bonds- 2007 Dated: April 15, 2007 Denominations, Numbers and Letters: In the form of registered Bonds without coupons in denominations of $5,000 or integral multiples thereof, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York, numbered separately and consecutively upward with the letter "R" prefixed thereto. Place of Payment of Principal and Interest: The office ofthe Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York (the "Fiscal Agent"). Interest payable by wire transfer or in clearinghouse funds by the Town or its agent on each interest payment date to the person in whose name the bond is registered at the address shown on the registration book maintained by the Fiscal Agent as of the close of business on the last day of the month preceding each such interest payment date. Maturities, Interest Rates and Pavment Dates: Mature on April 15 in the principal amounts in each of the following years and bear interest at the respective rates per annum, payable October 15, 2007 and semiannually thereafter on April 15 and October 15 in each year until maturity, as set forth below: Year of Principal Interest Year of Principal Interest Maturitv Amount Rate Maturitv Amount Rate 2008 $700,000 4.00% 2020 $675,000 4.25% 2009 725,000 4-118 2021 675,000 4.25 2010 575,000 4-118 2022 675,000 4.25 2011 575,000 4.25 2023 725,000 4.25 2012 600,000 4.25 2024 725,000 4.25 2013 625,000 4.25 2025 725,000 4.25 2014 625,000 4.25 2026 550,000 4.25 2015 625,000 4.25 2027 550,000 4.25 2016 625,000 4.25 2028 550,000 4.25 2017 675,000 4.25 2029 550,000 4.25 2018 675,000 4.25 2030 550,000 4.25 2019 675,000 4.25 The Bonds maturing on or before April 15, 2017 will not be subject to redemption prior to maturity. The Bonds maturing on or after April 15, 2018 will be subject to redemption prior to maturity, at the option of the Town, on April 15, 2017 and thereafter on any date, in whole or in part, and if in part, in any order of their maturity and in any amount within a maturity (selected by lot within a maturity), at par, plus accrued interest to the date of redemption. The Bonds shall be redeemable prior to maturity upon the giving of notice which identifies the bonds to be redeemed, by mailing such notice to the registered holders thereof at their respective addresses as shown upon the registration books of the Fiscal Agent at least 30 days prior to the dates set for any such redemption. If notice of redemption shall have been given as aforesaid, the Bonds so called for redemption shall become due and payable at the applicable redemption price on the redemption date designated in such notice, and interest on such Bonds shall cease to accrue from and after such redemption date. ARBITRAGE AND USE OF PROCEEDS CERTIFICATE I, SCOTT A. RUSSELL, Supervisor of the Town of Southold (the "Issuer"), in the County of Suffolk, New York, HEREBY CERTIFY with respect to the Issuer's $14,650,000 aggregate principal amount Public Improvement Serial Bonds-2007 (the "Bonds"), dated April 15,2007 and issued on April 19, 2007, as follows: Unless the context clearly requires otherwise, all capitalized terms not otherwise defined herein shall have the meanings set forth in Exhibit A attached hereto or in the Resolution, the Code or the Regulations (each as defined in Exhibit A): ARTICLE I General 1.1. Authoritv of Signatorv. I am an officer of the Issuer charged with the responsibility for the execution, delivery, and issuance of the Bonds and am acting for and on behalf of the Issuer in signing this Arbitrage and Use of Proceeds Certificate (the "Certificate"). 1.2. Description of Bonds. The Issuer represents that the Bonds are sold at the aggregate Issue Price and are further described as set forth on the cover of the Official Statement. 1.3. Purpose of Certificate. This Certificate is made for the purpose of establishing evidence of the expectations of the Issuer as of the date hereof as to future events regarding the amount and use of proceeds of the Bonds. It is intended and may be relied upon for purposes of Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and as a certification described in Section 1.148-2(b )(2) of the Treasury Regulations. This Certificate is executed and delivered as part of the record of proceedings in counection with the issuance of the Bonds. The provisions of this Certificate constitute a contractual obligation of the Issuer in consideration for the purchase of and payment for the Bonds by the purchaser(s) thereof. 1.4. No Hedge Bonds. The Issuer reasonably expects that 85% of the Spendable Proceeds of the Bonds will be expended for governmental purposes within 3 years of the date hereof. In addition, not more than 50% of the proceeds of the Bonds are being invested in investments not acquired to carry out the governmental purposes of the issue at a guaranteed yield for 4 years or more. 1.5. Reasonable Expectations. This Certificate sets forth the facts, estimates and circumstances now in existence which form the basis for the Issuer's expectation that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be arbitrage bonds under Section 148 of the Code or private activity bonds under Sections 103 and 141 of ~~~._..~.........._,--..-....-_. the Code. To the best of my knowledge and belief, such expectation is reasonable and there are no other facts, estimates or circumstances that would materially change that expectation. 1.6. Composite Issue. Except for the Issuer's $579,000 Bond Anticipation Note-2007, which sold on April 11, 2007, no other tax-exempt governmental obligations have been sold fewer than 15 days prior to, or will be sold fewer than 15 days after, the sale date of the Bonds, pursuant to the same plan of financing which are expected to be paid from substantially the same source of funds as the Bonds. 1.7. Registration. The Bonds will be issued in registered form. 1.8. No Federal Guarantee. The Issuer represents and covenants that, except for the gross proceeds of the Bonds which are: (a) invested during the temporary period referred to in Article III, (b) held in any refunding escrow or (c) invested in obligations of the United States Treasury or in obligations issued pursuant to Section 21B(d)(3) of the Federal Home Loan Bank Act, as amended by Section 511(a) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or any successor provision to Section 21B(d)(3) of the Federal Home Loan Bank Act, as amended: (i) No portion of the payment of principal or interest with respect to the Bonds is or will be guaranteed directly or indirectly by the United States or any agency or instrumentality thereof (herein "federally guaranteed"); and (ii) No portion of the gross proceeds of the Bonds in excess of five percent of such gross proceeds is or will be (A) used in making loans the payment of principal or interest with respect to which is to be federally guaranteed, or (B) invested directly or indirectly in federally insured deposits or accounts. 1.9. Tax Representation. The Issuer expects to be able to and will comply with all the procedures and provisions set forth herein, and will do and perform all acts and things necessary and desirable within its reasonable control in order to assure that interest paid on the Bonds shall be excluded from gross income of the owners thereof for the purpose of federal income taxation. 1.10 Noncompliance. The Issuer shall perform each of the obligations undertaken by it in this Certificate unless, in the written opinion of Bond Counsel, noncompliance therewith will not cause interest on the Bonds to be included in gross income for purposes of Federal income taxation. 1.11 Reliance bv Bond Counsel. The representations of the Issuer expressed in this Certificate may be relied upon by Bond Counsel in connection with the rendering of any opinion with respect to the Bonds. 1.12 IRS Form 8038-G. The Issuer shall file IRS Form 8038-G, set forth as part of the record of proceedings for the Bonds, by the 15th day of the second month after the calendar quarter in which the Bonds are issued. ARTICLE II Use of Project and Proceeds 2.1. Authorization. The Bonds are authorized to be issued pursuant to applicable provisions of the laws of the State of New York and various bond resolutions duly adopted by the Town Board on their respective dates (the "Resolutions"), as referred to in the Certificate of Determination relating to the Bonds, executed by the Supervisor as of March 27, 2007 (the "Certificate"). 2.2. Purpose ofIssue. The proceeds from the sale of the Bonds will be used to finance various capital improvements in and for the Town (the "Projects" or the "Project"), as further described in the Resolutions. For purposes of this Article II the term "proceeds" means the net amount (after payment of all costs and expenses associated with issuing the Bonds) received by the Issuer from the sale of the Bonds excluding accrued interest. 2.3. Use of Proceeds. A portion of the proceeds of the Bonds, in the amount of $4,515,000, together with $1,895,000 in available funds (the "Current Refunding Bonds") will be used to redeem outstanding bond anticipation notes (the "Prior Issue"). The balance of the proceeds of the Bonds in the amount of $10,135,000 (the "New Money Bonds") will provide original financing for various capital improvements in and for the Town. 2.4. Ownership/Lease/Sale. The Projects will be owned by the Issuer and will not be leased to any person who is not a state or local govermnental unit. . It will not be sold or otherwise disposed of, in whole or in part, except for incidental sales of surplus items the proceeds of which will not constitute net operating profits or net capital profits to the Issuer, prior to the maturity date of the Bonds. 2.5. Private Loans. Not more than the lesser of 5 percent or $5,000,000 of the proceeds of the Bonds will be used directly or indirectly to make loans to persons other than a govermnental unit. 2.6. Private Use. The aggregate amount of proceeds of the Bonds used directly or indirectly in a trade or business carried on by a person other than a state or local governmental unit ("Private Use"), will not exceed 10% of such proceeds in the event that more than 10% of the principal or 10% of the interest due on the Bonds during the term thereof is, under the terms of the Bonds or any underlying arrangement, directly or indirectly, secured by any interest in property used or to be used for a Private Use or in payments in respect of property used or to be used for a Private Use or is to be derived from payments, whether or not to the Issuer, in respect of property or borrowed money used or to be used for a Private Use. 2.7. UnrelatedlRelated Disproportionate Use. None of the proceeds of the Bonds will be used directly or indirectly in the trade or business of a person other than a governmental unit that is unrelated or related and disproportionate to the governmental use of the property being financed, including any private loan financing described in Section 2.5 which meets this test. E or purposes of this Certificate, proceeds of the Bonds are allocable to an unrelated Private Use if such use is neither directly nor operationally related to a governmental use and proceeds of the Bonds are allocable to a disproportionate related Private Use to the extent that the proceeds of the Bonds which are to be used to finance property used by a nongovernmental person in a trade or business which is related to the governmental use of the property referred to in Section 2.6 above, exceeds the proceeds of the Bonds which are to be used for the governmental use to which such Private Use relates. 2.8. Private Use Defined. For purposes of Section 2.6 and 2.7, unless otherwise provided in this Certificate, a Private Use consists of any contract or other arrangement including, without limitation, leases, management contracts, guarantee contracts, take or pay contracts, or put or pay contracts, which provides for a use of the Project by a person or persons who are not State or local governments on a basis different than the general public. However, the Issuer may enter into a safe-harbor management contract which meets the requirements of Rev. Proc. 97-13. (i) If the Issuer leases any portion of the facilities to an organization that is qualified under Code section 501(c)(3) or to any other entity which is not a State or a local governmental unit, it will abide by the limitations set forth in this Article II. If the Issuer enters into management contracts with respect to any areas included in the facilities to be financed or refinanced with the proceeds of the Bonds, including, without limitation, service areas, if any, it will follow the guidelines set forth in this Article II. 2.9. Reimbursement. Gross proceeds used to reimburse the Issuer for amounts expended in anticipation of the issuance of the Bonds are considered expended on the date of the reimbursement allocation made in accordance with Treas. Reg. g 1.150-2, if prior to or within 60 days after the date of such expenditure (except for certain preliminary expenditures described in Treas. Reg. gI.l50-2(f)(2)), a declaration of intent to reimburse such expenditure is made and the reimbursement allocation is made within 18 months of the later of the placed in service date of the Project or the date of the expenditure (but in no event more than three years after the original expenditure was paid). The expenditures to be reimbursed are capital expenditures as defined in Treas. Reg. Section 1.I50-1(b). No reimbursement proceeds will be used for purposes that would prevent the allocation from being treated as an expenditure pursuant to Treas. Reg. Section 1.150-2 or prior law as applicable. ARTICLE III Arbitrage 3.1. Temporary Period-Refunding. With respect to the proceeds ofthe Current Refunding Bonds allocable to the Prior Issue: (a) All of the proceeds of the Prior Issue have been expended, or any such proceeds which have not been expended as of the date hereof, shall become transferred proceeds of this issue. Such transferred proceeds may be invested without restriction as to yield until three years after the date of original issuance of the Prior Issue. If any transferred proceeds remain unexpended after three years after the date of original issuance of the Prior Issue, such proceeds will be invested at a yield not in excess of the yield on the Bonds. (b) The proceeds of the Current Refunding Bonds will be used to refund the Prior Issue within 90 days of the date hereof, and may be invested during such time without restriction as to yield. 3.2. Temporary Period-New Monev. With respect to the New Money Bonds: (a) The Issuer has entered into or will enter into within six months from the date of this certificate, binding commitment( s) for the acquisition, construction or accomplishment of the Projects cited in Section 2.2 hereof, and the amount of such commitment(s) with respect to such Projects will or do exceed the amount equal to 5% of $10,135,000, being the aggregate amount of obligations currently being issued for such Projects. (b) Such Projects have been completed, or, if such Projects have not been completed, work on the acquisition, construction or accomplishment of such Projects will proceed or is proceeding with due diligence to completion. (c) It is reasonably expected that at least 85 percent of the net sale proceeds of such New Money Bonds will be expended within three years from the date of this Certificate. No more than 50 percent of the proceeds of the Bonds will be invested in nonpurpose investments with a term of four years or more. 3.3. No Excess Proceeds. The total proceeds of sale of all bond anticipation notes issued to date for the Project do not exceed the total cost of the Projects. 3.4. Source of Repavrnent Funds. The Bonds will be paid from taxes and the proceeds of other obligations of the Issuer. 3.5. Debt Service Fund. The taxes used to pay principal and interest on the Bonds, whether or not deposited in a debt service fund, will be expended within 13 months of the date of deposit in such fund, or the date of their accumulation, in the payment of debt service on the Bonds. Any amounts received from the investment of such deposit or accumulation will be expended within one year of receipt. The debt service fund, if any, will be used to achieve a proper matching of revenues and debt service and will be depleted at least annually except for a reasonable carryover amount which will not exceed the greater of the earnings on such fund for the immediately preceding year or one-twelfth of the debt service on the Bonds. 3.6. Sinking Funds. Except for the debt service fund described herein the Issuer has not created or established, and does not expect to create or establish, any sinking fund or other similar fund which the Issuer reasonably expects to use to pay principal or interest on the Note. 3.7. Universal Cap. On each Valuation Date, the Issuer shall value the Universal Cap and the Nonpurpose Investments allocable to the Bonds thereunder. Nonpurpose Investments in a bona fide debt service fund such as the Bona Fide Debt Service Fund do not reduce the aggregate value of Nonpurpose Investments that may be allocated to the Bonds under the Universal Cap. Nonpurpose Investments cease to be allocated to the Bonds to the extent such Nonpurpose Investments have been expended for the goverrunental purpose of the issue, or to the extent the value thereof exceeds the value permitted to be allocated to the issue under the Universal Cap. To the extent Nonpurpose Investments cease to be allocated to an issue and the value of the Universal Cap exceeds the value of the remaining Nonpurpose Investment allocated to such issue, other Nonpurpose Investments may become allocated to the issue, provided that such Nonpurpose Investments are not already properly allocated to another issue and provided that such allocation does not cause the value of Nonpurpose Investments allocated to the Bonds to exceed the Universal Cap. Generally, if Gross Proceeds ofthe Bonds invested in Nonpurpose Investments exceed the Universal Cap on a Valuation Date, such Nonpurpose Investments cease to be allocated to the Bonds in the following order: (a) amounts allocable to Replacement Proceeds, (b) amounts allocable to Transferred Proceeds, (c) amounts allocable to Sale Proceeds and Investment Proceeds of the Bonds. Where a Nonpurpose Investment ceases to be allocated to the Bonds, such Nonpurpose Investment is susceptible ofre-allocation under the Universal Cap calculated with respect to another bond issue. A Nonpurpose Investment which is reallocated to another bond issue may be valued under the same valuation method pursuant to which it was valued for purposes of applying the Universal Cap with respect to the Bonds. Notwithstanding anything herein to the contrary, the failure to perform the determination of Nonpurpose Investments allocable to the Bonds as ofa Valuation Date shall not be considered a violation of this provision if the value of Nonpurpose Investments allocated to the Bonds did not exceed the value of the Bonds outstanding on such date. ARTICLE IV Rebate 4.1. Rebate Compliance. The Issuer understands that the continued non- inclusion of interest on the Bonds for purposes of federal income taxation depends, in part, upon compliance with the arbitrage limitations imposed by Section 148 of the Code, including the rebate requirements described in Section 4.2 hereof with respect to the Bonds. 4.2. Rebate Requirement for the Bonds. Section 148(1) of the Code requires the payment to the United States of the excess of the amount earned on the investment of Gross Proceeds in Nonpurpose Investments over the amount that would have been earned had the amount so invested been invested at a rate equal to the Yield on the Bonds, together with any income attributable to such excess. Except as provided below, all Gross Proceeds of the Bonds are subject to this requirement. In order to meet the rebate requirement of the Code the Issuer must take the following actions: (a) Record ofInvestments. The Issuer will record the date ofreceipt, amount and source of any Gross Proceeds, e.g., proceeds from the sale of the Bonds, loan repayments, investment earnings. For each Nonpurpose Investment acquired with or allocated to Gross Proceeds of the Issue, the Issuer will record the purchase date or allocation date of such investment, its purchase price (excluding any broker or dealer's commission or discount), or, if not acquired directly with Gross Proceeds, its Value on the date the Nonpurpose Investment is allocated to Gross Proceeds, accrued interest due on its purchase date or allocation date, its face amount, its coupon rate, its Yield, the frequency of its interest payment, its disposition price (excluding any broker or dealer's commission or discount), the accrued interest due on its disposition date and its disposition date. In addition, the Issuer will record the date and amount of all expenditures of Bond proceeds, including expenditures for rebate, other than expenditures to acquire investments. (b) Computation of Rebate Amount. Subject to the special rules set forth in paragraphs (c), (d), (e) and (1) of this Section, the Issuer will determine the Rebate Amount on each Computation Date. The Rebate Amount as of any Computation Date is the excess of the Future Value of all receipts with respect to Nonpurpose Investments over the Future Value of all payments with respect to the purchase of Nonpurpose Investments or the allocation of such investments to the proceeds of the Bonds, determined as of each Computation Date. To the extent amounts received from investments are reinvested, these amounts may be netted against each other and not taken into account in the Computation of Rebate Amount. The Issuer shall determine the nonpurpose receipts and nonpurpose payments as described below. (i) Receipts. Receipts with respect to Nonpurpose Investments include (i) actual receipts, amounts actually or constructively received with respect to an investment, reduced by Qualified Administrative Expenses (ii) disposition receipts, the Fair Market Value of investments deemed to be sold on the date the investment ceases to be allocated to the issue, (except that Present Value may be substituted for Fair Market Value with respect to fixed yield investments, investments required to be yield restricted, and investments transferring by virtue of the universal cap or transferred proceeds rules) and (iii) Computation Date receipts, the Market Value (Present Value, in the case of guaranteed investment contracts and fixed rate investments) of all Nonpurpose Investments allocated to the issue at the close of business on a Computation Date; and (iv) rebate receipts, any recovery of an overpayment of rebate. (ii) Payments. Payments with respect to Nonpurpose Investments include (i) direct payments, the amount of Gross Proceeds of the issue directly used to purchase the investment, including Qualified Administrative Costs (ii) constructive payments, the Value of an investment allocated to (but not directly purchased with) Gross Proceeds on the date so allocated; (iii) Nonpurpose Investments allocated to an issue at the end of the preceding Computation Period, at the value of the investments at the beginning of the computation period; (iv) rebate payments, payments of rebate amounts when due and yield reduction payments on Nonpurpose Investments and (v) the Computation Date Credit. (c) Exception for Gross Proceeds Entirelv Spent Within Six Months. Notwithstanding anything in this Section 4.2 to the contrary, if all of the Gross Proceeds of the Bonds (other than amounts on deposit in the Debt Service Fund or a reserve fund), including investment earnings received with respect to all Funds and Accounts comprising such issue except the Debt Service Fund, have been expended for the governmental purpose of the issue within six months after the date of issue, then the only Nonpurpose Investments to be taken into account in the calculation of the Rebate Amount with respect to the Non-Construction Bonds are Nonpurpose Investments acquired with or allocated to Gross Proceeds held in the Reserve Fund, and to any gross proceeds arising after such six months which were not reasonably anticipated as of the date of issuance. The existence of sinking fund or pledged fund proceeds or the expectation that such proceeds will arise within six months of the issue date will make the six-month expenditure exception to rebate inapplicable. For purposes of this exception, Gross Proceeds used to pay principal of bonds are not treated as expended on the governmental purpose of the issue. (d) Exception for Gross Proceeds Entirelv Spent Within Eighteen Months. Notwithstanding anything in this Section 4.2 to the contrary, if all of the Gross Proceeds of the Bonds (other than amounts on deposit in the Debt Service Fund or a reserve fund), including investment earnings received with respect to all Funds and Accounts comprising such issue except the Debt Service Fund, have been expended for the governmental purpose of the issue in accordance with the following schedule after the date of issue: 15% within 6 months, 60% within 12 months and 100% within 18 months, then the only Nonpurpose Investments to be taken into account in the calculation of the Rebate Amount with respect to the Non-Construction Bonds are Nonpurpose Investments acquired with or allocated to Gross Proceeds held in the Reserve Fund, and to any gross proceeds arising after such eighteen months which were not reasonably anticipated as of the date of issuance. The existence of sinking fund or pledged fund proceeds or the expectation that such proceeds will arise within eighteen months of the issue date will make the eighteen-month expenditure exception to rebate inapplicable. For purposes of this exception, Gross Proceeds used to pay principal of bonds are not treated as expended on the governmental purpose of the issue. However, an issue does not fail to satisfy the spending requirement for the third spending period referenced above in this paragraph as a result of a reasonable retainage, as defined in Treas. Reg. 1.148-7( d)(2), if the reasonable retainage is allocated to expenditures within 30 months of the date of issue. (e) Exception for Gross Proceeds Entirelv Spent Within Twentv-Four Months. Notwithstanding anything in this Section 4.2 to the contrary, for Construction Bonds, if all of the Gross Proceeds of the Bonds (other than amounts on deposit in the Debt Service Fund or a reserve fund), including investment earnings received with respect to all funds and accounts comprising such issue except the Debt Service Fund, have been expended for the governmental purpose of the issue in accordance with the following schedule after the date of issue: 10% within 6 months, 45% within 12 months, 75% within 18 months and 100% within 24 months, then the only Nonpurpose Investments to be taken into account in the calculation of the Rebate Amount with respect to the Non-Construction Bonds are Nonpurpose Investments acquired with or allocated to Gross Proceeds held in the Reserve Fund, and to any gross proceeds arising after such twenty-four months which were not reasonably anticipated as of the date of issuance. The existence of sinking fund or pledged fund proceeds or the expectation that such proceeds will arise within twenty-four months of the issue date will make the twenty-four expenditure exception to rebate inapplicable. For purposes of this exception, Gross Proceeds used to pay principal of bonds are not treated as expended on the governmental purpose of the issue. However, an issue does not fail to satisfy the spending requirement for the third spending period referenced above in this paragraph as a result of a reasonable retainage, as defined in Treas. Reg. 1. 148-7( d)(2), if the reasonable retainage is allocated to expenditures within 30 months of the date of issue. (t) $100.000 Debt Service Fund Gross Earnings Exception. Notwithstanding anything in this Section 4.2 to the contrary, if the gross earnings from the investments held in a debt service fund for the Bond Year in question, are less than $100,000 then any amount earned on such debt service fund shall not be taken into account in determining the Rebate Amount. In this regard, the $100,000 earnings limitation is deemed satisfied if the annual debt service on the issue does not exceed $2,500,000. For purposes of this paragraph (t), the term "gross earnings" means the aggregate amount earned on the Nonpurpose Investment in which the Gross Proceeds deposited to the debt service fund are invested, including amounts earned on such amounts if allocated to the debt service fund. (g) Debt Service Fund Exception. If the average maturity of the Bonds is at least 5 years and the rates of interest do not vary during the term of the issue, then any amount earned on a debt service fund (other than amounts representing accrued interest or capitalized interest) shall not be taken into account in determining the Rebate Amount. 4.3. Payment to United States. (a) Unless the Bonds are redeemed prior to such time, the Issuer will pay to the United States, not later than 60 days after each Installment Computation Date, an amount which, when added to previous rebate payments made with respect to the Bonds, is equal to not less than 90 percent of the Rebate Amount, less the Computation Date Credit. The Issuer will pay to the United States, not later than 60 days after the Bonds are fully paid or redeemed, 100 percent of the Rebate Amount, less the Computation Date Credit. If the final rebate payment is made within 60 days after the Final Computation Date, interest on the Rebate Amount will be deemed to accrue at the underpayment rate under Section 6201 of the Code, beginning on the date the Rebate Amount is due and ending on the date 10 days before it is paid. (b) The Issuer will mail each payment to the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255. Each payment shall be accompanied by the copy of the Form 8038-T and the Form 8038-G or 8038-GC filed with respect to the Bond issue and a statement identifying the issuer and the issue, including the CUSIP number for the Bond with the latest maturity for which there is a CUSIP number. 4.4. Recordkeeping. In connection with rebate requirement the Issuer will maintain the following records: (a) The Issuer will retain records of the determinations made pursuant to Section 4.2 until six years after the retirement of the last obligation of the issue. (b) The Issuer will record all amounts paid to the United States pursuant to Section 4.3. 4.5. Fair Market Value. The Issuer will not acquire Nonpurpose Investments at other than an arm's length, Fair Market Value price unless regulations addressing imputed receipts have been promulgated by the Treasury. (SEAL) IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of the Town of South old as ofthe 19fu <hY"~7. ~~~.u/ Supervisor Exhibit A Definitions (This exhibit includes definitions of certain terms which may not be used III the Issuer's Arbitrage and Use of Proceeds Certificate) "Available Construction Proceeds" means the Issue Price of the Construction Bonds (i) plus earnings on the Issue Price and on amounts in any reserve fund not funded from bond proceeds, and earnings on such earnings and (ii) less the amount of the Issue Price representing a reasonably required reserve or replacement fund and costs of issuance funded with proceeds received from the sale of the Bonds. For purposes of this definition earnings include earnings on any tax-exempt bond. If only a portion of the Bonds constitute Construction Bonds, a pro-rata portion of the above-described amount will constitute available construction proceeds. Pre-issuance accrued interest and earnings thereon may be disregarded. "Bona Fide Debt Service Fund" means a fund, which may include proceeds of an issue, that is used primarily to achieve a proper matching of revenues with principal and interest payments within each Bond Year and is depleted at least once each Bond Year except for a reasonable carryover amount (not in excess of the earnings on the fund for the immediately preceding Bond Year or one-twelfth of the principal and interest payments on the issue for the immediately preceding Bond Year). "Bond Counsel" means any nationally recognized attorney or firm of attorneys, knowledgeable in the requirements of the Code, and the Regulations, and retained by the Issuer. "Bond Year" means each one-year period (or shorter period) from the date of issue that ends at the close of business on the day in the calendar year selected by the Issuer which day is no later than the last day within one year of the issue date of the Bonds. "Bonds" means the $14,650,000 Public Improvement Serial Bonds-2007. "Capital Project" means all capital expenditures, plus related working capital expenditures to which the de minimis rule under Treas. Reg. Section 1.148-6( d)(3)(ii)(A) applies, that carry out the governmental purposes of an issue. "Code" means the Internal Revenue Code of 1986, as amended. "Computation Date" means any Installment Computation Date or the Final Computation Date. "Computation Date Credit" means, for any issue of obligations, an amount equal to the Future Value of $1 ,000 for each Bond Year during which there are gross proceeds of the Bonds on a Computation Date other than the Final Computation Date, and $1,000 on the Final Computation Date. "Computation Period" means the period beginning on the day following a Computation Date (or in the case of the first period, the date of issuance of the Bonds) and ending on the next succeeding Computation Date. "Construction Bonds" means an issue in which all of the bonds are either (i) Governmental Bonds; (ii) Qualified 501(c)(3) bonds or (iii) Private Activity Bonds to finance property owned by a governmental unit or a 501(c)(3) organization, if at least 75 percent of the available construction proceeds of the issue are to be used, or are expected to be used for expenditures for construction, reconstruction and rehabilitation of property which is owned by a governmental entity or a 501(c)(3) organization. "Construction Expenditures" means capital expenditures (as defined in Treas. Reg. 91.150-1) (i.e., amounts used for construction, reconstruction or rehabilitation of buildings or other inherently permanent structures, including items that are structural components of such buildings or structures, and architectural and engineering fees, site survey fees, legal expenses, insurance premiums and development fees to the extent such fees and expenses directly relate to other construction costs). "Controlled Group" means a group of entities controlled directly or indirectly by the same entity or group of entities. In general, "direct control" exists while a controlling entity possesses either of the following rights or powers and such rights or powers are discretionary and non-ministerial: The right or power (i) both to approve and to remove without cause a controlling portion of the governing body of the controlled entity, or (ii) to require the use of funds or assets of the controlled entity for any purpose of the controlling entity. If one entity (the "Controlling Entity") directly controls another (the "Controlled Entity"), then the Controlling Entity indirectly controls any entity controlled directly or indirectly by such Controlled Entity. However, an entity is not a Controlled Entity if it possesses substantial taxing, eminent domain and police powers. "Extraordinary Working Capital Item" means expenditures for extraordinary, nonrecurring items that are not customarily payable from current revenues, such as casualty losses or extraordinary legal judgments in amounts in excess of reasonable insurance coverage. "Fair Market Value" of an Investment shall have the following meanings: (a) In General. Except as elsewhere specifically stated below, the Fair Market Value of an Investment is the price at which a willing buyer would purchase the Investment from a willing seller in a bona fide, arm's -length transaction. (b) United States Treasury Obligation. The Fair Market Value ofa United States Treasury Obligation that is purchased directly from the United States Treasury is its purchase pnce. (c) Certificate of Deposit. The Fair Market Value of a certificate of deposit with a fixed interest rate, a fixed payment schedule, and a substantial penalty for early withdrawal is its purchase price provided, the yield on the certificate of deposit is not less than (i) the yield on reasonably comparable direct obligations of the United States and (ii) the highest yield published by the provider and currently available from the provider on reasonably comparable certificates of deposit offered to the public. (d) Guaranteed Investment Contracts. The Fair Market Value of a guaranteed investment contract is its purchase price, provided (i) the Issuer makes a bona fide solicitation for such contract and receives at least three bona fide bids from providers with no material interest in the issue; (ii) the Issuer purchases the highest-yielding guaranteed investment contract for which a qualifying bid is made (determined net of broker's fees); (iii) the yield on such contract (determined net of broker's fees) is not less than the yield then available from the provider on reasonably comparable investment contracts, if any, offered to other persons from a source of funds other than gross proceeds of tax-exempt bonds; (iv) the determination ofthe terms of a guaranteed investment contract takes into account as a significant factor the Issuer's reasonably expected drawdown schedule for amounts to be invested, exclusive of float and reserves, (v) the terms of the contract, including collateral security requirements are reasonable, and (vi) the obligor certifies the administrative costs it is paying to third parties in connection with the contract. To the extent that a broker's commission does not exceed the lesser of reasonable amount based on what would be charged for the same or comparable investment acquired with a source of funds other than gross proceeds of tax-exempt bonds to the present value of annual payments equal to .05 percent of the amount expected to be invested per year, it may be taken into account in determining yield, with the effect that it will increase the payments for, or decrease the receipts from, Investments. "Final Computation Date" means the day the last Bond that is part of the Bonds is discharged. "Future Value" or "FV" of a payment or receipt means the amount, determined by using the economic accrual method (the method of computing yield based on the compounding of interest at the end of each compounding period), equal to the value of such payment or receipt at the time it is paid.or received (or treated as paid or received), plus interest assumed to be earned and compounded over the period at a rate equal to the yield on the issue, using the same compounding interval and financial conventions used to compute yield. "Governmental Bonds" means bonds which are not Private Activity Bonds. "Gross Proceeds" means Sale Proceeds, Transferred Proceeds, Investment Proceeds and Replacement Proceeds. "Issue Price" when used in connection with an issue of publicly offered obligations (determined separately for obligations included in the issue that are not substantially identical) is the first price at which at least ten percent of each maturity of each series of the obligations are sold to the public. Bond house, brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers are not included in the definition of "public" for purposes ofthe preceding sentence. If the obligations are privately placed, the Issue Price is the price paid for them by the first buyer. The Issue Price of obligations that are publicly offered in a bona fide public offering is determined on the basis of actual facts and reasonable circumstances existing on the sale date unadjusted for subsequent occurrences. "Installment Computation Date" means the last day of the fifth Bond Year and the last day of each succeeding fifth Bond Year (until and excluding the Final Computation Date) and, if the Issuer so elects, the last day of any Bond Year. "Investment" means (i) any security (within the meaning of Section 165(g)(2)(A) or (B), (ii) any obligation (other than tax-exempt obligations which are not "specified private activity bonds" within the meaning of Section 57(a)(5)(C) of the Code), (iii) any annuity contract within the meaning of Section 72 of the Code, (iv) any residential real property for family units not located within the jurisdiction of the Issuer and which is not required to implement a court- ordered or approved housing desegregation plan or (v) any investment-type property that is held as a passive vehicle for the production of income, including any prepayment for property or services if a principal purpose of prepayment is to receive an investment return from the time the prepayment is made until the time payment would otherwise have been made. "Investment Proceeds" means any amounts actually or constructively received from investing proceeds of the Bonds. "Issuer" means the Town of Southold, New York. "Multipurpose Issue" means an issue the proceeds of which are used for two or more separate purposes determined in accordance with Section I. I 48-9(h) of the Regulations. "Net Sale Proceeds" means sale proceeds less the portion of those sale proceeds invested in a reasonably required reserve or replacement fund or as part of a minor portion. "Nonpurpose Investment" means any Investment in which Gross Proceeds are invested and which is not acquired to carry out the governmental purpose of the issue. "Official Statement" means the Official Statement of the Issuer relating to the Bonds. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Plain Par Bond" means a qualified tender bond or a bond that (i) is issued with original issue discount equal to not more than 2 percent of the stated redemption price at maturity plus the amount of origiIl;al issue premium attributable exclusively to underwriters' compensation, (ii) is issued for a price that does not include Pre-Issuance Accrued Interest, (iii) bears interest from the issue date at a single stated fixed rate or is a variable rate obligation under Section 1275 of the Code, in either case, that pays interest unconditionally payable at least annually, and (iv) has a lowest stated redemption price not less than its outstanding stated principal amount. "Plain Par Investment" means an investment that is an obligation that (i) is issued with original issue discount (or if acquired on a date other than the issue date, acquired with market discount or premium) equal to not more than 2 percent of the stated redemption price at maturity, (ii) is issued for a price that does not include Pre-Issuance Accrued Interest, (iii) bears interest from the issue date at a single stated fixed rate or is a variable rate obligation under Section 1275 of the Code that pays interest unconditionally payable at least armually, and (iv) has a lowest stated redemption price not less than its outstanding stated principal amount. "Present Value" or "PV" means the amount determined by using the following formula: PV= FV n (l+i) where i equals the discount rate divided by the number of compounding intervals in a year and n equals the sum of (i) the number of whole compounding intervals for the period beginning on the date as of which Present Value is computed and ending on the date the amount is to be received or paid or on a Computation Date and (ii) a fraction the numerator of which is the length of any short compounding interval during such period and the denominator of which is the length of a whole compounding interval. "Private Activity Bonds" means bonds which meet the definition contained in Section 141(a) of the Code and that are not "qualified bonds" as defined in Section 141(e) of the Code. "Project" means the projects referred to in the Resolutions, which is being financed by the Bonds. "Qualified SOI(c)(3) Bonds" means bonds which meet the definition contained in Section 145 ofthe Code. "Qualified Administrative Costs" mean: (a) In General. All reasonable, direct administrative costs, other than carrying costs, such as separately stated brokerage or selling commissions, but not legal and accounting fees, record keeping, custody, and similar costs. General overhead costs and similar indirect costs of the Issuer such as employee salaries and office expenses and costs associated with computing the Rebate Amount are not qualified administrative costs. In general, administrative costs are not reasonable unless they are comparable to administrative costs that would be charged for the same investment or a reasonably comparable investment if acquired with a source of funds other than gross proceeds of tax-exempt bonds. (b) Regulated Investment Companies and External Commingled Funds. For publicly offered regulated investment companies (as defined in section 67(c) (2) (B)) and commingled funds in which the Issuer and any Controlled Entity do not own more than 10 percent of the beneficial interest in the fund, Qualified Administrative Costs are all reasonable administrative costs, without regard to the limitation on indirect costs described in the preceding paragraph. (c) GICs. For a guaranteed investment contract, a broker's commission paid on behalf of either an issuer or the provider is a Qualified Administrative Cost to the extent that it does not exceed the lesser of reasonable amount based on what would be charged for the same or comparable investment acquired with a source of funds other than gross proceeds of tax-exempt bonds to the present value of annual payments equal to five one-hundredths of one percent (0.05%) of the amount reasonably expected to be invested per year. (d) Puroose Investments. Qualified Administrative Costs include costs or expenses paid, directly or indirectly, to purchase, carry, sell, or retire the investment; costs of issuing, carrying, or repaying the issue, and any underwriters' discount, which are paid by the conduit borrower, even if such payments merely reimburse the Issuer, but only to the extent the present value of those payments does not exceed the present value of the reasonable administrative costs paid by the Issuer using the yield on the Bonds as the discount rate. ( e) Program Investments. Qualified Administrative Costs include only costs of issuing, carrying, or repaying the issue, and any underwriters' discount, subject to the limitation contained in the preceding paragraph. "Qualified Guarantee" means, with respect to a bond, an unconditional transfer, in any form, of substantially all of the credit risk for all or part of the payments, such as payments for principal and interest, redemption prices or tender prices, on the guaranteed bonds. The guarantor must not expect to make any payments other than those pursuant to a direct-pay letter of credit or similar arrangement for which the guarantor will be immediately reimbursed. Reasonable procedural or administrative requirements or, in the case of a guarantee against failure to remarket a qualified tender bond, commercially reasonable limitations based on credit risk, will not cause the guarantee to be conditional. The guarantor may not be a co-obligor, nor may the obligor and any related parties combined use more than 10 percent of proceeds of the guaranteed portion of the bonds. The guarantee fee must not exceed a reasonable arm's-length charge solely for the transfer of the credit risk. A guarantee will not be qualified unless, as of the date the guarantee is obtained, the issuer reasonably expects that the present value of all fees for the guarantee will be less than the present value of the expected interest savings on the issue as a result of the guarantee. For this purpose, present value is computed using the yield on the issue, determined with regard to the guarantee fees, as the discount rate. "Qualified Hedge" means, with respect to the Bonds, a contract between the Issuer, and any unrelated party which is entered into primarily to reduce the Issuer's risk of interest rate changes with respect to the Bonds that meets the requirements of Regulation Section 1.148-4(h). The contract may be an interest rate swap, an interest rate cap, a futures contract, a forward contract, an option or may take another form. A contract will not be a Qualified Hedge if it contains any significant investment element (i.e., an expected return). "Rebate Amount" means with respect to the Bonds, the amount computed as described in Section 4.2( c). "Regulations" means the Income Tax Regulations promulgated under Section 148 ofthe Code by the Department of the Treasury from time to time including the Regulations published on June 18, 1993 in the Federal Register, as they may be amended from time to time. "Replacement Proceeds" means amounts with a sufficiently direct nexus to the Bonds or Project to conclude that such amounts would have been used for the Project if the proceeds of the Bonds were not so used to the extent held by or derived from the Issuer or a controlled entity ofthe Issuer, including: sinking funds, pledged funds (including negative pledges), certain other amounts if the term of the issue is longer than necessary for the governmental purposes of the issue, and a bond-funded working capital reserve unless the issue qualifies for the TRAN deemed 6-month expenditure exception or the under $5,000,000 small issuer exception. "Resolutions" means the bond resolutions of the Issuer, as referred to in paragraph 2.1 hereof. "Restricted Working Capital Expenditures" means working capital expenditures subject to the Gross-Proceeds-spent-Iast rule in Treas. Reg. Section 1.148-6( d)(3)(i) that are ineligible for any exception to that rule. "Sale Proceeds" means any amounts actually or constructively received from the sale of an issue, including amounts used to pay underwriters' discount or compensation, accrued interest other than Pre-Issuance Accrued Interest, or derived from the sale of a right associated with a bond as further described in Treas. Reg. Section 1.148-4(b)(4). "SLG" means a U.S. Treasury Book Entry Security, State and Local Government Series. "Spendable Proceeds" means sale proceeds, less the portion of those sale proceeds invested in a reasonably required reserve or replacement fund under section 148( d) of the Code and as part of a minor portion under section 148( e) of the Code. "Transferred Proceeds" means unexpended original or investment proceeds of a refunded issue which transfer and become proceeds ofthe refunding issue when proceeds of the refunding issue are applied to pay principal of the refunded issue. "Treasury" means the United States Department of Treasury. _.".."-_..~...,,_.^... "Universal Cap" means the maximum value of Nonpurpose Investments which may be allocated to the Bonds and is determined by reference to the Value of all outstanding Bonds of the issue. Nonpurpose Investments shall be taken into account as Nonpurpose Receipts at their Value on a Valuation Date. "Valuation Date" means the date on which the value of the Universal Cap and the Nonpurpose Investments allocable to the Bonds thereunder are determined. With respect to new money issues, the first Valuation Date shall be the second year armiversary date of the date of issuance of the Bonds; thereafter, the first day of each Bond Year shall constitute a Valuation Date. With respect to a refunding issue, each date on which proceeds of the refunded issue would become transferred proceeds of the refunding issue, e.g. each date on which principal of the refunded issue is paid with proceeds of the refunding bonds, shall constitute a Valuation Date. In addition, the first date of each Bond Year shall also be a Valuation Date. "Value" means, in the case of a Bond, the Value of a Bond and in the case of an Investment, the Value of an Investment. "Value of a Bond" means, in the case of a Plain Par Bond, its outstanding stated principal amount, plus accrued unpaid interest or in the case of a Plain Par Bond actually redeemed, or treated as redeemed, its stated redemption price on the redemption date plus accrued unpaid interest. In the case of a boud other than a Plain Par Bond, the value on a date of such a bond is its Present Value on that date, using the yield on the issue of which the bonds are a part as the discount factor. In determining the Present Value of a variable rate bond, the initial interest rate on the bond established by the index or other rate setting mechanism is used to determine the interest payments on that bond. "Value of an Investment" means, as of any date, unless the Investment is required invested as a restricted yield, for any Investment, Fair Market Value as of that date; for any fixed rate investment, Present Value on that date; and for any Plain Par Investment, the outstanding stated principal amount, plus accrued unpaid interest, as of that date. Yield restricted investments must be valued at Present Value, amounts allocated or that cease to be allocated to an issue must be allocated at Fair Market Value, except in cases in which such Nonpurpose Investments are allocated as a result of the Universal Cap or Transferred Proceeds rules in which case they may be valued at Present Value, and amounts allocated to Transferred Proceeds may not be valued in excess of the value used for arbitrage restrictions applicable to the Refunded Issue. "Working Capital Expenditure" means any cost of a type that does not constitute a Capital Expenditure. "Yield" means, as of any Computation Date, that discount rate that, when used in computing the Present Value of (i) all unconditionally payable payments of principal and interest of or on the bonds included in such fixed yield issue, (ii) all unconditionally payable fees for Qualified Guarantees and Qualified Hedges on such bonds and (iii) all fees expected to be paid for Qualified Guarantees and Qualified Hedges, produces an amount equal to the sum of the Present Value of the aggregate Issue Prices of the bonds comprising the issue (determined using the same discount rate used to determine the Present Value of payments for principal, interest and Qualified Hedges and Qualified Guarantees). The Yield is computed as of the issue date of the fixed yield issue by treating each bond included in the issue that is either subject to mandatory or contingent early redemption or to certain optional redemption provisions as being redeemed on its expected early redemption date for an amount equal to its Value on that date. If a fixed yield bond (i) is subject to optional redemptions within 5 years of its issue date and the Yield not taking into account the optional redemption is more than 1/8 of I % above its Yield assuming the early redemption, (ii) is issued at an Issue Price that exceeds the stated redemption price at maturity by more than 1/4 of I % multiplied by the product of the stated redemption price to maturity and the number of complete years to the first optional redemption date for the bond, or (iii) bears interest at increasing interest rates, the Yield on the issue including such fixed yield bond is computed by treating the fixed yield bond as redeemed at its stated redemption price on the optional redemption date that produces the lowest Yield on the issue. No adjustment will be made on any Computation Date to the Yield on a fixed yield issue as computed on its issue date unless redemption rights are subsequently transferred to a third party or termination payments are received with respect to Qualified Hedges. The Yield on a fixed yield bond is calculated in the same manner as Yield on a fixed yield issue. . CERTIFICATE OF THE SUPERVISOR WITH RESPECT TO THE OFFICIAL STATEMENT OF THE TOWN OF SOUTHOLD, NEW YORK, DATED APRIL 10, 2007, DISTRIBUTED IN CONNECTION WITH THE SALE OF THE $14,650,000 PUBLIC IMPROVEMENT SERIAL BONDS-2007 I, SCOTT A. RUSSELL, Supervisor of the Town of South old, in the County of Suffolk, New York (the "Town"), HEREBY CERTIFY that as of April 10, 2007, the date ofthe Official Statement of the Town prepared and distributed in connection with the sale of the $14,650,000 Public Improvement Serial Bonds-2007 (the "Bonds"), and at all times subsequent thereto, up to and including the date of the delivery of the Bonds on April 19, 2007, the attached Official Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Insofar as any statements made in said Official Statement involve matters of opinion, estimates or statements as to matters not contained in or derived from the official records of the Town, whether or not expressly stated, they are set forth as such and not as representations of fact by the Town, and no representation is made that any of the estimates or anticipated events will be realized. The said Official Statement is not to be construed as a contract or agreement with the beneficial owners of the Bonds. I HEREBY FURTHER CERTIFY that there has been no adverse material change in the financial condition of the Town since the date of said Official Statement to the time of the delivery of the Bonds on April 19, 2007. (SEAL) IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of the Town as of the 19th day of April, 2007. / ~a,d~ Supervisor NEW ISSUE - SERIAL BONDS RATING: MOODY'S INVESTORS SERVICE - Aaa* See "Bond Rating", herein . .In the oRinion of Hawkins Delafiel(i & Wood LLP,Bond Co.uns~lto the Town under existin!!. statutes and court decis~' ns a~d ~suming continuing compliance WIth c~rtam tax cf1rtificatlOns descnbed h~rem7 (i) interest on the Bonds is exCluded'1J:m KrOSS income or federal income lax Purp9ses pu,:sua'!f to Sec/101J 103 a/the lnte.rnal f?~enue Co.de of 986, ps q,,!ended (thi! "Code"), andTi( interest on the onOs is not treated gs p prejfrffJce Item J!1 calculating the al~ernatlve mlfl.lmum tax lYfJposed on mdlVldua~ and corporafions un er the Code; sue interest, however . IS mclua~a In the a4Jus.ted qurrent eflr!1mgs of certam corporations for purJ)oses.o . calculating the alternative minimum tax imJ1,osed on such qorporatlOns. 1ft. aaditlOlJ, In the Op)fpOn o( lJo7d COl!~l#l to t!te Town, under !!X'SIJ1Jg statutes, interest on the Bonds is exemp(from personal mcome taxes oJ New York State and Its pontlca subdlVlSlOns, mcludmg The City oJ /'Vew York. See "Tax Matters" herein. The Bonds will NOT be designated by the Town as "qualified tax-exempt obligations" pursuant to the provision of Section 265 ofthe Code. $14,650,000 TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK (the "Town") PUBLIC IMPROVEMENT SERIAL BONDS - 2007 [BOOK-ENTRY-ONL Y BONDS) Dated: April 15, 2007 Principal Dne: April 15, 2008-2030, inc1nsive Interest Due: October 15,2007 and semi-annually thereafter BOND MATURITY SCHEDULE Amount Maturitv Rate Yield Amount Maturitv Rate Yield Amount Maturitv Rate Yield $700,000 2008 4.00% 3.42% $625,000 2016 4.25% 3.82% $ 725,000 2024 4.25% 4.23% 725,000 2009 4-'/8 3.45 675,000 2017 4.25 3.87 725,000 2025 4.25 4.25 575,000 2010 4-'/8 3.50 675,000 2018 4.25 3.95 550,000 2026 4.25 4.26 575,000 2011 4.25 3.52 675,000 20\9 4.25 4.00 550,000 2027 4.25 4.28 600,000 2012 4.25 3.57 675,000 2020 4.25 4.05 550,000 2028 4.25 4.29 625,000 2013 4.25 3.62 675,000 2021 4.25 4.10 550,000 2029 4.25 4.30 625,000 2014 4.25 3.70 . 675,000 2022 4.25 4.\5 550,000 2030 4.25 4.3\ 625,000 2015 4.25 3.77 725,000 2023 4.25 4.20 "The payment of the principal of and interest on the Bonds when due will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation simultaneously with the delivery of the Bonds. Ambac Security and Sources of Pqyment: The Bonds will constitute general obligations of the Town and will contain a pledge of its faith and credit for the punctual payment of the principal of and inTerest on the Bonds, and all the taxable real property WIthin the Town will be subject to the levy 01 ad valorem taxes, without limitation as to rate or amount, for such purpose. Prior Redemption: The Bonds maturing on April 15, 2018 and thereafter are subiect to redemption, at the option of the TownAprior to maturIty in whole or in part, on any date on or after April 15, 2017 in accordance with the tenns described herein. See "uptional Redemption" under "The Bonds," herein. Form and Denomination: The Bonds will be issued as registered bond~, and, when issued, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"), New I ork, New York, which will act as the Securities Depository for the Bonds. Individual purchases of the Bonds may be made only in book-entry fonn in denominations of$5,000 or inte~al multiples thereof. Bondholders will not receive certificates representing their ownership interest in the Bonds purchased. See Book-Entry-Only System" under "The Bonds," herein. Payment: Payment of the principal of and interest on the Bonds to the Beneficial Owners of the Bonds will be made by DTC Participants and indIrect Participants in accordance with standing instructions and custom~ practices, as is now the case with muniCIpal securities held for tlie accounts of customers in bearer fonn or registered in "street name." Payment will be the responsibility of the DTC Particillant or Indirect Participant and not ofDTC or the Town, suhject to any statutory and regulatory requirements as may be in effect from time to time. See "Book-Entry-Only System" under "The Bonds," herein. Hawkins Delafield & W Qod LLP has not participated in the preparation of thi~ Official Statement, nor verified the accuracy, completeness or fairness otthe intormation contained lierein, and, accordingly, expresses no opmion with respect thereto, The Bonds are offered subject to thefinal approvingop'inion of Hawkins Delafield & Wood LIP, New York, New York, Bond Counsel, and certain other conditions. It is eXJ!ected that aelivery of the Bonds In book-entry form will be made through the facilities ofDTC on or about April 19,2007 in New York, New York. This revised cover, dated April I 0,2007, supplements the Official Statement ofthe Town dated March 27, 2007, relating to the obligations described therein and herein inclUding certain infonnation omitted from such Official Statement in accordance with SecUrIties and Exchange Commission Rule \5c2-\2l the "Rule"), and shall constitute the Town's final Official Statement within the meaning of the Rule. other than as set forth on this revised cover page, the tab!e.of contents the.section entitled "Bond R~til).g" and the addition of "Appendix C - The Bond Insurer"! there have been no other revIsIons to the OffiCIal Statement. For a descnptlon of the Town's agreement to provide continuing disc osure as described in the Rule, see "Disclosure Undertaking" herein. ROOSEVELT & CROSS, INC. AND ASSOCIATES TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK Town Hall 53095 Main Road Southold, NY 11971 Telephone: (631) 765-4333 Fax: (631) 765-1366 TOWN BOARD Scott A. Russell, Supervisor William P. Edwards Louisa P. Evans Albert J. Krupski, Jr. Daniel C. Ross Thomas H. Wickham Elizabeth A. Neville, Town Clerk Peter W. Harris, Superintendent of Highways John A. Cushman II, Town Comptroller Patricia A. Firmegan, Esq., Town Attorney George Sullivan, Receiver of Taxes . . . BOND COUNSEL Hawkins Delafield & Wood LLP New York, New York . . . FINANCIAL ADVISOR MUNISTAT SERVICES, INC. Municipal Finance Advisory Service 12 Roosevelt Avenue Port Jefferson Station, N.Y. 11776 (631) 331-8888 E-mail: info@munistat.com Website: http://www.munistat.com No dealer, broker, salesman or other person has been authorized by the Town to give any information or to make any representations, other than those contained in this Official Statement and if given or made, such other information or representations must not be relied upon as having been authorized by the Town. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale ofthe Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained by the Town from sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change WIthout notice and neither the delivery of this Official Statement nor any sale made l1ereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Town since the date hereof. TABLE OF CONTENTS Page THE BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. I Description of the Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. I Optional Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. I Book-entry-only System .................................................................. I ~~~~~.................................................................3 Security and Source of Payment ............................................................ 3 RemedIes Upon Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3 THE TOWN ............................................................................... 4 General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4 Government. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4 Employees .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5 ECONOMIC AND DEMOGRAPHIC INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5 Population Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5 Median Income of Families . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5 Unemployment Rate Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 6 Selected Listing of Larger Employers ........................................................ 6 INDEBTEDNESS OF THE TOWN ............................................................ 6 Constitutional Requirements ............................................................... 6 Statutory Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7 Computation of Debt Limit and Calculation of Net Debt Contracting Margin ......................... 8 Trend of Town Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 8 Details of,Short- Te.rm Indebtedness Chitstanding ............................................... 9 Debt Service Requrrements - Outstandmg Bonas ............................................... 9 Calculation of Estimated Overlapping and Underlying Indebtedness ................................ 9 Authorized But Unissued Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10 Capital Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10 Landfill Closure and Postclosure Care Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10 FINANCES OF THE TOWN ................................................................ II Financial Statements and Accounting Procedures ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. II Fund Structure and Accounts ......................................................... II Basis of Accounting ................................................................ 11 Investment Policy ....,............................,.................................... II Budgetary Procedures ..,............................,................................... 12 FinancialOperations .................................................................... 12 Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - . . . . . . .' 12 Real Property Taxes ................................................................ 12 ~M.........................................................................U Expenditures .......................................................................... 13 Pension Systems ....................................................................... 13 ContributIOns to the Retirement Systems ..................................................... 13 Other Post Employment Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14 REAL PROPERTY TAX INFORMATION .................................................... 14 Real Property Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14 Tax Levy and Collection Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. IS Tax Collection Procedure ................................................................ 15 Tax Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15 Large Taxable Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. IS LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16 BONDHOLDER RISKS AND MARKET FACTORS AFFECTING FINANCINGS OF THE STATE AND MUNICIPALITIES OF THE STATE ...................................... 16 TABLE OF CONTENTS (Continued) Page TAX MATTERS........................................................................... 17 Opinion of Bond Counsel ................................................................ 17 Certain Ongoing Federal Tax Requirements and Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17 Certain Collateral Federal Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17 Original Issue Discount.................................................................. 17 Bond Premium ......................................................................... 18 Backup Withholding .................................................................... 18 Legislation............................................................................ 18 DOCUMENTS ACCOMPANYING DELIVERY OF THE BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " 18 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18 Legal Matters.......................................................................... 19 Closing Certificates ..................................................................... 19 DISCLOSURE UNDERTAKING............................................................. 19 BOND RATING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 20 FINANCIAL ADVISOR .................................................................... 20 ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 20 APPENDIX A: APPENDIX B: APPENDIX C: Financial Information Audited Financial Statements For the Fiscal Year Ended December 31, 2005 Insurance on the Bonds II OFFICIAL STATEMENT $14,650,000 TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK PUBLIC IMPROVEMENT SERIAL BONDS - 2007 [BOOK-ENTRY-ONLY BONDS] This Official Statement presents certain information relatin~ to the Town of Southold, in the County of Suffolk, in the State of New York (the "Town," "County" and "State,' respectively) in connection with the safe of $14,650,000 Public Improvement Serial Bonds - 2007 (the "Bonds"). All quotations from and summaries and explanations of provisions of the Constitution and laws of the State and acts and proceedings of the Town contained herein do not purport to be complete and are qualified in their entirety by reference to the official compilations thereof and all references to the Bonds and the proceedings of the Town relating thereto are qualified in their entirety by reference to the definitive form of the Bonds and such proceedings. THE BONDS Description ofthe Bonds The Bonds will be dated April 15, 2007 and will mature on April 15, in each of the years 2008 to 2030, inclusive, in the principal amounts as set forth on the cover page hereof. The Bonds will be issued in fully registered form and when issued will be registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as Securities Depository for the Bonds. Individual purchases of the Bonds may be made in book-entry form only, in denominations of $5,000 or integral multiples thereof. Purchasers will not receive certificates representing their interest in the Bonds. Interest on the Bonds will be I?ayable October 15,2007, and semi-annually thereafter on April 15 and October 15, in each year until maturity. PrinCipal and interest will be paid by the Town to DTC, which will in turn remit such principal and interest to its Participants, for subsequent distribution to the Beneficial Owners of the Bonds, as described herein. The Bonds may be transferred in the manner described on the Bonds and as referenced in certain proceedings of the Town referred to therein. The Record Date of the Bonds will be the last business day of the month preceding each interest payment date. Optional Redemption The Bonds maturing on or before April 15, 2017 will not be subject to redemption prior to maturity. The Bonds maturing on or after April 15,2018 will be subjectto redemption prior to maturity, at the option of the Town, on April 15,2017 and thereafter on any date, in whole or in part, and ifm part, in any order of their maturity and in any am~unt within a maturity (selected by lot within a maturity), at par, plus accrued interest to the date of redemptiOn. The Bonds shall be redeemable prior to maturity upon the giving of notice which identifies the Bonds to be redeemed, by mailing such notice to the registered holders thereof at their respective addresses as shown upon the registration books of the Fiscal Agent at least 30 days prior to the date set for any such redemption. If notice of redemption shall have been given as aforesaid, the Bonds so called for redemption shall become due and payable at the applicable redemption price on the redemption date designated in such notice, and interest on such Bonds shall cease to accrue from and after such redemption date. Book-entry-only System DTC will act as securities depository for the Bonds (the "Bonds"). The Bonds will be issued as fully- registered Bonds registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. I DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Umform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A ofthe Securities Exchange Act of 1934. DTC holds and prOVides asset servicing for over 2 million issues of U.S. and non-U.S. equi!r issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC s partici{lants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries ofDTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clearthrou~ or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants' ). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner")is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subseguent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge ofthe actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which mayor may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect PartiCipants, and by Direct Participants and Indirect Participants to BenefiCial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative ofDTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Town, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customarr, practices, as is the case with flonds held for the accounts of customers in bearer form or registered in "street name, , and will be the responsibility of such Participant and not ofDTC nor its nominee, or the Town, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments to Cede & Co. (or such other nominee as may be requested by an authOrized representative ofDTC) is the responsibility of the Town, disbursement of such {layments to Direct Participants will be the responsibiliry ofDTC, and disbursement of such payments to the BenefiCial Owners will be the responsibility of Direct and IndIrect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Town. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Town may decide to discontinue use of the sy'stem of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC's book-en!!)' system has been obtained from sources that the Town believes to be reliable, but the Town takes no responsibihty for the accuracy thereof. 2 - THE TOWN WILL NOT HAVE ANY RESPONSIBILITY OR OBUGA TION TO PARTICIPANTS, TO INDIRECT PARTICIPANTS OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY PARTICIPANT, OR ANY INDIRECt PARTICIPANT; (II) THE PAYMENTS BYDTC OR ANY PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WItH RESPECT TO THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS; (III) ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GNEN TO BONDHOLDERS; (N) THE SELECTION BY DTC OR ANY PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECENE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS; OR (V) ANY CONSENTGNEN OR OTHER ACTION TAKEN BY DTC AS BONDOWNER. Source: The Depository Trust Company Authorization and Purpose The Bonds are being issued pursuant to the Constitution and statutes of the State of New York, including among others, the Town Law and the Local Finance Law, and various bond resolutions duly adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds for various capital projects of the Town. Such projects, and their respective amounts of Bonds to be issued for each, are as follows: Date of Voter Aooroval Date Authorized 08-26-03 08-28-01 08-23-99 09-01-98 03-13-01 & 11-19-02 09-07-04 11-16-04 02-27-07 02-27-07 11-04-03 11-06-01 11-02-99 11-03-98 N.A. N.A. N.A. N.A. N.A. Amount to Puroose Open Space Preservation Open Space Preservation Open Space Preservation Open Space Preservation ........................... ............. ... ........... ........................... ........................... be Issued $ 4,000,000 2,000,000 2,000,000 1,987,900 1,200,000 315,000 3,000,000 95,000 52.100 ~ 14.650.000 A portion of the proceeds of the Bonds, together with available funds in the amount of$I,895,000, will be used to redeem outstanding bond anticipation notes in the amount of$6,410,000; the balance of the proceeds of the Bonds will provide original funds for the above referenced projects. For further information regarding bond authorizations of the Town for capital purposes and other matters relating thereto see "Indebtedness of the Town". Security and Source of Payment Each Bond when duly issued and paid for will constitute a contract between the Town and the holder thereof. The Bonds will be general obligations of the Town and will contain a pledge ofthe faith and credit of the Town for the payment of the principal thereof and the interest thereon. For the payment of such principal and interest, the Town has the power and statutory authorization to levy ad valorem taxes on all taxable real property in the Town without limitation as to rate or amount. Under the Constitution of the State, the Town is reCJ!!ired to pledge its faith and credit for the payment of the principal of and interest on the Bonds, and the State is speCifically precluded from restricting the power of the Town to levy taxes on real estate therefor. Solid Waste Management District - Land Acquisition .... Payment of Settled Claim .......................... Solid Waste Management District - Transfer Station ..... Acquisition of Excavator ................ . . . . . . . . . . . Acquisition of Tractor-Mower .., .. .. . . .. . . . . . .. .. . . . Total ................................. Remedies Upon Default Under current law, provision is made for contract creditors (including the Bondholders) of the Town to enforce payments upon such contracts, if necessary, through court action, although the present statute limits interest on the amount adjudged due to creditors to nine per centum per annum from the date due to the date of payment. As !l gen~ral rule,. property and fU!lds of a municipal corpo.ration .serving the public w~lf~~ and interest have no~ been JudiCially subjected to execution or attachment to satisfy a judgment, although JudiCial mandates to offiCials to appropriate and pay judgments out of current funds or the proceeds of a tax levy have been issued. 3 Remedies for enforcement of payment are not expressly included in the Town's contract with holders of its bonds and notes, although any permanent repeal by statute or constitUtional amendment of a Bondholder's remedial rightto judicial enforcement of the contract should, in the opinion of Bond Counsel, be held unconstitutional. The State has consented that any municipality in the State roay file a petition with any United States district court or court of bankruptcy under any !?"ovision of the laws of the United States, now or hereafter in effect for the composition or adjustment of municipal mdebtedness. Subjectto such consent, underthe United States Constitution, Congress has jurisdiction over such matters and has enacted amendments to the existing federal bankruptcy statute, generally to the effect and with the purpose of affording municipal corporations, under certain circumstances, with easier access to judicially approved adjustment of debts, mcludingjudicial control over identifiable and unidentifiable creditors. In recent times, certain events and legislation affecting remedies on default have resulted in litigation. While courts of final jurisdiction have upheld and sustained the rights of bondholders, such courts might hold that future events including financial crises as they may occur in the State and in municipalities of the State require the exercise by the State of Its emergency police powers to assure the continuation of essential services. No principal or interest payments on Town indebtedness are past due. The Town has never defaulted in the payment of the pnncipal of and interest on any indebtedness. THE TOWN There follows in this Statement a brief description of the Town, together with certain infonnation concerning its economy and governmental organization, its indebtedness, current ml\jor revenue sources and expenditures and general and specific funds. General Information The Town, with a land area of54.5 square miles, is located in eastern Suffolk County on the north fork of LongIsland. Settlementtook place in 1640. The Village of Green port is located wholly within the Town. The Town also mcludes the area of Fishers Island which is located approximately twelve miles east of the mainland. Fishers Island is accessible only by water or air with ferry service operating between the Island and New London, Connecticut. . .. The Town is primarily amral resort area with substantial shopping facilities availableutGreenport, at various · shopping centers within.the Town; andat Riverhead just tathe west. Some commercialsel'VIDesare available within the Town in the hamlets of Southold, Cutchogue and Mattituck. Agriculture has been a majorindustry in the Town since its origins. In recent years, farm crops are gradually evolving from basic production to nurse~ crops including shrubs, sod, potted plants and other ornamentals. A substanttal portion orthese products are shipped by ferry across Long Island Sound for distribution throughout New England. A number of vineyards have been estabhshed and wine-making is an important industry. Fishing and fish processing are now growing industries due to improved transportation facilities. The Town is also a major summer resort area, utilizing bays, !DIets and Long Island and Block Island Sounds. The main highways in the Town are New York State Route 25 and North Road. Rail transportation is provided by the Long Island Rail Road with stations at Mattituck, Southold and Greenport. Ferry service is also available between Onent Point, east of Green port, and New London, Connecticut as well as from Greenport to Shelter Island. Electric service is provided by the Long Island Power Authority; gas service is provided by Keyspan Energy Corporation. Fire protection is the responsibihty of volunteer fire and fire protection districts. The Town provides its own police protection. In the Village of Green port, electric service and fire protection are provided by the Village. Government Six independently governed school districts are located wholly orrartially within the Town, which rely on their own taxing powers granted by the State to raise revenues. The schoo districts use the Town's assessment roll as their basis for taxation of property located within the Town. Subjecttothe provisions of the State Constitution, the Town operates pursuantto the Town Law, the General Municipal Law, the Local Finance Law, other laws generally applicable to the Town, and any special laws generally applicable to the Town. Under such la",;,s, there is no authority for the Town to ~ave a ~harter, but pursuant to !he Town Law and other laws generally apphcable to home rule, the Town may from time to time adopt local laws which do not conflict with existing laws as enacted by the State. 4 The legislative power of the Town is vested in the Town Board which consists oftive members, elected for a term of four years, ano the Supervisor, who is the chief executive officer of the Town, elected for a term of two years; effective with the term commencing January 1,2008, the term of office of the Supervisor will be four years. Such terms are staggered such that two or three councilmen are elected every two years. All the Town Board members are elected at large and there is no limitation to the number of terms each may serve. Employees The Town provides services through approximately 217 full-time and 59 part-time employees, some ofwhom are represented by organized labor. The following table presents the number of employees' represented by organized labor, name of union and contract expiration dates. Name of Union Civil Service Employees Assoc. ....................... Police Benevolent Assoc. ... . . . . . . . . . . . . . . . . . . . . . . . . Approximate Membershio Date Contract Exoires 163 48 12-31-07 12-31-09 ECONOMIC AND DEMOGRAPHIC INFORMATION Population Characteristics The Town has had a population trend, as compared to the County and the State, as indicated below: Year Town of Southold 1970 ..................................... 1980 ..................................... I~O ..................................... 2000 ..................................... 2005 ..................................... 16,804 19,172 19,836 20,599 23,344 Source: U.S. Bureau of the Census, Long Island Power Authority. Median Income of Families Town County State 1980 $21,013 24,194 20,180 Source: U.S. Department of Commerce, Bureau of the Census. 1990 $43,082 53,247 39,741 Suffolk County 1,127,030 1,284,231 1,321,977 1,419,369 1,483,396 New York State 18,241,391 17,557,288 17,990,455 18,976,457 19,254,630 2000 $61,108 72,112 51,691 Per Caoita Monev Income 1990 2000 Town County State 1980 $8,258 7,576 7,496 $19,037 18,481 16,501 Source: U.S. Department ofConunerce, Bureau of the Census. 5 $ 27,619 26,577 23,389 Unemployment Rate Statistics Unemployment statistics are not available for the Town as such. The smallest area for which such statistics are available (wliich includes the Town) is the County of Suffolk. The information set forth below with respect to such County is included for information purposes only. It should not be implied from the inclusion of such (lata in this Statement that the Town is necessarily representative of the County or vice versa. Annual Averages: 2002 2003 2004 2005 2006 Source: Department of Labor, State of New York Suffolk County New York State 4.3% 4.3 4.5 4.2 3.9 5.9% 6.2 5.9 5.0 4.5 Selected Listing of Larger Employers Name East~rn Long Island Hospital . . . . . . . . . . . . . . . . . . . . . . . Mattttuck-Cutchogue UFSD ....................... Plum Island ADC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Town of South old ............................... Southold UFSD ................................. San Simeon by the Sound ......................... Peconic Landmg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Greenport UFSD ................................ ~ Hospital Public School U.S. Govt. Facility Local Government Public School Nursing Home Life Care Community Public School Approx. No. of Emolovees 376 330 290 276 194 165 160 137 INDEBTEDNESS OF THE TOWN Constitutional Requirements The New York State Constitution limits the power of the Town (and othermunicil?alities and school districts of the State) to issue obligations and to contract indebtedness. Such constitutional limitatIOns include the following, in summary form, as generally applicable to the Town and the Bonds: . Purpose and Pledge. The Town. shall n?t give or loan any. mone):' or 'p'roperty to or in aid ot any individual, or prIvat~ corporatIOn or prIvate undertakmg or give or loan Its creditto or maid of any of the foregomg or any public corporatIOn. The Town may contract indebtedness only for a Town purpose and shall pledge its faith and credit for the payment of principal of and interest thereon. Payment and Maturity. Except for certain short-term indebtedness contracted in anticipation of taxes or to be paid within three fiscal year periods, indebtedness shall be paid in annual installments commencing no later than two years after the date such indebtedness shall have been contracted and ending no later than the expiration of the period of probable usefulness of the object or purpose determined by statute; no installment may be more than fifty per centum in excess of the smallest pnor installment, unless the Town has authorized the issuance of indebtedness having substantially level or declining armual debt service. The Town is required to provide an annual appropriation for the payment of interest due during the year on its indebtedness and for the amounts required in such year for payment of principal on its serial bonds, bond anticipation notes and capital notes. Debt Limit. The Town has the power to contract indebtedness for any Town purpose so long as the principal amount thereof shall not exceed seven per centum of the average full valuation of taxable real estate of the Town and subject to certain enumerated exclUSIOns and deductions such as water and certain sewer facilities and cash or appropriations for current debt service. The Constitutional method for determining full valuation consists of dividing the total assessed valuation of taxable real estate for a specified assessment roll by the fmal equalization ratio established for such assessment roll by the State Board of Real Property Services (the "State Board"). The State Legislature is required to prescribe the marmer by which such ratio shan be determmed. Average fun valuation is determined by taking the sum of the full valuations of such last completed assessment roll and the four preceding assessment rolls and dividing such sum by five. 6 -~---~.,....",-- There is no constitutional limitation on the amount that may be raised by the Town by tax on real estate in any fiscal year to pay interest and principal on all indebtedness. General. The Town is further subject to constitutional limitation by the general constitutionally imposed duty of the State Legislature to restrictthe power of taxation, assessment, borrowing money, contracting indebtedness and loaning the credit of the Town so as to prevent abuses in taxation and assessments and 10 contracting indebtedness; however, as has been noted under "Security and Source of Payment" the State Legislature is prohibited by a specific constitutional provision from restricting the power of the Town to levy taxes on real estate for the payment of interest on or pr10cipal of indebtedness theretofore contracted. Statutory Procedure In general, the State Legislature has authorized the !,ower and procedure for the Town to borrow and incur indebtedness by the enactment of the Local Finance Law subject, of course, to the constitutional provisions set forth above. The power to spend money, however, generally derives from other law, including the Town Law and General Municipal Law of the State. Pursuantto the Local Finance Law, the Town authorizes the incurrence ofindebtedness, including bonds and bond anticipation notes issued in anticipation of such bonds, by the adoption of a resolution, approved by at least two- thirds of the members of the Town Board, the finance board of the Town. Certain of such resolutions may be subject to permissive referendum, or may be submitted to the Town voters at the discretion of the Town Board; 10 this latter scenario, only a three-fifths vote of the Town Board is required. The Local Finance Law also provides a twenty-day statute of limitations after publication of a bond resolution, which in effect, estops thereafter legal challenges to the validity of obligations authorized by such bond resolution except for alleged constitutional violations. The Town has complied with such procedure with respect to the Bonds. Each bond resolution usually authorizes the construction, acquisition or installation of the object or purpose to be financed, sets forth the plan of financing and s!,ecifies the maximum maturity of the bonds subject to the legal (Constitution, Local Finance Law and case law) restrictions relating to the period of probable usefulness with respect thereto. Each bond resolution also authorizes the issuance of bond anticipation notes prior to the sale of serial bonds. Statutory law in New York permits notes to be renewed each year, provided annual principal reductions are made and provided that such renewals generally do not extend five years beyond the original date of borrowing. However, notes issued in anticipation of the sale of serial bonds for assessable Improvements are not subject to such five year limit and may be renewed subject to annual principal reductions for the entire period of probable usefulness of the purpose for which such notes were originally Issued. (See "Payment an(J Maturity" under "Constitutional Requirements," and "Details of Short-Term Indebtedness Outstanding. ") In general, the Local Finance Law contains similar provisions providing the Town with power to issue general obhgation revenue and tax anticipation notes and general obligatIOn budget and capital notes. The following tables set forth the computation of debt limit and the calculation oftotal net indebtedness ofthe Town in accordance with the constitutional requirements hereinabove described. The following pages set forth certain details with respect to the indebtedness of the Town. 7 Computation of Debt Limit and Calculation of Net Debt Contracting Margin (As of March 27, 2007) Fiscal Year Ending December 31 : Assessed Valuation State Equalization Rate 2003 2004 2005 2006 2007 $ 98,928,528 101,872,561 104,228,885 105,502,965 106,950,027 1.71% 1.49 1.25 1.13 1.04 Total Five Year Full Valuation ................................................ Average Five Year Full Valuation ............................................. Debt Limit - 7% of Average Full Valuation ...................................... Inclusions: OU~:~~~;i;~s ..................................................... Other . . . .. . . .. . .. .. . . . . .. . .. . .. . . .. .. . . . . .. . .. . .. . .. .. . .. . .. .. .. Sub-Total ........................................................... Bond Anticipation Notes .................................................... Total Inclusions ........................................................ Exclusions: Cash on !:l~d for Debt (Grant Proceeds) ..................................... AppropnatIons ......................................................... Total Exclusions ........................................................ Total Net Indebtedness Before Issuing the Bonds ................................. The Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: BANs to be paid from bond proceeds ...................................... Net Effect ofIssuing Bonds .................................................. Total Net Indebtedness After Issuing the Bonds .................................. Net Debt Contracting Margin After Issuing the Bonds ............................. Percent of Debt Limit Exhausted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Full Valuation $ 5,785,294,035 6,837,084,630 8,338,310,800 9,336,545,575 10.283.656.442 $40,580,891,482 8,116,178,296 568,132,480 $10,775,000 -0- 10.775.000 8.244.000 19.019.000 1,504,689 1.003.311 $ 2.508.000 15.511.000 14,650,000 4.515.000 10.135.000 25.646.000 $542.486.480 4.51% Trend of Town Indebtedness The following table represents the outstanding indebtedness ofthe Town at the end of the last five preceding fiscal years. Fiscal Year Ending December 31 : 2002 2003 2004 2005 2006 Debt Outstanding End of Year: $7,615,000 $6,950,000 $6,515,000 Bonds .................. $12,299,098 $ 11,349,098 Bond Anticipation Notes ... 11.020.709 14.768.302 12.625.600 11.720.000 8.244.000 Total Outstanding Debt ........ $18.635.709 $21.718.302 $19.140.600 $24.019.098 $19.593.098 8 Details of Short- Tenn Indebtedness Outstanding Bond Anticioation Notes Maturity Puroose Amount 04-20-07 06-08-07 08-24-07 09-07-07 Various Purposes .......................................... Fishers Island Ferry District. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fishers Island Refuse and Garbage District . . . . . . . . . . . . . . . . Various Purposes .......................................... $6,619,000' 1,625,000 560,000 1.110.000 Total ................................................ $ 8.244.000 a. To be funded from the proceeds of the Bonds and from available funds of the Town. Debt Service Requirements - Outstanding Bonds Fiscal Year Endin~ Decem er 31: Princioal Interest Total 2007 ....................... $ 979,098 $376,468 $1,355,566 2008 . . . . . . . . . . . . . . . . . . . . . . . 995,000 345,309 1,340,309 2009 ....................... 1,025,000 312,348 1,337,348 2010 ....................... 1,000,000 277,957 1,277,957 2011 ....................... 1,025,000 242,982 1,267,982 2012 ....................... 940,000 209,413 1,149,413 2013 ....................... 800,000 180,382 980,3 82 2014 . . . . . . . . . . . . . . . . . . . . . . . 815,000 153,083 968,083 2015 ....................... 810,000 124,535 934,535 2016 ....................... 735,000 98,164 833,164 2017 ....................... 745,000 72,318 817,318 2018 . . . . . . . . . . . . . . . . . . . . . . . 760,000 45,712 805,712 2019 ....................... 320,000 26,020 346,020 2020 ....................... 200,000 15,600 215,600 2021 . . . . . . . . . . . . . . . . . . . . . . . 200.000 8.000 208.000 Totals ................... $11.349.098 $2.488.291 $13.837.389 a Does not included refunded bonds. Calculation of Estimated Overlapping and Underlying Indebtedness A'tclicable A']&licable Overlapping Date of Percenta~e otal et Units' Reoort Aoolicab e Indebtedness Indebtedness County of Suffolk ..................... 12-11-06 3.71% $36,425,459 $30,380,486 V illage of Greenport ................... 03-10-06 100.00 13,583,997 12,564,797 School Districts: Fishers Island ............. 06-30-06 100.00 455,000 455,000 Greenport ................. 06-30-06 100.00 270,000 270,000 Mattituck-Cutchogue ....... 06-30-06 98.49 29,113,644 25,328,870 New Suffolk Common ...... 06-30-06 100.00 - - OysrerPonds .............. 06-30-06 100.00 150,000 150,000 Soutbold ................. 06-30-06 100.00 10,795,000 10,795,000 Fire Districts: Cutchogue. . . . . . . . . . . . . . . . . 12-31-05 100.00 East Marion ............... 12-31-03 100.00 410,683 410,683 Fishers Island .............. 12-31-05 100.00 Mattituck ................. 12-31-05 100.00 Orient................... . 12-31-05 100.00 25,000 25,000 Southold .................. 12-31-05 100.00 1.600.000 1.600.000 $ 97.693.283 $ 86.204.151 a. Does not include refunded bonds. Sources: Annual Financial Reports on file with the Office of the State Comptroller, or more recently published Official Statements. 9 Authorized But U uissued Items The following Bonds are authorized but unissued: Date Authorized Puroose 09-01-98 08-23-99 08-28-0 I 02-25-03 08-26-03 08-16-05 11-21-06 02-27-07 02-27-07 02-27-07 02-27-07 Acquisition of Rights in Land-Open Space Preservation. . . . . . . . . . . . . . . Acquisition of Rights in Land-Open Space Preservation .............. Acquisition of Rights in Land-Open Space Preservation .............. Mattituck Inlet Shore Erosion Study .............................. Acquisition of Rights in Land-Open Space Preservation. . . . . . . . . . . . . . . Construction of New Town Animal Shelter. . . . . . . . . . . . . . . . . . . . . . . . . Improvements to Peconic Recreation Center . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of Air Vacuum Drain Cleaner ......................... Acquisition of Rights in Land-Open Space Preservation. . . . . . . . . . . . . . . Acquisition of Excavator ....................................... Acquisition of Tractor-Mower . .. . ... . .. .. . .. .... .. .. .. . . .. .. .. . . Total a. To be funded in whole or in part from the proceeds of the Bonds. Amount $ 2,000,000. 2,000,000. 2,000,000. 82,750 4,000,000. 2,600,000 200,000 278,000 22,500,000 100,00. 60.000. $35.820.750 Capital Program The Town annually adopts a Capital Budget. Projects may be funded by State and Federal aid, reserves, proceeds of obligations, property taxes or a combination thereof. A summary of the Capital Budget for 2007 is set forth below: Deoartment General Town . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Highway Dept .................................... Solid Waste District ............................... Wastewater Disposal District ....................... Total.......................................... . Sources Appropriations ................................... Grants . .. . .. . .. .. . .. . . .. . .. . . .. . . .. . .. .. .. . .. Town Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total 2007 $3,327,428 788,000 465,000 $ 4.580.428 $ 313,261 684, I 67 3.583.000 $ 4.580.428 Landfill Closure and Postclosure Care Costs The Town owns a landfill on a site in the unincorporated area of Cutchogue, commonly known as the Cutchogue Landfill. The Town ceased accepting waste at its Cutchogue Landfill as of October 8, 1993. Placement of the final cover, referred to as car.ping, on the landfill was completed in November 2003. In addition to placement of the final cover on the landfil , state and federal regulations presently require the Town to perform certain maintenance and monitoring functions at the site for up to thirty years. The Town has and will continue to comply with said requirements. The ongoing post closure costs are esttmated to be between $20,000 and $25,000 per year from 2007 t1irough 2009. The Town paid $23,920 for such costs in 2006 and will continue to pay these costs in the future. Actual costs associated with the capping totaled $7,681,720. Financing for closure activities has been provided in part through a grant from the New York State Department of Environmental Conservation in the amount of$2,000,000. The balance was provided through a State subsidized loan received in July, 2004 from the New York State Environmental Facilities Corporation. Costs associated with postclosure care will be covered by charges to future users of the collection facility and site and future tax revenue. 10 .~--"'----"'- FINANCES OF THE TOWN Financial Statements and Accounting Procedures The Town maintains its financial records in accordance with the Uniform System of Accounts fOf Towns prescribed by the State Comptroller. The financial records of the Town are audited by mdependent accountants. The last such audit made availafile for public inspection covers the fiscal year ended December 31, 2005. In addition, the financial affairs of the Town are subject to periodic compliance review by the Office of the State Comptroller to ascertain whether the Town has complied with the requirements of various State and Federal statutes. In June, 1999, the Governmental Accounting Standards Board ("GASB") issued Statement 34, "Basic Financial Statements and Management's Discussions and Analysis for State and Local Governments". This Statement established new finanCIal reporting requirements for state and local governments throughout the United States. It will required new information and restructuring of much of the information that governments have presented in the past. Comparability with reports issued in all prior years will be affected. GASB required the Town to in:'plement thIS standard for the fiscal year ending December 31, 2003 and the Town has complied with such reqUIrements. Fund Structure and Accounts The Town utilizes fund accounting to record and report its various service activities. A fund represents both a legal and an accounting entity which segregates the transactions of specific programs in accordance with special regulations, restrictions or limItations. There are three basic fund types: (I) governmental funds that are used to account for basic services and capital projects; (2) proprietary funds that account for operations of a commercial nature; and, (3) fiduciary funds that account for assets held in a trustee capacity. Account groups, which do not represent funds, are used to record fixed assets and long-term obligations that are not accounted for in a specific fund. The Town presently maintains the following governmental funds: General Fund, Highway Fund and Special Districts Funds, and the Capital Projects Fund. Fiduciary funds consist of a Trust and Agency Fund. There are no proprietary funds. Account groups are maintained for fixed assets and long-term debt. Basis of Accounting The Town's governmental funds are accounted for on a modified accrual basis of accounting. Under the modified accrual baSIS, revenues are recognized when they become susceptible to accrual- that is, when they become "measurable" and "available" to finance expenditures to the current period. Revenues are susceptible to accrual include real property taxes, intergovernmental revenues (State and Federal aid) and operating transfers. Expenditures are generally recognized under the modified accrual basis of accounting, that is when the related fund liability is incurred. An exception to this general rule is unmatured interest on general long-term debt which is recognized when due. Investment Policy Pursuant to State law, including Sections 10 and II of the General Municipal Law (the "GML "), the Town is generally permitted to deposit moneys in banks or trust companies located and authorized to do business in the State. All such deposits, including special time deposit accounts and certificates of deposit, in excess of the amount insured under the Federal DepositInsurance Act, are required to be secured in accordance with the provisions of and subject to the limitations of Section 10 of the GML. The Town may also temporarily invest moneys in: (I) obligations of the United States of America; (2) obligations guaranteed by agencies ofthe United States of America where the payment of principal and interest are guaranteed by the United States of America; (3) obligations of the State of New York; (4) with the approval of the New York State Comptroller, in tax anticipation notes or revenue anticipation notes issued by any municipality, school district, or district corporation, other than those notes issued by the Town, itself; (5) certificates of participation issued in connection with installment purchase agreements entered into by political subdivisions ofthe State pursuantto Section I 09-b(lO) of the GML; (6) obligations of a New York public benefit corporation which are made lawful investments for municipalities pursuant to the enabling statute of such public benefit corporation; or (7) in the case of moneys held in certaID reserve funds established by the Town pursuant to law, in obligations of the Town. All of the foregoing investments are required to be payable or redeemable at the option of the owner within such times as the proceeds will be needed to meet expenditures for purposes for which t1ie moneys were provided and, in the case of obligations purc~a~ed with the proceeds of bonds or notes, shall b~ payable .or re~eem.a1ile in any event, at the option of the owner, wlthlD two years of the date of purchase. Unless registered or IDscrtbed ID the name 11 ofthe Town, such instrUments and investments must be purchased through, delivered to and held in custody of a bank or trust company in the State pursuant to a written custodial agreement as provided by Section 10 of the GML. The Town Board has adopted an investment policy and such policy conforms with allplicable laws ofthe State governing the dellosit and investment of public moneys. All deposits and investments of the Town are made in accordance with such policy. Budgetary Procedures The head of each administrative unit of the Town is reguired to file detailed estimates of revenues (other than real property taxes) and expenditures for the next fiscal year WIth the budget officer (Supervisor) on or before August IS"'. Estimates for each fire district situated within the Town must also be filed with t1ie budget officer by this date. After reviewing these estimates, the budget officer prepares a tentative budget which includes his recommendations. A budget message explaining the main features of the budget is also prepared at this time. The tentative budget is filed wIth the Town Clerk not later than the 30th of September. Subsequently, the Town Clerk presents the tentative budget to the Town Board at the regular or special hearing which must be held on or before October 5th. The Town Board reviews the tentative budget and makes such changes as it deems necessary and that are not inconsistent with the provisions of the law. Following this review process, the tentative budget and such modifications, if any, as approved by the Board become the preliminary buaget. A public hearing, notice of which must be duly published in the Town's official newspaper, on the preliminary budget is generally required to be held on the Thursday immediately following the general election. At such hearing, any person may express his opinion concerning the preliminary budget; however, there is no requirement or provIsion iliat the prehminary budget or any portion thereof be voted on by members of the public. After the public hearing, the Town Board may further change and revise the llreliminary budget. The Town Board, by resolutIOn, adopts the preliminary budget as submitted or amended no later than November 20th, at which time, the preliminary budget becomes the annual budget of the Town for the ensuing fiscal year. Budgetary control during the year is the responsibility of the Supervisor who is assisted in this area by the Town Comptroller. However, any changes or moaifications to the annual budget including the transfer of appropriations among line items must be approved by resolution of the Town Board. Budget Summaries forthe 2006 and 2007 fiscal years may be found in Appendix A. Financial Operations The Supervisor functions as the chief fiscal officer as provided in Section 2.ofthe Local Finance Law; in this role;th.e Supervisor is responsible' for the Town's accounting and fmancial rep'ortinga~vities. In additio!1, ~e SOJlel'Vlsor IS also the Town's budget,'~fficer and must ther!,fore prepare the annu~tentatMobudget fo~ subml~slOn to the Town Board. Porsuantto,gectlOD 30 of the Local Fmance Law, the Supervtserhas'been authonzed to Issue or renew certain specific types of notes. As required by law, the Supervisor mu~ execut$ mauthorizing certificate which than becomes a matter of public record. The Town Board, as a whole, serves as the finance board of the Town and is responsible for authorizing, by resolution, all material financial transactions such as operating and capital budgets and bonded debt. Town finances are operated primarily through the General and Special Revenue Funds. The General Fund receives most of its revenue from rear property tax and State aid. Current operating expenditures are I?aid from these funds subject to available appropriatIOns. The Town also has refuse, sewer and wastewater distrIcts, which are accounted for within separate funds. The primary sources of income for these districts comes from special assessments levied against district properties at the same time real estate taxes are levied. Capital projects and equipment purchases are accounted for m special capital projects funds. The Town observes a calendar year (January I through December 31) for operating and reporting purposes. Revenues The Town receives most ofits revenues from a real property tax on all non-exempt property situated within the Town and from State Aid. A summary of such revenues for the five most recently completed fiscal years may be found in Appendix A. Real Property Taxes See "Real Property Tax Information", herein. State Aid The Town is dependent upon financial assistance from the State which comes primarily in the form of a state appropriation for State Aid to municipalities for operating purposes. There is no assurance, however, that the State appropriation for State Aid to municipalities will continue, either pursuant to existing formulas or in any form wliatsoever and, in any event, if appropriated and apportioned to the Town, payment can lie made only if such monies are available therefore. The State IS not constitutionally obliged to maintain or continue such aid. See Appendix A. 12 Expenditures The malar categories of expenditure for the Town are General Government Support, Public Safety, Transportation, EconomIc Assistance and Opportunity Home and Community Services, Culture and Recreation Employee Benefits and Debt Service. A summary or'the expenditures for the five most recently completed fiscal years may be found in Appendix A. Pension Systems Substantiallx. all employees of the Town are members of the New York State and Local Employees' Retirement System ("ERS") or the New York State and Local Police and Fire Retirement System ("PFRS"). (Both Systems are referred to together hereinafter as the "Retirement Systems" where appropriate.) The Retirement Systems are cost-sharing multiple public employer retirement systems. The obligation of employers and employees to contribute and the benefits to employees are governed by the New York State Retirement System and Social Security Law (the "Retirement System Law"). The Retirement Systems offer a wide range of plans and benefits which are related to years of service and final average salary vesting of retirement benefits, death and disability benefits and optional methods of benefit pa.Y.IDents. All benefits generally vest after five years of credited service. The Retirement System Law generally proVIdes that all participating employers in each retIrement system are jointly and severally liable for any unfunded investtnents. Such amounts are collected through annual billings to all participating employers. Generally, all employees, except certain part-time employees, participate in the Retirement Systems. The Retirement Systems are non-contrioutory with respect to memtiers hired prior to July 27, 1976. All employees who became members on or after July 27, 1976 must contribute 3% of their gross annual salary towards the cost of their retirement program. Chapter 86 of the Laws of 2000 eliminated the 3% for Tier 3 and Tier 4 members with 10 years of service credit. Due to unfavorable capital market returns over recent years and negative returns in each of the past three years, the State Comptroller lias sent notice to every school district and municipality in New York State that he believes that the retirement contributions will continue to increase in subsequent years. With regard to the Retirement Systems, a pension reform bill was signed by the Governor into Law as Chapter 49 of the Laws of2003. Chapter 49 changed the cycle of billing to match budget cycles of the Town. Under the previous method, the Town was unsure of how much it would have to pay to the system until after its budget was implemented. Under the new system the contribution for a given fiscal year will be based on the value of the pension fund on the prior April I instead of the following April I so that the Town will be able to more accurately include the cost oftlie contrIbution into its budget. Chapter 49 requires the Town to make a minimum contribution of 4.5% of payrol.1 every year, including years in which the investtnent performance of the fund would make a lower -contributIOn possible. On July 20, 2004 the New York State Legislature passed a bill amendingthe General Municipal Law, Local Finance Law and the Retirement and Social SecurIty Law. On July 30, 2004, the Governor signed the new retirement system legislation into Law as Chapter 260 of the Laws of2004.The bill gIves the employer the option to move the annual payment date for contributions from December 15th to February I~, effective December 15,2004. It increases, from five to ten years, the maximum amortization period of the portIOn of employer contributions that exceeds 7% of payroll for the 2004-2005 fiscal year of the Retirement System (April I - March 31). It also allows employers to issue bonds to finance their 2005-2006 and 2006-2007 fiscal year contributions in excess of 9.5% and 10.5%~ respectively. This amortization may be made with the Retirement System or the Town could issue a maximum or lO-year general obligation bonds, tlie interest on which would be set at prevailing bond market rates on the date of sale and would be taxable for feaeral income tax purposes. For the payment due December 15,2007, it is estimated that the contribution will be approximately 11.5% of payroll. The Town paid its retirement obligation in full on December 15, 2006 and has included its total obligation for the 2006 fiscal year in its current budget. The Town does not plan to amortize its retirement system obligations. While the Town is aware of the potential negative impact on its budget and will take the appropriate steps to budget accordingly for the increase, there can be no assurance that its financial position will not be negatively impacted as a result of the potential increase in such contributions. Contributions to the Retirement Systems Fiscal Year Ending December 31 : Amount of Contribution 2002 ....................................... 2003 ....................................... 2004 ....................................... 2005 ....................................... 2006 ...................................... 2007 (Budget) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 164,287 684,617 1,670, I 02 2,085,137 1,837,992 1,827,000 13 Other Post Employment Benefits It should also be noted that the Town provides post-retirement healthcare benefits to various categories of former employees. These costs may be expected to rise substantially in the future. There is now an accounting rule that will reqUIre governmental entIties, such as the Town, to account for post-retirement healthcare benefits as it accounts for vested pension benefits. GASB Statement No. 45 ("GASB 45") of the Governmental Accounting Standards Board ("GASB"), described below, requires such accounting. Although GASB 45 encourages earlier adoption, implementation is required by the following dates, based on the size of government measured by annual revenue: Annual Revenue Effective for Fiscal Year Ending After: December 15, 2006 December] 5, 2007 December ]5, 2008 Greater than $ I 00 million Between $]0 million and $]00 million Less than $ 10 million School Districts and Boards of Cooperative Education Services, unlike other municipal units of government in the State, have been prohibited from reducing retiree health benefits or increasing health care contributions received or paid by retirees below the level of benefits or contributions afforded to or required from active employees since the implementation of Chapter 729 of the Laws of ]994. This protection from unilateral reduction of benefits has been extended annually and continued through May 15, 2006 pursuant to Chapter ] 6 of the Laws of 2006. Legislative attempts to provide similar protection to retirees of other local units of government in the State have not succeeded as oftliis date. Nevertheless, many such retirees of all varieties of municipal units in the State do presently receive such benefits. GASB 45 and OPEB. OPEB refers to "other post-employment benefits," meaning other than pension benefits, disability benefits and OPEB consist primarily of health care benefits, and may include other benefits such as disability benefits and life insurance. Until now, these benefits have generally been administered on a pay-as-you- go basis and have not been reported as a liability on governmental financial statements. GASB 45 will require municipalities and school districts to account for OPEB liabilities much like they already account for p'ension liabilities, ~enerally adopting the actuarial methodologies used for pensions, with adjustments for the different characteristIcs of OPEB and the fact that most municipahties and schoo] districts have not set aside any funds against this liability. Unlike GASB 27, which covers accounting for pensions, GASB 45 does not require municipalities or school distrIcts to report a net OPEB obligation at the start. Under GASB 45, based on actuarial valuation, an annual required contribution ("ARC") will be determined for each municipality or school district. The ARC is the sum of (a) the normal cost for the year (the p,resent value of future benefits being earned by current employees) plus (b) amortization of the unfunded accrued liabIlity (benefits already earned by current and former employees but not yet provided for), using an amortization period of not more than 30 years. ]f a municipality or school district contributes an amount less tlian the ARC, a net OPEB obligation will result, which is required to be recorded as a liability on its financial statements. GASB 45 does not require that the unfunded liability actually be amortized nor that it be advance funded, only that the municipality or scnool district account for its unfunded accrued liability and compliance in meeting its ARC. The Town expects to be in compliance with the requirements ofGASB 45 by or before the applicable effective date. Actuarial valuation will be required every 2 years for OPEB plans with more than 200 members, every 3 years if there are less than 200 members. REAL PROPERTY TAX INFORMATION Real Property Taxes The Town derives a significant portion of its annual revenue through a direct real property tax. The followinll table presents the total tax levy, by purpose, with adjustments and collection performance for each of the last five fiscal years. 14 Tax Levy and Collection Record Fiscal Year Endin~ December 31 : 2004 200 2006 Total Tax Levy. . . . . . . . . . . . . . . . Amount Collected ............. Returned to County Amount .................... Percentage .................. Uncollected at End of Year of Levy ................... 2003 $74,603,829 72,211,402 2,392.427 3.20% $89,495,573 83,356,976 2,138,597 2.39% $89,934,663 86,628,595 3, I 06,068 3.45% $79,909,681 77,595,985 2,313,696 2.90% None None None None a, As of February 6, 2007 2007 $97,216,091 54,175,000" 43,041,091" 44.27%" NA Tax Collection Procedure Property taxes for the Town are collected by the Town tax receiver. Such taxes are due and payable in equal installments on December I and May 10, but may be paid without penalty by January 10 and May 31, respectively. The penalty added to delinquent taxes is one-twelfth the rate of interest determined by the State Commissioner of Taxation and Finance. The rate is determined each year by July 15 based on the one-year constant maturity yield index for United States Treasury securities for the quarter-year ending on the immediately preceding June 30. The rate is effective for a twelve month period commencing August I each year and in no event will be less than ten per centum per annum. The Town receives its full levy before the end of its fiscal year. Uncollected amounts are not segregated by the Town tax receiver, and any deficiency in tax collection is the County's liability. Tax Rates (Per $100 Assessed Valuation) Fiscal Year Endin~ December 31: 2003 2004 005 2006 2007 General - Townwide ................ General - Outside Village ............ Highway .. .. .. .. .. .. .. .. .. .. .. $133.38 3.10 36.59 $136.65 4.53 31.12 $139.73 5.43 38.37 $140.37 4.90 40.68 Large Taxable Propeljes 2007 Assessment Roll Name Peconic Landing at Southold ....................... qLCO, LIPA, Marketspan, Keyspan ................. Village of Greenport-Power Plant. . . . . .. .... . ....... . Fishers Island Dev. Corp. .......................... Robins Island Holding LLC . . . . . . . . . . . . . . . . . . . . . . . . . Alan Cardinale .................................. Damianos,Herodotus............................. . New York Telephone ............................. Levin Family Limited Partnership . . . . . . . . . . . . . . . . . . . . Anderson, Bradley & Francesca ..................... Norris, Susan ...................... '. . . . . . . . . . . . . . Laurel Links & Country Club ....................... Kimogenor Pt Co. ................................ DriftWood Cove ................................. ~ Commercial Utility Utili Resi%ntial Development Private Lands Sl)opping Center Vmeyard Utility Motel & Restaurant Farmland & Private Lands Various Properties Country Club Co-Op Co-Op a, Assessment Roll established in 2006 for levy and collection of taxes during 2007 Fiscal Year. b. Represents approximately 5.57% of the total taxable assessed valuation of the Town for 2007. 15 $151.02 3.99 39.63 Assessed Valuation $ 1,707,704 1,558,702 585,000 362,000 330,500 285,500 234,000 233,985 148,950 113,800 111,800 96,300 94,600 90.000 $5.952.841 b LITIGATION The Town of South old is subject to a number oflawsuits in the ordinary conduct of its affairs. For the most part, any pptential adverse decisions in such suits, either individually or in the aggregate, are not likely to have a material adverse effect on the Town. There are certain matters worthy of special mention: Stanton. at al. v. Town of Southold - This is an action in inverse condemnation and nuisance by fo!1Y-lwo property owners, allegmg property damage in the form of erosion caused by a Town-owned jetty. The Town is engaged in studies to delermme the issues surrounding the alleged erosion, its causes, and possible solutions. Although this case was fIrst filed in ]997, discovery has not been completed. The issues in this case are complex and win require extensive expert testimony. The nature and extent of damages, if any, are unknown at this point. Insurance coverage may be available for potentialliabili!y for alleged compensatory damages. The Town has denied any wrongdoing and intends vigorously to defend any fUrther prosecution of this action. uad Ente rises et al. v. Town of Southold - This action arises from the Town Board of the Town of Southol sa ege re sa to approve a c ange 0 zone app.lication filed bY'plaintiffs, which soug!It substantially to increase the zomng density of a parcel ofland owned by a developer plaintIff: Plaintiffs assert claims under the Fair Housing Act, Americans with Disabilities Act, State and Town Law, alleginz housillg discrimination azainst senior 1- handicapped and disabled residents who are also named as "Jane Doe" plaintiffs. Plaintiffs seek declaratOlY relier gr:anting their desired zoning, as well as compensatory and punitive damages of$5 million each! respectively, for each of the six federal causes of action. Insurance coverage may be available for potentia liability for alleged compensatory damages. Fact and expert discovery is proceeding. The Town has demed all wrongdoing and intends vigorously to contest these claims. Notices of Claim - Four noteworthy Noticc;s ofC]aim have been filed ~gainst the T~wn rel~ting!~ police matters. Joree of the matters relate back to events In 2003 or 2004/ none of which have yet npened Into"lItIgatlOn. In the fIrst claim, claimant, Jason Weber, alleged that he sufferea physical injll!"Y, emotional injury, and loss of earnings by virtue of the aiIeged excessive force used by Town police officers in tlieir arrest of claimant. Claimant has sUDsequently been convicted of driving while intoxicated, an underlying crime leading to the arrest at issue. Claimant demanded $20 million, but has not served the Town with any lawsuit. In the second claim, the same claimant demanded $2 million as a result of a traffic stop whereby claimant was ticketed for driving with a susp.ended license. In that instance, claimant alleged emotional injuries and loss of employment due to aile zed false imprisonment, and violation of his civil rimrts. Claimant has not served the Town with any lawsuit relatIng to this matter. In the third claim, claimant Mark iJraziller demanded $5 million for alleged physical and emotional Injuries and civil rights violations arising out of a traffic stop. Claimant has not served The Town with any lawsuit relating to this matter. Insurance coverage may be available In these matters for potential liability for alleged compensatory damages. The Town denies any wrongdoing in these matters, and intenlis vigorously to contest these c]alms in the event that lawsuits are instituteii arising out of these allegations. The statute of limitations for state law claims has run on each of these matters; the Fedenil statute of limitations has run on the first and third claims; and as of yet the Town has not been served with notice of any filed lawsuit. In the fourth Notice of Claim, Kenneth MacAlpin demands $5 million in damages for p.hysical, emotional and civil rights injuries related to an alleged incident, Ilelieved to be an arrest by Town police officers "on or about February 21,2007 and prior arrests." The Town is not aware of any details of this purported claim, and intends vigorously to contest it both prior to and after the institution of a lawsuit, if any is ever filed and served. BONDHOLDER RISKS AND MARKET FACTORS AFFECTING FINANCINGS OF THE STATE AND MUNICIPALITIES OF THE STATE There are certain potential risks associated with an investment in the Bonds and investors should be thoroughly familiar with thiS Official Statement, including its appendices, in order to make an informed investment decision. Investors should consider, in particular, the following factors: The Town's credit rating could be affected by circumstances beyond the Town's control. Economic conditions such as the rate of unemployment and inflation, termination of commercia] operations by c01JlSlrate taxpayers and employers, as well as natural catastrophes, could adversely affect the assessed valuation of Town property and its allility to maintain fund balances ana other statistical indices commensurate with its current credit rating. Accordingly, a decline in the Town's credit rating could adversely affect the market value of the Bonds. In addition, if and when a holder of any of the Bonds should elect to sell a Bond prior to its maturity, there can be no assurance that a market shall have been established, maintained and be in existence for the purchase and sale of any Bonds. The price or principal value of the Bonds is dependent on the prevailing level of Interest rates. If interest rates should increase, the price of a bond or note may decline causing the bond or noteholder to potentially incur a capital loss if such bond or note is sold prior to its maturity. The financial condition of the Town as well as the market for the Bonds could be affected by a variety of factors, some of which are beyond the Town's control. There can be no assurance that adverse events in the State, including, for example, the seeking by. a municipality of remedies pursuant to the Federal Bankru.ptcy Act or otherwise, will not occur which might affect the market price of and the market for the Bonds. If a significant default or other financial crisis should occur in the affairs of the State or any of its agencies or political subdivisions thereby further impairing the acceptability of obligations issued by borrowers withm the State, both the ability of the Town 16 to arrange for additional borrowings and tbe market for and market value of outstanding debt obligations, including tbe Bonds, could be adversely affected. Future amendments to applicable statutes affecting tbe treatment of interest paid on municipal bonds including tbe Bonds, for income taxation purposes could have an adverse effect on tbe market value oftbe Bonds (see "Tax Matters" herein). TAX MATTERS Opinion of Bond Counsel In tbe opinion of Hawkins Delafield & Wood LLP, Bond Counsel to tbe Town, under existinE statutes and court decisions and assuming continuinlt compliance witb certain tax covenants described herein, (i) Interest on the Bonds is excluded from gross income lor Federal income tax purposes pursuant to Section 103 of tbe Internal Revenue Code of 1986, as amended (tbe "Code"), and (ii) interest on tbe Bonds is not treated as a preference item in calculating tbe alternative minimum tax imposed on Inoividuals and corporations under tbe Code; such interest, however, is Included in tbe adjusted current earnings of certain corporations for purposes of calculating tbe alternative minimum tax imposed on such corporations. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by tbe Town in connection With tbe Bonds, and Bond Counsel has assumed compliance by tbe Town witb certain ongoing covenants to comply witb applicable requirements of tbe Code to assure t1te exclusIOn of interest on the Bonds from gross income unoer Section 103 of tbe Code. In additiollJ)n the opinion of Bond Counsel to tbe Town, under existing statutes, interest on the Bonds is exempt from New york State and New York City personal income taxes. Bond Counsel expresses no opinion regarding any otber Federal or state tax consequences with respect to the Bonds. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date, and assumes no obligation to update its opimon after the issue date to reflect any future action, fact or circumstance, or chan~ in law or interpretation, or otherwise. Bond Counsel expresses no opinion on tbe effect of any actIOn hereafter taken or not taken in reliance upon an opinion of otber counsel on the exclusion from gross income for Federal income tax purposes of interest on tbe Bonds, or under state and local tax law. Certain Ongoing Federal Tax Requirements and Covenants The Code establishes certain ongoing requirements tbat must be met subsequent to the issuance and delivery of the Bonds in order tbat interest on tbe 130nas be and remain excluded from gross Income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of tbe Bonds, yield and otber restrictions on investments of gross proceeds, and the arbitrage rebate requirement tbat certain excess earnings on gross_proceeds be rebated to fbe Federal government. Noncompliance wifb such requirements may cause interest on tbe Bonds to become included in gross income for Federal income tax I'.llrposes retroactive to tbeir issue date, irrespective oftbe date on which such noncompliance occurs or is discovered. The Town has covenanted to comply witb certain applicable requirements of the Code to assure tbe exclusion of interest on the Bonds from gross income under SectIOn 103 of the Code. Certain CoIlateral Federal Tax Consequences The foIlowing is a brief discussion of certain collateral Federal income tax matters with respect to tbe Bonds. It does not purport to address all aspects of Federal taxation tbat may be relevant to a particular owner of a Bond. Prospective investors, particularly those who may be subject to special rule~ are advised to consult tbeir own tax advisors regarding the Federal tax consequences of owning and disposing or the Bonds. Pros[lective owners of tbe Bonds should be aware tbat the ownership of such obligations may result in coIlateral Feoeral income tax consequences to various categories of persons, such as cO!llorations (including S cO!llorations and foreign corporations), financial institutions, property and casualty and life insurance compames indIvidual reci[lients of Social Security and railroad retirement benefits, individuals otberwise eligible fortbe earned income tax creoit, and taxpayers deemed to have incurred or continued Indebtedness to purchase or carry obligations tbe interest on which is excluded from gross income for Federal income tax [lurposes. Interest on the Bonds may be taken into account in determining tbe tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Original Issue Discount "Original issue discount" ("OlD") is tbe excess oftbe sum of all amounts payable at tbe stated maturity of a Bond (excluding certain "qualified stated interest" that is unconditionally payable at least annually at prescribed rates) over tbe issue frice oCtbat maturity. In general, the "issue price" of a maturity means the first price at which a substantial amoun of tbe Bonds of that maturity was sold (excluding sales to bond houses, brokers, or similar persons acting in tbe capacity as underwriters, placement agents, or wholesalers). In general, the issue pnce for each maturity of Bonds is expected to be tbe initIal public otlering price set fortn on the cover page of the Official Statement. Bond Counsel further is of the opinion that, for any Bonds having OLD (a "Discount 13ond"), OlD that 17 has accrued and is properly allocable to the owners of the Discount Bonds under Section 1288 of the Code is excludable from gross mcome for Federal income tax purposes to the same extent as other interest on the Bonds. In general, under Section 1288 of the Code, OID on a Discount Bond accrues under a constant yield method, based on periodic compounding of interest over prescribed accrual periods using a compounding rate determined by reference to the yield on that Discount Bond. An owner's adjusted basis in a Discount Bond is increased by accruen OID for purposes of determining gain or loss on sale, exchange, or other disposition of such Bond. Accrued OID may be taken into account as an increase in the amount of tax-exempt income received or deemed to have been receiven for purposes of ~etermining various other tax consequences or owning a Discount Bond even though there will not be a correspondmg cash payment. Owners of Discount Bonds should consult their own tax advisors with respect to the treatment of original issue discount for Federal income tax purposes, including various special rules relating thereto, and the state and local tax consequences of acquiring, holding, and aisposing of Discount Bonds. Bond Premium In genera,!, if an owner acquires a Bond for a purchase price (excluding accrued interest) or otherwise at a tax basis tliat renects a premium over the sum of all amounls payable on the Bond after the acquisition date (excluding certain "qualified stated interest" that is unconditionally payable at least annually at prescribed rates). that premium constitutes "bond premium" on that Bond (a "Premium Bond"). In general, under Section 171 ofthe Code. an owner of a Premium Bond must amortize the bond premium over the remaming term ofthe Premium Bond, basea on the owner's yield over the remaining term of the Premium Bond determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and Yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner's regular method of accounting against the bond premium allocable to that period. In the case of a tax-exempt Premium Bond, if the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even thouclJ it is sold or redeemed for an amount less than or equal to tlie owner's onginal acquisition cost. Owners of any Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for Federal income tax pU!'Poses, including various special rules relating thereto, and state and local fax consequences, in connection witli the acquisition, ownership, amortization of bond premIUm on, sale, exchange, or other disposition of Premium Bonds. Backup Withholding Under the Code, interest on tax-exempt obligations paid after March 31, 2007, includinginterest on the Bonds, is subject to "backup withholding" if the recipient of the interest does not complete a Form W-9 Request for Taxpayer Identification Number and Certification, or otherwise provide to the payor (i.e., the financial inslitution paying the interest on behalf of the Town a taxpayer identification number). "Backup Withholding" means that tlie payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Cone. In general, it is expected that owners purchasing the Bonds through a brokerage account will have executed a Form W-9 in connection with the establishinent of such account so that no backup withholding will occur. The backup withholding requirement does not affect the excludability of the interest on tlie Bonds from gross income for federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against tlie owner's federal income tax once the required information is furnished to the Internal Revenue Service. Legislation Legislation affecting municipal bonds is regularly under consideration by the United States Congress. There can be no assurance that legislation enacted or proposed after the date of issuance of the Bonds will not have an adverse effect on the tax-exempt status or market pnce of the Bonds. DOCUMENTSACCOMP~GDELnffiRYOFTHEBONDS Absence of Litigation Ullon delivery of the Bonds the Town shall furnish a certificate of the Town Attorney, dated the date of delivery of the Bonds, to the effect that there is no controversy or litigation of any nature pendmg or threatened to restrain or enjoin the issuance;., sale, execution or deliv~ry of !he Bonns, or in any way contesting or affectjng the validity of the Bonds or any or the proceedmgs taken wltli respect to the Issuance and sale thereof or the apphcatlOn of moneys to the payn:1ent of the Bonds, and fUrther stating tha! there is no controversy or litiEation of any nature now pending or threatened by or against the Town wherein an adverse judgment or ruling couldltave a material adverse Impact on the financial conditIOn of the Town or adversely affect the power of the Town to levy collect and enforce the collection of taxes or other revenues for the payment of the Bonds, which has not been disclosed in this Official Statement. 18 Legal Matters Legal matters incident to the authorization issuance and sale of the Bonds will be subject to the final aJlproying opinion of Hawkinspelafield & Wood LLp, Bond Counsel: Such opinion. will be available at the time oTdehvery of the Bonds and Will be to the effect that the Bonds are vahd and legally bmdmg general obligations of the Town for which the Town has validly pledged its faith and credit and, unless paid from other sources all the taxable real property within the Town is subject to the levy of ad valorem real estate taxes to pay the Bonds and interest thereon witliout limitation of rate or amount. Said opinion shall also contain further statements to the effect that (a) the enforceability of rigqts or remedies with respect to such Bonds may be limited by bankruJltcy, insolvency or other laws affecting creditors' rights or remedies heretofore or hereafter enacted, and (b) said law lirm has not been requested to examine or review and has not examined or reviewed the accuracy or sufficiency of the Official Statement, or any additional proceedings! reports, correspondence, financial statements or other documents, containing financial or other information re ative to the Town which have been or may be furnished or disclosed to purchas~rs of the Bonds, and expresses no opinion with respectto such financial or other information, or the accuracy or suffiCiency thereof. Closing Certificates Upon the delivery,ofthe Bonds, the Purchaser will be furnished with the following items: (i) a Certificate of the Supervisor to the en-ect that as of the date of this Official Statement and at all times subsequent thereto, up to and including the time of delivery of the Bonds, this Official Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading, and further stating that there has been no adverse material change in the financial condition of the Town since the date of this Official Statement up to and including the time of delivery of the Bonds, and having attached thereto a copy of this Official Statement; (ii) a Certificate signed ~y the Supervisor evidencing payment for the Bonds; (iii) a Signature Certificate evidencing the due execution of the Bonds, including statements tliat (a) no litigation of any nature is pending or threatened, restraining or enjoining the Issuance and delivery of the Bonds or the levy and collection of taxes to pay the principal of and interest thereon, nor in any manner questIOning the proceedings and authority under which tlie Bonds were authorized or affecting the validity of the Bonds thereunder, (b) neither the corporate existence or boundaries of the Town nor the title of any of the officers thereof to their respective offices is being contested, and (c) no authority or proceedings for the issuance of the Bonds have been repealed, revoked or rescinded; and (iv) an Arbitrage andDse of Proceeds Certificate executed by the Supervisor, as described under "Tax Matters". DISCLOSURE UNDERTAKING This Official Statement is in a form "deemed final" by the Town for the pUl'Jloses of Securities and Exchange Commission Rule l5c2-l2. At the time of the delivery of the Bonds, the Town will provide an executed copy of Its "Undertaking to Provide Continuing Disclosure" (the "Undertaking"). Said Undertaking will constitute a written agreement or contract of the Town for the benefit of holders of and owners of beneficiar interests in the Bonds, to provide, or cause to be provided: (I) during any succeeding fiscal year of the Town in which the Bonds are outstanding.!o (a) each nationally recognized municipal securities information repository ("NRMSIR") and (b) the New york State Information Depository, if created, ("SID"), (i) certain annual financial information, in a form generally consistent with the information contamed or cross-referenced in this Official Statement under theneadings: "The Town"j "Economic and Demogra/;'hic Information","Indebtedness of the Town", "Finances of the Town", "Rea Property Tax information, and "Litigation"; and in Appendix A, on or pnor to the 1 80th day following the end of each fiscal year, including (ii) the audited financial statement, if any, for the preceeding fiscal year of the Town, unless such audited financial statement, if any, shall not then be available in which case the unaudited financial statement shall be provided and an audited financial statement shall be delivered to each NRMSIR and to the SID within 30 days after it becomes available and in no event later than 360 days after the end of each fiscal year; (2) to (a) each NRMSIR, or to the Municipal Securities Rulemaking Board ("MSRB"), and to (b) the SID, timely notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) principal and interest paY!l1ent delinquencies: (ii) non-payment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (V) substitution of credit or lIquidity providers, or their failure to per(orm; (vi) adverse tax opinions or events affecting the tax-exempt status ofllie Bonds; (vii) modifications to ng!its of Bondholders; (viii) bond calls; (ix) defeasances; (x) release, substitution, or sale of property secunng repayment of the Bonds; and (xi) rating changes. The Town may provide notice of the occurrence of certain other events, in addition to those listed above, if it determines that any such other event is material with respect to the Bonds; but the Town does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above; and (3) to (a) each NRMS~ or to the MSRB, and to (b) the SID, in a timely manner, notice ofa failure to provide the annual financial mformation by the date specified. 19 The Town's Undertaking shall remain in full force and effect until such time as the principal of redemption premiums, if any, and interest on the Bonds shall have been paid in full. The sole and exclusive remedy for breach or default under the Undertakin~ is an action to compel specific performance of the undertakings of the Town, and no person or entity, including a liolder of the Bonds, shall be entitled to recover monetary damages thereunder under any circumstances. Any failure by the Town to comply with the Undertaking will not constitute a default with respect to the Bonds. The Town reserves the right to amend or modifY the Undertaking under certain circumstances set forth therein provided that any such amendment or modification will be done in a manner consistent with Rule 15c2-12 as then In effect. The Town is in compliance with all previous undertakings made pursuant to Rule 15c2-12. BOND RATING Moody's Investors Service, Inc., will assign their municipal bond rating of "Aaa" respectively, to this issue of Bonds with the understanding that up'on delivery of the Bonds, a policy insuring the payment when due of the principal of and interest on the Ifonds Will be issued by Ambac Assurance CorporatIon. Such rating reflect only the views of such rating ~gencYi and any desired explanatIon of the si~ificance of such rating should 6e obtained from such rating agency. Genera Iy, a ratingagency Bases its ratings on the information and materials furnished it and on investigatIOn, studies and assumptionsby the rating agency. There is no assurance that a particular ratin~ will apply for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment orthe agency originaIry establishing the rating, circumstances so warrant. The underwriter lias undertaken no responsibility to bring to the attention of the holders of the Bonds any proposed revision or withdrawal. Any downward revision or withorawal of such rating, or either of them, could have an adverse effect on the market pnce of the Bonds. Such rating should not be taken as a recommendation to buy or hold the Bonds. FINANCIAL ADVISOR Munistat Services, Inc. has assisted the Town as financial advisor in certain matters with respect to the sale and issuance of the Bonds. ADDITIONAL INFORMATION Additional information may be obtained upon request from the office of the Town Comptroller, Town of Southold, Town Hall, P.O.B. 1179, Southold, New York I 1971, telephone number 631/765-4333, or from the office of Munistat Services, Inc., 12 Roosevelt Avenue, Port Jefferson ~tation, New York 11776, telephone number 631/331-8888 and website: http://www.munistat.com. Any statements in this Official Statement involving matters of opinion or estimates, whether or not expressly so stated, are intended as such and not as representations of fact. No representation is made that any of such statements will be realized. This Official Statement is not to be construed as a contract or agreement between the Town and the original purchasers or holders of any of the Bonds. This Official Statement is submitted only in connection with the sale of the Bonds by the Town and may not be reproduced or used in whole or in part for any other purpose. TOWN OF SOUTHOLD, NEW YORK By: sls SCOTT A. RUSSELL Town Supervisor and Chief Fiscal Officer March 27, 2007 20 APPENDIX A FINANCIAL INFORMATION Balance Sheet General Fnnd Fiscal Year Ending December 31: 2003 2004 2005 ASSETS Cash and Investments $ 8,436,782 $ 10,081,581 $ 9,292,437 Cash - Restricted 0 0 0 Taxes Receivable 0 0 0 Accounts Receivable 1,168 85,426 24,533 Due From Other Funds 15,107 320,243 176,390 Due From Trust Funds 342,253 73 68 State and Federal Aid Receivables 13,195 56,357 81,849 Due From Other Governments 112,471 1,537,312 1,867,136 Supply Inventory 1,296 1,487 1,204 Prepaid Expenses 69,865 526,857 498,344 Deposit 10,000 2,219 0 Total Assets $ 9,002,137 $ 12,611,555 $ 11,941,961 LIABILITIES AND FUND EQUITY Accounts Payable $ 792,860 $ 1,052,240 $ 627,049 Due to Other Funds 426,211 1,625,700 1,888,241 Due to Other Governments 0 388,944 393,570 Due to Trust Funds 595 4,248 7,044 Due to Compnent Units 0 0 0 Deferred Revenues 2,463,059 2,900,729 3,018,595 Total Liabilities 3,682,725 5,971,861 5,934,499 Fund Balances ~ Reserved: Insurance claims 1,033,085 1,234,066 1,105,879 Encumbrances 71,342 4,009 Supply Inventory 1,296 1,487 1,204 Prepaid Expenses 69,865 526,857 498,344 Fund Balances - Unreserved: Designated - Ensuing Year's Budget 2,008,000 1,978,987 2,657,200 Undesignated 2,207,166 2,826,955 1,740,826 Total Fund Equity 5,319,412 6,639,694 6,007,462 Total Liabilities and Fund Equity $ 9,002,137 $ 12,611,555 $ 11,941,961 Sources: Audited Financial Reports of the Town Table itself NOT audited. A-I Statement of Revenues, Expenditures and Changes in Fund Balance General Fund Town Wide Fiscal Year Ending December 31 ; 2llQl 2.QQ2 lQQl 2004 2M Revenues: Real Property Taxes $ 10,965,967 $ 12,237,940 $ 13,247,572 $ 13,962,268 $ 14,608,674 Other Real Property Tax Items 55,069 85,244 51,31 ] 65,720 68,807 Non-Property Tax Items 508,130 401,035 401,035 4]5,071 415,07] Departmental Income 312,033 431,743 315,289 344,217 345,956 Intergovernmental Charges 26],646 214,738 202,917 296,050 252,558 Use of Money & Property 448,483 246,707 201,702 254,142 489,796 Licenses & Permits 198,949 210,863 188,480 214,461 249,] 78 Fines & Forfeitures 97,609 102,032 107,084 107,315 140,192 Sale of Property & Compo for Loss 76,471 135,345 56,893 405,077 93,290 Miscellaneous Local Sources 109,026 115,619 133,346 128,027 432,269 State Aid 1,465,312 1,698,069 2,225,40 I 2,974,027 2,637,870 Federal Aid 239,649 132,527 146,574 160,337 174,348 ~.._- 14,738,344 16,011,862 17,277,604 19,326,712 19,908,009 --~ Expenditures: General Government Support 3,170,906 3,561,142 3,751,469 4,395,571 4,641,568 Public Safety 5,755,775 5,806,827 6,033,207 6,254,365 7,177,]45 Public Health 33,288 33,288 32,988 33,288 33,288 Transportation 335,583 34],671 398,358 401,866 446,877 Economic Assistance & Opportunity 802,249 730,553 833,50 I 931,566 901,139 Culture & Recreation 356,570 350,121 317,769 304,071 354,768 Home & Community Services 501,790 315,764 228,578 341,764 315,273 Employee Benefits 2,742,583 3,616,745 2,617,783 4,868,116 5,857,963 Debt Service Principal & Interest 1,402,074 1,550,447 1,007,318 2, I 04,202 1,560,055 Total Expenditures 15,100,818 16,306,558 15,220,971 19,634,809 21,288,076 Excess (Deficiency) of Revenues Over Expenditures (362,474) (294,696) ~056,633 (308,097) (1,380,067) Operating Transfers In 1,650,724 1,780,257 1,392,850 2,932,574 2,642,859 Operating Transfers Out (],072,732) (1,021,931.2 (1,910,781) (1,304,]95) (1,895,023) Total Other Financing Sources (Uses) 577,992 758,326 (517,931) 1,628,379 747,836 ~.- Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses 215,518 463,630 1,538,702 1,320,282 (632,231) Fund Balance Beginning of Year 3,101,561 3,317,080 3,780,710 5,319,412 6,639,694 .----- Fund Balance End of Year $ 3,317,079 $ 3,780,710 $ 5,319,412 $ 6,639,694 $ 6,007,463 ~-- Sources; Audited Financial Reports of the Town Table itself NOT audited. A-2 Statement of Revennes, Expenditures and Fund Balance Highway Fnnd Fiscal Year Ended December 31: 200] 2002 2003 2004 2005 Revenues: Real Property Taxes $ 3,165,059 $ 3,428,570 $ 3,5]3,902 $ 3,520,332 $ 3,805,032 Other Real Property Tax Items 6,028 II ,885 6,428 3,679 9,046 Non-Property Tax items 396 3,098 0 0 Intergovernmental Charges ] ]6,82] 0 ] 5,573 0 0 Use of Money & Property 79,827 34,626 ]8,520 23,884 77,817 Licenses & Permits 5,887 10,35] 8,23 ] 4,937 11,126 Sale of Property & Compo for Loss 9,593 0 4,033 2,960 2,796 Miscellaneous Local Sources ],416 25,937 0 16 155,054 Interfund Revenues 8,517 4,852 0 0 0 State Aid 223,305 0 458,686 228,337 188,147 Federal Aid 0 0 67,699 0 0 3,6]6,849 3,519,3] 9 4,093,072 3,784,145 4,249,018 Expenditures: Transportation 3,076,012 2,550,776 2,733,5] 8 2,638,]2] 2,913,768 Employee Benefits 28] ,070 340,172 976,406 415,102 500,343 Debt Service 97,594 88,544 ]5,]28 22,219 178,371 Total Expenditures 3,454,676 2,979,492 3,725,052 3,075,442 3,592,482 Excess (Deficiency) of Revenues Over Expenditures ]62,173 539,827 368,020 708,703 656,536 Residual Equity Transfer Operating Transfers In 0 0 0 0 0 Operating Transfers Out (380,965) (433,271) (60,000) (690,390) (520,085) Total Other Financing Sources (Uses) (380,965) (433,27]) (60,000) (690,390) (520,085) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses (2] 8,792) 106,556 308,020 ]8,3]3 136,45 ] Fund Balance Beginning of Year 706,300 487,508 594,064 902,084 920,397 ---- Fund Balance End of Year $ 487,508 $ 594,064 $ 902,084 $ 920,397 $ ] ,056,848 Sources: Audited Financial Reports of the Town Table itself NOT audited. A-3 Statement of Revenues, Expenditures and Changes in Fund Balance Non-Major Governmental Funds (I) Fiscal Year Ending December 31: 2001 2002 2003 ~ 2QQi Revenues: Real Property Taxes $ 1,584,261 $ 1,465,060 $ 2,197,525 $ 2,506,945 $ 2,381,335 Other Real Property Tax Items 1,037 1,495 874 3,105 2,516 Non-Property Tax Items 97,680 110,225 117,449 336,139 213,786 Departmental Income 2,125,493 2,931,896 2,339,227 2,517,584 2,504,880 Intergovernmental Charges 18,444 1,400 1,614 1,013 1,013 Use of Money & Property 88,750 35,650 18,147 21,365 64,092 Licenses & Permits 139,615 139,295 139,620 199,849 165,965 Fines and Forfeitures 0 0 49,000 0 0 Sale ofproperty & Compo for Loss 76,928 29,772 44,450 76,069 109,137 Miscellaneous Local Sources 13,462 11,423 230 5,025 153,591 lnterfund Revenues 2,274 0 0 0 0 State Aid 102,353 72,935 161,393 72,651 75,374 Federal Aid 210,644 119,380 111,299 166,368 224,136 4,460,941 4,918,531 5,180,828 5,906,113 5,895,825 Expenditures: General Government Support 42,052 42,783 134,969 92,514 99,895 Public Safety 786,251 875,307 749,904 739,198 807,474 Public Health 5,924 6,161 6,408 6,664 6,864 Home & Community Services 0 0 3,230,201 3,225,586 3,102,639 Culture and Reccreation 2,872,654 2,973,763 0 0 0 Employee Benefits 188,543 226,380 874,049 371,038 444,858 Debt Service 314,869 624,315 117,562 88,803 671,720 Total Expenditures 4,210,293 4,748,709 5,113,093 4,523,803 5,133,450 Excess (Deficiency) of Revenues Over Expenditures 250,648 169,822 67,735 1,382,310 ~62,37~_ Operating Transfers In 0 0 0 0 0 Operating Transfers Out (491,624) (375,055) (483,500) (1,081,441) (504,720) Total Other Financing Sources (Uses) (491,624) (375,055) ____(483,500) (1,081,441) _ (504,220) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses (240,976) _J205,233) (415,765) 300,869 257,655 Fund Balance Beginning of Year 1,707,548 1,466,572 1,261,339 845,574 1,146,444 Fund Balance End of Year $ 1,466,572 $ 1,261,339 $ 845,574 $ 1,146,443 $ 1,404,099 ~-- (I) Includes the following funds: General Fund Part Town, Special Grant Fund, East-West Fire Protection Fund, Southold Wastewater District, Fishers Island Sewer District and Solid Waste Management District. Sources: Audited Financial Reports of the Town Table itself NOT audited. A-4 BUDGET SUMMARY Fiscal Year Ending December 31, 2006 Appropriations Less: Less; and Provisions Estimated Unexpended Amount to be Fund for Other Uses Revenues Balance Raised bv Tax General $ 22,209,] 99 $ 4,679,263 $ 2,657,200 $ ]4,872,736 General.Outside Village 1,795,416 958,174 344,246 492,996 Highway-Townwide 0 100 16,000 (16,100) Highway-Outside Village 4,769,679 318,332 339,900 4,111,447 Community Development 159,000 159,000 0 0 Risk Retention Fund 1,055,000 1,055,000 0 0 Community Preservation Fund 4,606,000 4,606,000 0 0 Employees Health Plan 2,411,400 2,036,400 375,000 0 Total-Town $ 37,005,694 $ 13,812,269 $ 3,732,346 $ 19,461,079 East-West Fire Protection District 464,393 2,000 4,350 458,043 Fishers Island Ferry District 2,389,000 1,989,000 0 400,000 Solid Waste Management District 4,031,733 2,096,200 168,000 1,767,533 Southold Wastewater District 111,790 14,000 75,000 22,790 Fishers Island Sewer District 20,000 17,700 2,300 0 F.L Refuse & Garbage District 563,500 0 0 563,500 Orient Mosquito District 76,285 0 0 76,285 Subtotal-Special Districts $ 7,656,701 $ 4,118,900 $ 249,650 $ 3,288,151 Orient-East Marion Park District 27,655 37 0 27,6]8 Southold Park District 315,000 0 0 315,000 Cutchogue-New Suffolk Park Dist. 141,000 0 0 141,000 Manituck Park District 504,910 _18,800 60,000 426, II 0 Subtota.I-Park Districts $ 988,565 $ 18,837 $ 60,000 $ 909,728 Fishers Island Fire District 343,300 3,300 0 340,000 Orient Fire District 356,540 2,000 0 354,540 East Marion Fire District 427,342 8,640 0 418,702 Southold Fire District 1,358,392 21,000 0 1,337,392 Cutchogue Fire District 1,413,000 1,400 0 1,411,600 Mattituck Fire District 1,818,]35 0 0 1,818,135 Subtotal-Fire Districts $ 5,716,709 $ 36,340 $ 0 $ 5,680,369 Total-All Districts 14,361,975 4,174,077 309,650 __ 9,878,248 Grand Total $ 51,367.669 $ 17,986,346 $ 4.041.996 $ 29.339.327 Source: Annual Budget of the Town. A-5 BUDGET SUMMARY Fiscal Year Ending December 31, 2007 Appropriations Less: Less: and Provisions Estimated Unexpended Amount to be Fund for Other Uses Revenues Balance Raised bv Tax General $ 22,951, I 02 $ 4,810,191 $ 1,935,000 $ 16,205,911 General-Outside Village 1,869,139 1,002,600 459,000 407,539 Highway-Townwide 0 600 16,900 (17,500) Highway-Outside Village 4,938,330 406,635 486,500 4,045,195 Community Development 136,000 136,000 0 0 Risk Retention Fund 1,015,000 1,015,000 0 0 Community Preservation Fund 10,697,328 5,350,000 5,347,328 0 Employees Health Plan 2,662,000 2,412,000 250,000 0 T otal~ Town $ 44,268,899 $ 15,133,026 $ 8,494,728 $ 20,641,145 East-West Fire Protection District 509,828 4,600 6,228 499,000 Fishers Island Ferry District 3,038,000 2,448,000 0 590,000 Solid Waste Management District 4,058,562 2,151,500 0 1,907,062 Southold Wastewater District 128,316 10,020 100,000 18,296 Fishers Island Sewer District 20,000 17,700 2,300 0 F.1. Refuse & Garbage District 512,300 0 0 512,300 Orient Mosquito District 82,235 0 0 82,235 Subtotal-Special Districts $ 8,349,241 $ 4,631,820 $ 108,528 $ 3,608,893 Orient-East Marion Park District 30,695 0 0 30,695 Southold Park District 315,000 0 0 315,000 Cutchogue-New Suffolk Park Dist. 145,000 0 0 145,000 Mattituck Park District 540,027 22,500 50,000 467,527 Subtotal-Park Districts $ 1,030,722 $ 22,500 $ 50,000 $ 958,222 Fishers Island Fire District 357,300 3,300 0 354,000 Orient Fire District 40 I ,040 2,000 0 399,040 East Marion Fire District 490,600 12,200 0 478,400 Southold Fire District 1,512,875 33,540 0 1,479,335 Cutchogue Fire District 1,412,500 1,400 0 1,411,100 Mattituck Fire District 1,857,967 0 0 1,857,967 Subtotal-Fire Districts $ 6,032,282 $ 52,440 $ 0 $ 5,979,842 Total-All Districts 15,412,245 4,706,760 158,528 10,546,957 Grand Total $ 59,681, 144 $ 19,839,786 $ 8,653,256 $ 3\,188,102 Source: Annual Budget of the Town. A-6 ,.~"___"~_,~.,_,_~.w-,,"_~_""'. '" TOWN OF SOUTHOLD APPENDIX B AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005 I FINANCIAL SECTION I Independent Auditors' Report.... ............... .............. .... ....... .......... .......... .... ....... ...... .............. .................... . 1-2 REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis..................... ... ............ ........................ ........ .............. 3-11 I BASIC FINANCIAL STATEMENTS I Government-Wide Financial Statements Statement of Net Assets........ .......... ........ .............................. ..... ..... .......... ............. .......... ...................... 12 Statement of Activ~ies ............................................................................................................................ 13 Fund Financial Statements Govemmental Fund Rnancial Statements Balance Sheet and Reconciliation of the Governmental Funds Balance Sheet to The Statement of Net Assets............ ......... ....................................................... ............. 14-15 Statement of Revenues, Expenditures, and Changes in Fund Balances and Reconciliation of the Govemmental Funds Statement of Revenues. Expend~ures, And Changes in Fund Balances to the Statement of Activities.................. ................. ............ 16-17 Fiduciary Fund Rnancial Statements Statement of Rduciary Net Assets...... ...... ............... ............... ......... ...... .................................. 18 Notes to Financial Statements .................................................................................................................. 19-33 REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANGEMENT DISCUSSION AND ANALYSIS Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual General Fund ... ................................. ....................................................... ............ ...... J4 Highway Fund... ......... ............ ...... ......... ...... .......... ..... ...... ............... ............ ................ 35 OTHER SUPPLEMENTARY INFORMATION COMBINING FUND STATEMENTS: Non-major Governmental Funds Combining Balance Sheet...... .................. ............................... ....................... ......... ...... J6 Combining Statement of Revenues, Expend~res, and Changes in Fund Balances................... 37 DISCRETELY PRESENTED COMPONENT UNITS Discretely Presented Component Units: Combining Statement of Net Assets ...................................................................................................... J8 Combining Statement of Activities.......................................................................................................... 39 FINANCIAL SECTION " ..~-----_..,'~.~,,-....~,--- Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Town of Southold, New York's basic financial statements. The combining and individual fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements has been subjected to the auditing procedures applied in the audit of the basic financial statements of the Town of Southold, New York, and, in our opinion, is fairly presented in all material respects in relation to the basic financial statements taken as a whole. In accordance with Govemmenf Auditing Standards, we have also issued a report dated June 8, 2006 on our !:Qnsideration of the Town of Southold, New York internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Our audit was performed for the purpose of fonning an opinion on the general-purpose financial statements, taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the general purpose financial statements of the Town of Southold, New York. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the general purpose financial statements taken as a whole. ~ Y.;s.:'~, ? L/' 4.;-1- r. c. Hauppauge, New York June 8, 2006 -2- REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2005 The following is a discussion and analysis of the Town of Southold's financial performance, providing an overview of the Town's financial activities for the year ended December 31,2005. Use this section In conjunction with the Town's basic financial statements. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Statement of Net Assets and the Statement of Activities provide Information about the activities of the Town as a whole and present a longer- tenn view of the Town's finances. For govemmental activities. these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the Town's operations in more detail than the government-wide statements by providing infonnation about the Town's most significant funds. The remaining statements provide financial Infonnation about activities for which the Town acts solely as a trustee agent for the benefit of those outside of the government. ReportinQ the Town as a Whole The Statement of Net Assets and the Statement of Activities One of the most Important questions asked about the Town's finances is, "Is the Town as a whole better off or worse off as a result of the year's activities?" The Statement of Net Assets and the Statement of Activities report information about the Town as a whole and about its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. The Statement of Activities Is significantly different than a typical Statement of Revenues, Expenses. and Changes in Fund Balance. You will notice that expenses are listed in the first column with revenues from that particular program reported to the right. The result is a net (axpense)/revenue. The reason for this kind of fonnat is to highlight the relative financial burden of each of the functions on the Town's taxpayers. It also identifies how much each function draws from the general revenues or if it Is self-financing through fees and grants. All of the current year's revenues and expenses are taken into account regardless of when cash Is received or paid. These two statements report the Town's net assets and their respective changes. You can think of the Town's net assets-the difference between assets and Iiabilities-as one way to measure the Town's financial health, or financial position. Over time, increases or decreases in the Town's net assets are one Indicator of whether its financial health Is improving or deteriorating. You will need to consider other non-financial factors, however, such as changes In the Town's property tax base and the condition of the Town's buildings, roads, drainage and other assets to assess the overall health of the Town. In the Statement of Net Assets and the Statement of Activities, we divide the Town into two kinds of activities: . Governmental activities - The Town's basic services are reported here, including: general government support; public safety; public health; transportation; economic assistance and opportunity; culture and recreation and home and community services. Property taxes, sales taxes, franchise fees, fines, and state and federal grants finance these activities. The Town also charges fees to customers to help It cover the cost of certain services it provides. . Component units - The Town Includes 7 separate legal entities In its report (one ferry district, one sanitation district, one mosquito district and four park districts). Although legally separate, these "component units" are important because the Town is financially accountable for them. Complete financial statements of the individual component units can be obtained from their respective administrative offices (Note A). TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2005 ReDortina the Town's Most Sianlflcant Funds Fund Financial Statements The fund financial statements provide detailed information about the most significant funds-not the Town as a whole. Some funds are required to be established by State law and by bond covenants. However, the Town establishes many other funds to help it control and manage sources of funding and spending related to specific activities. The Town's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the Town's general govemment operations and the basic services it provides. Govemmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Town's programs. We describe the relationship (or differences) between govemmental activities (reported in the Statement of Net Assets and the Statement of Activities) and govemmental funds in a reconciliation that follows these fund financial statements. The Town as Trustee Reoortlna the Town's FlduclalV Resoonsibilities All of the Town's fiduciary activities are reported in a separate Statement of Fiduciary Net Assets. We exclude these activities from the Town's other financial statements because the Town cannot use these assets to finance its operations. The Town is responsible for ensuring that the assets reported In these funds are used for their intended purposes. FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE Our analysis below focuses on the net assets and changes in net assets of the Town's govemmental activities. Condensed Statement of Net Assets Govemmental Activities as of December 31,2005 and 2004 Assets Current and other assets Capital assets Total assets Liabilities Other Iiabiltties Long-term liabilities T otalliabilities Net assets Invested In capital assets, net of related debt Unrestricted Total net assets 2005 2004 $ 26,265,665 $ 25,448,645 90,294,079 81,374,480 116,559,744 106,823,125 16,289,370 14,665,546 14,916,051 15,732,844 31,205,421 30,398,390 81,044,981 4,309,342 $ 85,354,323 $ 71,352,951 5,071,784 76,424,735 -4- TOWN OF SOUTHOLD MANAGEMENTS DISCUSSION AND ANALYSIS December 31, 2005 FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE (continued) Total assets in the Towns as of December 31, 2005 were $116.5 million, an increase of $9.7 million. Total liabilities as of December 31, 2005 were $31 million, an increase of approximately $1 million. This results in a net asset balance of $85.3 million, an Increase of $8.9 million. Of the Town's net asset balance $81 million were invested in capital assets, net of related debt; while $4.3 million was unrestricted. Changes In Net Assets Govemmental Activities for the years ended December 31, 2005 and 2004 2005 2004 Program Revenues Charges for services $ 10,723,666 $ 9,556,554 Operating grants and contributions 859,484 790,169 Capital grants and contributions 3,502,247 915,998 Total Program Revenues 15,085,417 11 ,262,721 General Revenues Real property taxes 20,795,041 19,989,545 Other real property tax items 80,369 72,504 Non-property tax items 628,857 751,210 Interest earnings 766,413 264,223 State aid - unrestricted 2,527,110 2,867,169 Other 709,352 228,738 Total General Revenues 25,507,142 24,173,389 Total Revenues 40,592,559 35,436,110 Program Expenses General government support 6,621,408 7,274,110 Public safety 11,342,991 9,899,209 Public health 43,559 42,551 Transportation 6,627,876 6,297,105 Economic assistance and opportunity 1,208,467 1 ,225,690 Culture and recreation 356,167 447,119 Home and community services 4,961,051 2,052,178 Interest on debt 501 ,452 460,838 Total Expenses 31,662,971 27,698,800 Increase in Net Assets $ 8,929,588 $ 7,737,310 ,._,."-_........'""~.._,..._..~-,. . .-". TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2005 FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE (continued) Net Cost of Services Governmental Activities for the year ended December 31, 2005 General government support Public safety Public heatth Transportation Economic assistance and opportunity Culture and recreation Home ana community services Interest on debt Total Cost of Services $ 6,621,408 11,342,991 43,559 6,627,876 1,208,467 356,167 4,961,051 501,452 $ 31,662,971 ,. ____,',..~~".~...~.,..,~"..."o._,.,.._....m~ Net Cost of Services $ 6,265,526 1 0,588, 154 33,574 6,426,952 833,388 168,136 (8,239,628) 501,452 $ 16,577,554 The cost of all governmental activities this year was $31.6 million. The net cost of these services, however, after subsidized by program revenues including charges for services and program grants, was $16.5 million. The Town's change in net assets after general revenues of $25.5 million was an increase of $8.9 million. Net Cost of Services Governmental Activities for the year ended December 31, 2005 General government support Pu blic safety Public heaith Transportation Economic assistance and opportunity Culture and recreation Home and community services Interest on debt " Total Cost of Services $ 6,621,408 11,342,991 43,559 6,627,876 1 ,208.467 356,167 4,961,051 501,452 $ 31,662,971 Program Revenues $ 355,882 754,837 9,985 200,924 375,079 188,031 13,200,679 $ 15,085,417 TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2005 FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE (continued) $14,000,000 $12,000,000 $10,000,000 $8.000,000 $8.000.000 $4,000,000 $2,000,000 """"""" _and - 2% Olher - ........ 0lI Expenses and Program Revenue. Governmental Activities $- . Expenses . Program Revenues - _m.... - Publca8lety PubJIche8tth TRlnapoIt8tIon EconamIc ...-... and -- _on - ~ _and -- S% Real - - 52'llo Slale sOl - CuI... .... ....-... Homo and .......... -- Revenue by Source Governmental AclIvitles For the year ended December 31, 2005 Real property !aXes Stale aid - unrestricted Charges for services Other generall8llllllUes Operating grants and conlrlbutions Capital grants and contributions $20,795,041 2,527,110 10,723,686 2,184,991 659,484 3,502,247 $ 40,592,559 TOWN OF SOUTHOLD MANAGEMENTS DISCUSSION AND ANAlYSIS December 31, 2005 FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE (continued) THE TOWN'S FUNDS The general fund balance has decreased by approximately $600,000 due primarily to actual expenditures in excess of revenues. Although there was a decrease In fund balance, this decrease was less than amounts budgeted. The following schedule presents a summary of the governmental fund - (general, special revenue, and capital projects) revenues and expenditures for the year ended December 31, 2005, and the amount of change and percentage of total in relation to the prior year. Increase % 2005 2004 (Decrease) Change REVENUES Real property taxes $ 20,795,041 $ 19,989,545 $ 805,496 3.9% Other real property tax items 80,369 72,504 7,865 9.8% Non-property tax items 628,857 751,210 (122,353) -19.5% Departmental income 2,850,836 2,861,801 (10,965) -0.4% Intergovernmental charges 7,453,845 6,342,748 1,111,097 14.9% Use of money and property 906,664 407,338 499,326 55.1% Licenses and pennits 426,269 419,247 7,022 1.6% Fines and forfeitures 140,192 107,315 32,877 23.5% Sale of property and compensation for loss 205,223 484,106 (278,883) -135.9% Miscellaneous local sources 1,292,371 294,522 997,849 77.2% State aid 3,946,391 3,825,015 121,376 3.1% Federal aid 1,909,023 326,705 1,562,318 82.9% Total Governmental Fund Revenues $ 40,635,081 $ 35,882,056 $ 4,753,025 11.7% EXPENDITURES General government support $ 4,741.463 $ 4,488,085 $ 253,378 5.3% Public safety 7,984,619 6,993,563 991,056 12.4% Public health 40,152 39,952 200 0.5% Transportation 3,360,645 3,039,987 320,658 9.5% Economic assistance and opportunity 901,139 931,566 (30,427) -3.4% Culture and recreation 3,457,407 3,567,350 (109,943) -3.2% Home and community services 315,273 304,071 11 ,202 3.6% Employee benefits 6,803,164 5,654,256 1,148,908 16.9% Capital 12,788,366 8,756,057 4,032,309 31.5% Debt service principal and interest 2.439,675 2,215,224 224.451 9.2% Total Governmental Fund Expenditures $ 42,831,903 $ 35,990,111 $ 6,841 ,792 16.0% GENERAL FUND BUDGETARY HIGHLIGHTS Over the course of the year the Town Board revises the budget as needed so that expenditures do not exceed appropriations. In all Town funds, various transfers between appropriations were approved for this purpose. TOWN OF SOUTHOLD MANAGEMENTS DISCUSSION AND ANALYSIS December 31,2005 CAPITAL ASSET AND DEBT ADMINISTRATION CaDital Assets As of December 31, 2005 the Town had $90.3 million in net capital assets Including land, buildings, Improvements, machinery and equipment, and Infrastructure. The Town's component units had $8 million In net capital assets Including land, buildings, Improvements, machinery and equipment, and sewer mains. Capital Assets at December 31, Primary Qovemment 2005 2004 Land $ 47,772,278 $ 37,795,087 Construction in progress 1,608,081 398,912 Buildings 4,574,513 4,569,296 Improvements other than buildings 13.498,954 13,469,136 Machinery and equipment 9,522,815 8,686,593 Infrastructure 70,038,525 69,334,187 Totalcapttalassets 147,015,166 134,253,211 Less accumulated depreciation 56,721,087 52,878,731 Primary government - Total net capttal assets $ 90,294,079 $ 81.374,480 Comoonent untts Land $ 2,213,759 $ 2,213,759 Buildings 3,540,111 3,416,944 Improvements other than buildings 2,575,589 2,575,589 Machinery and equipment 3,200,728 3,170,695 Infrastructure 2,138,386 2,121,386 Totalcapttalassets 13.668,573 13.498,373 Less accumulated depreciation 5.639,830 5,236,652 Component untts - Total net capital assets $ 8,028,743 $ 8,261,721 .Q. TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANAlYSIS December 31, 2005 CAPITAL ASSET AND DEBT ADMINISTRATION (continued) Capital Assets (continued) The capital program is a long range financing guide and not a definitive plan. Each appropriation must be authorized by Town Board resolution before being undertaken. Each may be financed by issuance of general obligation bonds, which, at times, are preceded by issuance of bond anticipation notes for various periods of time depending on the probable usefulness of the purpose of expenditure. The following sets forth a summary of the Town's capital program. (Dollars In thousands): Eauipment General Fund Highway Fund Special Districts $ 2006 345,900 2,500 20.000 368.400 Total Equipment $ Improvements Total Improvements $ 440,130 800.000 $ 1.240.130 $ 1 608 530 General Fund Special Districts Total Program Additionallnfonnation on the Town's capital assets can be found in Note C.3 to the financial statements. Debt Administration The Town of Southold's credit rating from Moody's Investors Services was upgraded to A 1 from A2 in February 2005. Debt Umit - The Town has the power to contract indebtedness for any Town purpose so long as the principal amount thereof, subject to certain limited exceptions, shall not exceed seven percent of the allllrage full valuation of taxable real estate of the Town, and subject to certain enumerated exclusions and deductions such as water and certain sewer facilities and cash or appropriations for current debt service. The constitutional method for detennining full valuation is calculated by taking the assessed valuation of taxable real estate as shown upon the latest completed assessment roll and dividing the same by the equalization rate as determined by the State Board of Equalization and Assessment. The Stale Legislature is required to prescribe the manner by which such ratio shall be detennined. Average full valuation is detennined by taking the sum of the full valuation of the last completed assessment roll and the four preceding assessment rolls and dividing such sum by five. Percentage of debt contracting power exhausted at December 31, 2005 was 2.16%. At. December 31, 2005, the Town had approximately $9.2 million in long tenn general obligation bonds outstanding, of which $9 million was for general Town purposes. Also outstanding at year-end were bond anticipation notes in the amount of $8.8 million of which $6 million was for general Town purposes. Additional infonnation on the Town's debt activity can be found in Note C.4 to the financial statements. -10- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2005 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES Prooertv Tax The Town has adopted a budget for the 2006 fiscal year which factors in inflation and other adjustments to revenues and expenditures as well as prior year positive and negative fund balances. The 2006 budget includes an overall increase in real property tax revenues from the prior year of approximately 3.9% for the general Town governmental activities. State AId and Local Assistance The Town receives financial assistance from New York State and from Suffolk County. During 2005, financial assistance Included state aid consisting of mortgage tax of $2.5 million, consolidated highway aid of $188 thousand, and community preservation aid of approximately $1 million. State aid per capita was $75.3 thouSElnd and County local government assistance was $211.7 thousand. Additionally, if the State should not adopt Its budget In a timely manner, municipalities and school districts In the Stete, including the Town, may be affected by a delay In the payment of state aid. The State is not constitutionally obligated to maintain or continue state aid to the Town. The Town's 2006 budget included similar amounts for this financial assistance. Retirement SYStem The New York State Employees Retirement System, having suffered some adverse effects of the weak stock market conditions, was expected to require payments in excess of amounts the Stale had originally anticipated for the year ended 2005. When establishing the 2005 budget, the Town had anticipated these excess payments. However, due to a change In the billing cycie, the State was able to hold the contribution rates to those the State had originally anticipated. The Town subsequentiy re-appropriated the budgeted but unexpended excess payment In the 2005 budget. The State's new billing cycie will require a minimum contribution rate of 4.5%. Employer contribution for subsequent years will be based on the Russell 3000 performance as of April 1 of the preceding two years. In 2003 the Town of Southold adopted the New York State Early Retirement Incentive Program as authorized by Chapter 69 of the Laws of 2002. The option to retire early ran through December 31,2002. The eligibility . varied based on tier, age and years of service, but all options required that the employees be at least fifty (50) years of age and being vested In the New York State Retirement System. As part of its contractual agreements with the unions, the Town of Southold also offers fully paid health insurance benefits (but not welfare benefits) for the retiree and their present spouse until death of the retiree. CONTACTING THE TOWN'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and creditors with a general overview of the Town's finances and to show the Town's accountability for the money It receives. If you have questions about this report or need additional financial Information, contact the Town of Southold, Office of the Town Comptroller, Southold, New York. .. .-_.--- -.-.'-~'._~--"'~"" .,., BASIC FINANCIAL STATEMENTS TOWN OF SOUTHOLD GOVERNMENT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET ASSETS December 31, 2005 Primary Governmental Component Activities Units ASSETS Current Assets: Cash and investments $ 20,968,117 $ 1,250,827 Accounts receivable, net of allowances 236,215 3,561 Due from fiduciary funds 68 Due from other governments 2,631,939 Due from primary government 949,145 State and federal aid receivables 1,127,523 48,767 Prepaid charges 1,130,599 45,140 Inventory of material and supplies 1,204 T alai Current Assets 26,095,665 2,297,440 Non-Current Assets: Deferred charges, net of accumulated amortization 170,000 Non-depreciable capnal assets 49,380,359 15,284,596 Depreciable capital assets, net of depreciation 40,913,720 5,918,714 Total Non-Current Assets 90,464,079 21,203,310 Total Assets 116,559,744 23,500,750 LIABIUTIES Current Liabilities: Accounts payable and accrued liabilities 1,344.864 442,802 Accrued interest payable 227,617 63,941 Bond anticipation notes payable 8,875,000 2,845,000 Due to other governments 393,570 2,271 Due to fiduciary funds 7,044 Unearned revenue 4,402,014 392,414 Other liabilities Non-current Iiabllnies due within one year General obligation bonds payable 755,000 195,000 Due to Employees Retirement System 45,189 Claims and judgments payable 220,000 Estimated liability for landfill dosure and postclosure care costs 19,072 Total Current Liabilities 16,289,370 3,941,428 Non-Current Liabilities: General obligation bonds payable 8,494,098 2,855,000 Due to Employees Retirement System 48,804 Compensated absences 5,779,826 Estimated liability for landf~1 closure and postdosure care costs 593,323 Total Non-Current Liabilities 14,916,051 2,855,000 Total Liabilities 31,205,421 6,796,428 NET ASSETS Investment in capital assets, net of related debt 81,044,981 14,093,268 Unrestricted 4,309,342 2,611,054 Total Net Assets $ 85,354,323 $ 16,704,322 See notes to the financial statements -12- FuncUonlProgram PRIMARY GOVERNMENT Govemment ActIvItles: General government support Public safety Public haalth Transportation Economic assistance and opportunity Cuilureancl recreation Horne and commllllty services Interest on debt Total Primary Govemment- COMPOHENTUNITS General government support Public heallh Transportation Culture end recreation Home and community servIces Interest on debt Total Component Units See notes to the tlnanclal slatements. -13- TOWN OF SOUTHOLD BALANCE SHEET GOVERNMENTAL FUNDS December 31, 2005 MAJOR FUNDS Non-Major Capital Governmental General Highway ProJects Funds Tolals ASSETS Cash and invesbnents $ 9,292,437 $ 1,022,924 $ 9,406,620 $ 1,246,136 $ 20,968,117 Accounts receivable, net of allowance 24,533 8,190 30,500 172,992 236,215 Due from other funds 176,390 828,984 251,100 733,039 1,989,513 Due from trust funds 68 68 Stale and federal aid receivable 81,849 43,424 1,002,250 1,127,523 Due from other governments 1,867,136 759,803 5,000 2,631,939 Supply invenlory 1,204 1,204 Prepaids 498,344 56,947 54,024 609,315 Tolal Assets $ 11,941,961 $ 1,980,469 $ 11,450,273 $ 2,211,191 $ 27,563,894 UABIUllES AND FUND BALANCES L1ABILmES Accounts payable $ 627,049 $ 72,436 $ 337,613 $ 227,184 $ 1,264,282 Retained percentages 80,580 80,580 Bond anticipation notes payable 8,875,000 8,875,000 Due to other funds 1,888,241 73,59lI 27,674 1,989,513 Due to trust funds 7,044 7,044 Due to other govemments 393,570 393,570 Deferred revenue 3,018,595 831,185 552,234 4,402,014 Total Liabilities 5,934,499 903,621 9,366,791 807,092 17,012,003 FUND BAlANCE Fund Balances - reserved: Encumbrances 4,009 4,009 Supply inventory 1,204 1,204 Prepaids 498,344 26,686 525,030 Insurance claims 1,105,879 1,105,879 Fund Balance - unreserved: 16,000 16,000 Designated - ensuing yea~s budget 2,857,200 339,900 348,596 3,345,696 Undeslgnaled 1,740,826 700,946 2,083,482 1,028,817 5,554,073 Total Fund Equity 6,007,462 1,056,848 2,083,482 1,404,099 10,551,891 Total Llabinties and Fund Equity $ 11,941,961 $ 1,960,469 $ 11,450,273 $ 2,211,191 $ 27,563,894 See noles to the financial statements. ,,- TOWN OF SOUTHOLD RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS December 31,2005 Total Fund Balances - Governmental Funds $ 10,551,891 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets less accumulated depreciation are included in the Statement of Net Assets: Capital assets - non-depreciable $49,380,359 CapRal assets - depreciable 97,634,807 Accumulated depreciation (56,721,087) 90,294,079 Other long-term assets are not available to pay for current-period expendRures and, therefore, are deferred in the funds Long-term liabilities applicable to the Town's governmental activities are not due and payable in the current period and accordingly are not reported in the funds. However these liabilities are included in the Statement of Net Assets: General obligation bonds payable (9.249,098) Due to Employees Retirement System (93,993) Compensated absences (5,779,826) Claims and jud9ments payable (220,000) Estimated Iiabilfty for landfill closure and postclosure care costs (612,395) (15,955,312) Prepaid items included in the Statement of Net Assets 521,282 Deferred charges Included in the Statement of Net Assets 170,000 Interest payable applicable to the Town's governmental activities are not due and payable in the current period and accordin91y are not reported in the funds. However these liabilRies are included in the Statement of Net Assets. (227,617) Net Assets of Governmental Activities $ 85,354,323 See notes to the financial statements. .1S- TOWN OF SOUTHOLD STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BAlANCES GOVERNMENTAL FUNDS For the year ended December 31, 2005 MAJOR GOVERNMENTAL FUNDS Non-Major Capital Governmental General Highway Projects Funds Totals REVENUES Real property taxes $ 14,608,674 $3,605,032 $2,381,335 $ 20,795,041 other real property tax items 68,607 9,046 2,516 60,369 Non-property tax items 415,071 213,786 628,857 Departmental income 345,956 2,504,860 2,850,836 Intergovernmental charges 252,558 $ 7,200,274 1,013 7,453,845 Use 01 lOOney and property 489,796 77,817 274,959 64,092 906,664 Ucenses and permits 249,178 11,126 165,965 426,269 Fines and forfeitures 140,192 140,192 Sare 01 property and compensation for loss 93,290 2,796 109,137 205,223 Miscellaneous local sources 432,269 155,054 551,457 153,591 1,292,371 State aid 2,637,870 188,147 1,045,000 75,374 3,946,391 Federal aid 174,348 1,510,539 224,136 1,909,023 Total Revenues 19,908,009 4,249,018 10,582,229 5,895,825 40,635,081 EXPENDITURES Current General government support 4,641,568 99,895 4,741,463 Public safety 7,177,145 807,474 7,984,619 Public health 33.288 6,864 40,152 Transportation 446,877 2,913,768 3,360,645 Economic assistance and opportunity 901,139 901,139 Home and comlTMJnily services 354,768 3,102,639 3,457,407 Cununa and recreation 315,273 315,273 Employee benefits 5,857,963 500,343 444,858 6,603,164 Capital outiay 12,788,366 12,788,366 Principal and interest 1,560,055 178,371 29,529 671,720 2,439,675 Bond Issuance costs 70,075 70,075 Advanced refunding escrow 112,758 112,758 Total Expendnures 21,288,076 3,592,482 13,000,728 5,133,450 43,014,736 Excess (Deficiency) of Revenues Over Expenditures (1,360,067) 656,536 (2,418,499) 762,375 (2,379,655) Other Financing Sources (Uses) Proceeds 01 refunding bonds 2,360,000 2,360,000 Payments to refunded bond escrow agents (2,210,000) (2,210,000) Premium on special assessment debt 12,833 12,833 BANs redeemed from appropriations 1,065,095 1,065,095 Transfers In 2,642,859 276,969 2,919,828 Transfers out (1,895,023) (520,085) (504,720) (2,919,828) Total other Financing Sources (Uses) 747,836 (520,085) 1,524,897 (504,720) 1,247,928 Excess (Deficiency) of Revenues and other Sources Over Expenditures and Olher Uses (632,231 ) 136.451 (893,602) 257,655 (1,131,727) Fund Bslance at Beginning olVear 6,639,693 920,397 2,977,084 1,146,444 11,683,618 Fund Balances at End of Vear $ 6,007,462 $1,056,848 $ 2,083,482 $1,404,099 $ 10,551,891 See notes to the financial statements. -16- TOWN OF SOUTHOLD RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES For the year ended December 31, 2005 Net Change in Fund Balance $ (1,131,727) Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. The amount by which capital outlay exceeds depreciation in the current period is: Capital outlay Depreciation expense Loss on dispositions $13,205,174 (4,082,748) (202,828) 8,919,598 Some expenses reported In the Statement of Activities do not require the use of current financial resources and therefore, are not reported as expenditures in governmental funds: Prepaid charges Deferred charges (53,286) 170,000 The issuance of long-tenn debt and increase In obligations under capital leases provides current financial resources to governmental funds, while the repayment of the principal of long term debt and capital leases consumes the current financial resources of governmental funds. Neither transaction has any effect on net assets. Bonds issued Repayment of bond principal Due to Employees Retirement System Compensated absences Claims and judgments payable Estlmated liability for landfill closure and postclosure care costs Accrued interest payable (2,380,000) 3,162.431 41,841 (117,468) 378,630 18,872 (79,303) Change in Net Assets of Governmental Activities $ 8,929,588 See notes to the financial statements. -17- TOWN OF SOUTHOLD STATEMENT OF FIDUCIARY NET ASSETS December 31, 2005 Fishers Island Town Ferry District Totals ASSETS Cash and investments $ 14,898,809 $ 43,462 $14,942,271 Other receivables 17 40,638 40,655 Due from other funds 7,044 7,044 Total Assets $ 14,905,870 $ 84,100 $14,989,970 LIABILITIES Due to other funds $ 68 $ 38,829 $ 38,897 Due to school districts 11,675,920 11,675,920 Due to component units 517,902 517,902 Due to other governments 1,664,259 1,664,259 Other liabilities 8,881 8,881 Deposits held 1,038,840 45,271 1,084,111 Total Liabilities $ 14,905,870 $ 84,100 $14,989,970 See notes to the financial statements. -18- TOWN OF SOUTHOlD NOTES TO FINANCIAL STATEMENTS December 31, 2005 A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Town of Southold (the "Town"), which was established in 1640, is governed by Town law and other general laws of the State of New York and various local laws. The Town Board is the legislative body responsible for overall operations. The Town Board consists of the Supervisor who is elected for a term of two years and five council members who are elected for terms of four years. The Town Board aPlX>ints the Town Attorney, Comptroller and the Commissioner of Public Works whose terms are fixed by Town law. The Town Clerk, Receiver of Taxes, Superintendent of Highways, Justices and Town Trustees are all elected and serve for four years, respectively. The Town provides a full range of municipal seNices, including public safety, transportation, home and community services, public works and road maintenance, recreation and parks, and general and administrative services. The financial statements of the Town of Southold have been prepared In conformity with accounting principles generaRy accepted in the United Stales of America (GAAP) as applied to governmental units. The Governrnental Accounting Slandards Board (GASB) is the accepted slandard setting body for establishing governmenlal accounting and financial reporting principles. The rnore Significant of the governmenfs accounting policies are described below. 1. REPORTING ENTITY The financlal reporting entity consists of: (a) the primary government, which is the TOINI1 of Southold; (b) organizations for which the primary government is financially accountable; and (c) other organizations for which the nature and significance of their relationship with the prirnary governrnent are such that exclusion would cause the reporting entity's financial statemen1s to be misleading or incomplete as set forth in GASB Statement No. 14. The decision to include a potential component unit in the Town of Southold reporting entity is based on several criterta set forth in GASS Statement No. 14 Including legal standing, dependency and financial accountability. Based on the application of these criteria, the following is a summary of certain entities considered in determining the Town of Soulhold's reporting entity. Certain special districts of the Town of Southold provide sanitation, ferry, and park services to residen1s and businesses within the districts. These special districts are organized under New York Slate Town law and have separately elected boards. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. Tax levies of the speclal districts are collected by the Town Receiver of Taxes. As a result of this fiscal dependency, the Town Is financially accounlable for these special districts. Accordingly, these special districts have been determined to be component units of the Town and are presented discretely i1 a separate column in the combined financial statemen1s to emphasize that they are legally sepaate from the primary government 2. BASIS OF PRESENTATION The Town's basic financial statements include both government-wide (reporting the Town as a whole) and fund financial statemen1s (reporting the Town's major funds). Govemrnent-wlde Financial Statements The government-wide financial staternen1s reports information on the Town as a whole, except fiduciary activities, with separate columns for the primary governmental activities as wall as the discretely presented component units. In the government-wide Statement of Net Assets, the Town's governmental activities .are presented on a consolidated basis and are reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. The Town's net asse1s are reported In three parts-investments in capital asse1s, net of related debt; restricted net asse1s; and unrestricted net assets. - 19- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31 , 2005 A SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (continued) 2. BASIS OF PRESENTATION (continued) The government-wide Statement of Activities reports both the gross and net cost of each of the Town's functional categories (public safety, transportation, home and community services, etc.), which are otherwise supported by general government revenues (property, sales and use taxes, certain intergovernmental revenues, fines, permits and charges, etc.). The Statement of Activities reduces gross expenses (including depreciation), by related prograrn revenues and operating and capital grants, to produce the net cost of each program. Program revenues include (a) charges for services and (b) operating and capital grants and contributions that are directly associated with the function. Operating grants include operating-specific and discretionary (either operating or capital) grants while the capital grants coIurnn reflects capital- specific grants. The net costs (by function) are normally covered by general revenue (property, taxes, intergovernmental revenues, interest income, ele). As a general rule the effect of interfund activity has been eliminated In general purpose financial statements. This government-wide focus is more on the sustainability of the Town as an entity and the change In the Town's net assets resulting from the current year's activities. Fund Financial Statements The fund financial statements are similar to the financial statements presented in the previous model. The new emphasis Is on the major funds in the fund financial statements;. Non-major funds are summarized into a single column. The accounts of the. Town are organized on the basis of funds; each "of which is considered a separate accounting entity. The operations of each fund are accountedfor"with a separate set of self-baJanclng accounts that comprise Its assets, liabilities, fund balances, revenues, and expenditures, which are segregated for the purpose of canying on specific actfvities or attaining certain objectfves In accordance with special regulations, restrictfons or Iimltalions. The various funds are presented by type In the fund financial s1atements. Accordingly, the Town maintains the following fund types: Governmental Funds - Governmental funds are those through which most governmental functfons are financed. The acquisition, use and balances of expendable financial resources and the related liabilities are accounted for through governmental funds. The measurement focus of the governmental funds is upon determination of financial position and changes in financial position. Governmental funds are further classified as major and non-major funds. The Town reports the following major govemmental funds: General FUnd - Is the principal operatfng fund of the Town. This fund is used to account for all financial resources except those required to be accounted for In other funds. Hlohwav Funds - to maintain and operate highways. Caoltal Prolects Fund - used to account for financial resources to be used for the acquisition or constructfon of major capital facilities (other than those financed by special assessment funds and trust funds). -20 - TOWN OF SOUTH OLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. BASIS OF PRESENTATION (continued) Fund Financial Statements (continued) Add~ionaJIy, the Town reports the following non-majorfunds: Special Revenue Funds - are used to account for the proceeds of specific revenue sources (other than major capital projects) that are legally resbicled to expend~ures for specified purposes. Special Revenue Funds indude the following: General Fund Part Town - to provide general services outside the Village of Greenport. Soedal Grant Fund - segregate and account for projects funded by Commun~ Development revenue. Soeclal District Funds - to provide special services to areas that encompass less than the whole town. Fiduciary Funds - Fiduciary Funds are used to account for assets held by the Town in a trustee or custodial capa~. Agency Fund - is for money (and/or properly) received and held in the ~ of trustee, custodian or agent Discretely Presented Component Units Certain special districts that have separately elected boards provide transportation, park, mosquito control, and san~on services to residents and businesses w~in these districts, and follow government fund accounting principles. These districts, which are accounted for as discretely presented component units, are as follows: The Fishers Island Ferry District, established in 1947 Orient Mosquito District, established in 1916 Fishers Island Garbage and Refuse District, established In 1952 Cutchogue-New Suffolk Park District, established in 1953 Orient-East Marion Park District, established in 1969 Southold Park District, established in 1907 Mattiluck Park District, established in 1941 Complete financial statements of these component units can be obtained from their respective administrative offices: Orient Mosquito District 145 Platt Road Orient, NY 11957 Cutchogue-New Suffolk Park District P.O. Box311 Cutchogue, NY 11935 Southold Park District P.O. Box 959 Southold, NY 11971 Fishers Island Ferry District P.O. Box 1179 Southold, NY 11971 Fishers Island Garbage & Refuse District Fishers Island, NY 06390 Orient-East Marion Park District P.O. Box 12 Orient, NY 11957 Mattiluck Park District P.O. Box 1413 Mattiluck, NY 11952 - 21 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3. BASIS OF ACCOUNTlNGIMEASUREMENT FOCUS Measurement focus refers to what is being measured whereas the basis of accounting refers to when revenues and expenditures are recognized In the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. In the govemment-wide statements, governmental activities are presented using the economic resources measurement focus and are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and exPenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. In the funds statements, governmental funds use a current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (mellSUrable and available to finance curent operations). "Measurable" means the amount of the transaction can be determined and "available" means coOeclible within the current period or soon enough thereafter to pay liabilities of the current period. The Town considers all revenues available If they are collected within 60 days after the year end. Revenues susoeptible to accrual indude Suffolk County local assistance at year end on behalf of the Town, franchise fees, and charges for services, intergovernmental revenues and operating transfers. Permits, fees, and other similar revenues are not susoeptlble to accrual because generally they are not measurable until they are received In cash. In those instances where expenditures are the prime factor in determining eligibility for state and federal granls, revenues are recognized when the expenditure is Incurred. In the Capital Projects Fund, long-term debt is recognized as revenue upon receipt of the proceeds. Expenditures are recorded on the accrual basis except that (a) expenditures for prepaid expenses are recognized when Incurred; (b) principal and Interest on indebtedness are recognized as expenditures when due; (c) compensated absences, such as vacation and sick leave, which vest or accumulate, are charged as expenditures when paid. Encumbrance accounting, under which purchase orders, contracts and other commitments are recorded for budgetary control purposes In. order to reserve that portion of the applicable appropriation, is employed in the governmental funds. Appropriations for all governmental funds except the capital projects fund lapse at year-end. However, encumbrances reserved against fund balances are re-approprialed In the ensuing year. Encumbrances are reported as reservations of fund balances since they do not consOlute expenditures or liabilities. Expenditures for such commitments are recorded in the period In which the liability is Incurred. 4. ASSETS, LIABILITIES AND FUND EQUITY RECEIVABLES Receivables include amounts due from Federal, State, and other governments or entities for services provided by the Town. Receivables are recorded and revenues recognized as earned or as speclflc program expenditures are Incurred. INVENTORY - MATERIALS AND SUPPLIES Inventory In the general and special revenue funds is valued at cost Inventory In these funds is accounted for under the consumption method. TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ASSETS, LIABILITIES AND FUND EQUITY (continued) CAPITAL ASSETS Capital assets purchased or acquired with an original cost of $5,000 or more are reported at historical cost or estimated historical cost Contributed assets are reported at fair market value as of the date received. Additions, Improvements and other capital outiays that significantiy extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as Incurred. Depreciation on all assets is provided on the straight- line basis over the following estimated useful lives: Buildings Improvements and other Machinery and equipment Infrastructure 10-40 years 20 years 5-10 years 20-30 years Infrastructure assets, consisting of certain improvements other than buildings induding roads, curbs, sidewalks, bridges, street lighting are capitalized along with other capital assets. In the fund financial statements, capital assets are recorded as capital outlay expenditures In the governmental fund upon acquisition. DEFERRED REVENUElUNEARNED INCOME Deferred revenues/unearned Income are those where asset recognition criteria have been met, but which revenue recognition criteria have not been met. Such amounts indude collections In advance, uneamed income and amounts that have been deemed to be "measurable" but not "available" to finance current expenses pursuant to generally accepted accounting principles. PREPAlDS Prepalds record payments to venders that benefit future recording periods and are reported on the consumption basis. Prepaids in the General and Special Revenue Funds represent insurance . premiums paid for coverage that will benefit the subsequent period and for retirement benefits that will benefit a future period. LONG.TERM OBLIGATIONS The liabilities for long-tenn obligations consisting of general obligation bonds, compensated absences, due to employee retirement system, judgments, claims and liability for landfill closure and post dosure costs are recognized in the govemment-wide financial statements. In the fund statements, long-term obligations are not reported as liabilities. The debt proceeds are reported as other financing sources and payment of principal and interest reported as expenditures. 5. REVENUES AND EXPENDITURES REAL PROPERTY TAX ASSESSMENT AND COLLECTION PROCEDURES In Suffolk County, the assessment and lien of real property for taxation Is done by the County Department of Assessment. Real property taxes become a lien on December 1 for both school and general taxes. The Town's assessment rolls are used for the levy of real property taxes by the Town and the School Districts, as well as by the County and by Special Districts of the County and the Town. -23- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (continued) 5. REVENUES AND EXPENDITURES (continued) REAL PROPERTY TAX ASSESSMENT AND COLLECTION PROCEDURES (continued) The Town of Southold Receiver of Taxes collects all real property taxes for the Town, Suffolk County, Town Special Districts and School DIstricIs. These taxes are levied on December 1, and are due in two installments, 50% on December 1 and 50% on May 10, payable without penalty to January 10 and May 31, respectively. Penalties are imposed thereafter at the rate of one-twelfth of the rate of interest determined by the State Commissioner of Taxation and Finance, after which taxes are payable to the County Treasurer. The Town retains the total amount of Town, Highway and Town Special Districts levies from the amount collected, and forwards the balance collected to the County which assumes collection responsibility. The Town and Town's Special Districts therefore realize annually the 100% collection of real property taxes. School District properly taxes are also levied on December 1, and are also payable In two installments. School property taxes are due in two Instailments, 50% on December 1 and 50% on May 10 payable without penalty to January 10 and May 31, respectively. The County is also responsible for uncollected school taxes. INTERFUND TRANSACTIONS Interfund transactions have been eliminated from the govemment-wide financial statements. In the funds statements interfund transactions include: a) Interfund Revenues Interfund revenues, quasl-external transactions, in the general fund represent amounts charged for services or facilities provided by the general fund. The amounts paid by the fund receiving the benefit of the service or facilities are reflected as an expenditure of that fund. b) Transfers Transfers represent payments to the debt servIce, general fund and capital projects funds from the other funds for their appropriate share of the debt service, general fund or capital project costs. COMPENSATED ABSENCES The liability for vested or accumulated vacation or sick leave (compensated absences) is recorded as current and noncurrent obligations in the govemment-wlde statements. The current portion of this debt is estimated based on historical trends. In the fund financial statements only the compensated absence liability payable from expendable available financial resources is incurred. The amount that is expected to be liquidated with expendable available financial resources is reported as expendnures and a Debility in the funds statement in the respective fund that will pay il 6. EQUITY CLASSIFICA nONS In the govemment-wide statements, equity Is classified as net assets and displayed In three components: a) Invested In capital assets,. net of related debt - consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. -24- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 6. EQUITY CLASSIFICATIONS (continued) b) Resbicted net assets - consists of net assets with constraints placed on the use either by (1) external groups such as creditors, grantors, conbibutors, or laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. c) Unresbicted net assets - all other net assets that do not meet the definition of "resbicted" or "invested in capital assets, net of related debt." In the fund statements, governmental fund equity is classified as fund balance. Fund balance is further classified as reserved and unreserved, with unreserved further split between designated and undesignated. Portions of fund equity are segregated for future use and therefore not available for future appropriation or expenditure. Amounls reserved for encumbrances, Inventory, insurance daims and debt service represent portions of fund equity, which are required to be segregated In accordance with slate law or GAAP. Designations of fund balances in governmental funds Indicate the utilization of these resouroes in the subsequent year's budget or tentative plans for future use. B. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY 1. BUDGETARY DATA Budgels are adopted annually on a basis consistent with generally accepted accounting principles. Appropriations authorized for the current year are increased by the amount of encumbrances carried forward from the prior year. Budgetary controls for special revenue funds are established in accordance with the applicable grant agreement, which may cover a period other than the Town's fiscal year. Appropriate budgetary adjustments have been made to reflect these grant agreements dUring the Town's fiscal year. The Town follows the procedures enumerated below in establishing the budgetary data reflected in the financial statements: a. No later than October 1, the Supervisor submits a tentative budget to the Town Board for the fiscal year commencing the following fiscal year. The tentative budget Includes the proposed means of financing for all funds. b. After public hearings are conducted to obtain taxpayer comments, no later than November 20, the Town Board adopls the budget. c. The Town Board must approve all modifications of the budget. However, the Supervisor Is authorized to transfer certain budgeted amounts within departments. In order to show the full legal level of budgetary compliance for the general and certain special revenue funds, detailed IndMdual statements of revenues, expenaltures and changes In fund balances - budget and actual, are presented in a separate budget report. TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 B. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (continued) 2. FUND BALANCES DESIGNATION OFFUND BALANCE Portions of the unreserved balances at December 31, 2005 were designated for the subsequent year's operating budgets as follows: Fund Balance Unreserved and Designated Total for Subsequent Fund Balance Fund Balance Year's Unreserved Fund Unreserved Budget Undesignated Non-Major Funds: Town Outside Village $ 845,309 $ 370,932 $ 474,377 East West Fire Protection District 15,112 4,350 10,762 Southold Wastewater District 176,657 176,657 Fishers Island Sewer District 32,546 32,546 Solid Waste Management District 334,475 334,475 Total $ 1,404,099 $ 375,282 $ 1,028,817 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS 1. CASH AND INVESTMENTS Cash consists of funds deposited in demand accounts, time deposit accounts and certificates of deposit with maturities of less than three months. The Town's invesbnents are governed by a formal invesbnent policy. The Town's monies must be deposited in FDIC-insured commercial banks or trust companies located within the state. The Town is authorized to use demand accounts and certificates of deposit Permissible invesbnents include obligations of the U.S. Treasury, U.S. Agencies and invesbnents made by the Cooperative Uquid Asset Security System (CLASS). CLASS is a cooperative Invesbnent plan consisting of U.S. Treasury Obligations and repurchase agreements relating to treasury obligations. Invesbnents are stated at cost, which approximates market value. CLASS was established as a cooperative Investment arrangement organized under the CLASS Municipal Cooperation Agreement made pursuant to New York General Municipal Law, Artide 3A and 5-G. It is the Town's policy to require collateral held in the name of the Town for demand deposits, money market deposits and certificates of deposit for all deposits not covered by federal deposit insurance. Obligations that may be pledged as collateral are obligations of the United States and its agencies and obligations of the State and its municipalities and school districts. At December 31,2005 the cash in banks was approximately $37,160,000 and collateral held against cash in banks was $60,410,000 consisting of FDIC insurance and/or securities held in the name of the Town of Southold. -26 - TOWN OF SOUTH OLD NOTES TO FINANCIAL STATEMENTS December 31,2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 2. INTERFUND RECEIVABLES AND PAYABLES Interfund receivables and payables for the primary government at December 31, 2005 were as follows: General Fund - Town wide Highway Fund Capital Projects Fund Part Town East-West Fire District Southold Wastewater District Fishers Island Sewer District Solid Waste Management District Amount Receivable $ 176,390 $ 828,984 251,100 152,519 92,199 4,752 325 483.244 Amount Pavable 1,888,241 73,598 6,974 20.700 $ 1989513 $ 1989513 Interfund receivable and payable balances for the primary government at December 31, 2005 are expected to be paid currently. 3. CAPrrALASSETS Primary govemment Capital assets not being depreciated Land Construction in progress Total capllaJ assets not being depreciated Depreciable capllal assets Buildings Improvements other than buildings Machinery and equipment Infrastructure Total depreciable capllal assets Less accumulated depreciation Buildings Improvements other than buildings Machinery and equipment Infrastructure Total accumulated depreciation $ Total net depreciable capllal assets Total net capllalassets Balance 1/1/05 $ 37,795,087 $ 398,912 38,193,999 4,569,296 13,469,136 8,686,593 69,334,187 96,059,212 1,933.832 3,020,775 5,567,555 42,356,569 52,878,731 -27 - Additions Deletions 9,977,191 $ 1,362,656 11,339,847 -0- $ 153,467 153,487 5,217 29,818 1,125,955 704,338 1,865,328 289,733 289,733 $ 134,698 521,309 714,211 2,712,530 4,082,748 $ 240,392 240,392 Balance 12/31105 47,772,278 1,608,081 49,380,359 4,574,513 13,498,954 9,522,815 70,038,525 97,634,807 2,068,530 3,542,084 6,041,374 45,069,099 56,721,087 40,913,720 $ 90,294,079 TOWN OF SOUTHOlD NOTES TO FINANCIAL STATEMENTS December 31, 2005 C. DETAILED NOTES ON All FUNDS AND ACCOUNT GROUPS (continued) 3. CAPITAL ASSETS (continued) Depreciation elCpense was charged to governmental functions as follows: General government support Public safety Transportation Economic assistance and opportunity Culture and recreation Home and community services $ 231,471 179,200 2,923,649 36,230 61,206 650,992 $ 4,062,746 Balance Balance Discretely presented component units 1/1/05 Additions Deletions 12/31/05 Capital assets not being depreciated land $ 2,213,759 $ 2,213,759 . Construction in progress 10,592,179 $ 2,596,828 $ 16,440 13,174,567 Total capital assets not being depreciated 12,805,938 2,596,628 16,440 15,388,326 Depreciable capital assets Buildings 3,416,944 123,167 3,540,111 Improvements other than buildings 2,575,589 2,575,589 Machinery and equipment 3,170,695 30,033 3,200,728 Infrastructure 2,121,386 17,000 2,138,386 Total depreciable capital assets 11,284,614 170,200 11.454,814 less accumulated depreciation Buildings 1,186,077 103,656 1,289,733 Improvements other than buildings 973,574 88,000 1,061;574 Machinery and equipment 2,003,454 129,203 2,132,657 Infrastructure 1,073,547 82,319 1,155,866 Total accumulated depreciation $ 5,236,652 $ 403,178 5,639,830 Total net depreciable capital assets 5,814,984 Total net capital assets $ 21,203,310 '>0 TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 4. INDEBTEDNESS SHORT TERM DEBT Bond Anticipation Notes (BANs) - Bond anticipation notes (BANs) are used as a tempcllary means of financing capital expendttures in the capital projects fund. State law requires that BANs issued for capttal purposes be converted \0 long-term obligations within five years after the original issue date. The notes or renewal thereof may not extend more than two years beyond the original date of issue unless a portion Is redeemed within two years and within each 12 month period thereafter. liabilities for BANs are generally accounted for In the capital projects fund. BANs are expected to be paid from the proceeds of future bond issues after renewal of these notes. These BANs bear interest at various rates from 2.64% to 3.06% and are due at various dates through 2006. When BANs are not redeemed with the proceeds of bond issues, but instead paid from budgetary appropriations, the principal amount paid is recorded as an expenditure in the operating fund and a financing source is recorded in the capital projects fund. These notes are summarized as follows: Descriotion Various Purposes Various Purposes New london Wharf Fishers Island Garbage Total Amount $ 7,175,000 1,700,000 1,725,000 1.120.000 S 11.720000 Interest Rate 2.64% 3.05% 2.75% 3.06% Of the $11,720,000 in bond anticipation notes, $8,875,000 relates to the primary government and the remaining $2,845,000 relates to the component untts. LONG TERM DEBT Summary of changes in long-term debt transactions for the year ended December 31, 2005 is as follows: Non-current Balance Balance IiabDities due Non-cummt 1/1105 Increases Reductions 12/31105 within one year lIabDitles Primary Government General obligation bonds $ 10,031,529 $ 2,390,000 $ 3,162,431 $ 9,249,098 $ 755,000 $ 8,494,098 Due 10 Employees Retirement Syste, 135,834 41,841 93,993 45,189 48,804 Compensaled absences 5,662,358 860,531 743,063 5,779,826 5,779,826 ClaIms and judgments 598,630 378,630 220,000 220,000 Estimated labllily for landfill closure and post-dosure care costs 631,267 18,872 812,395 19,072 593,323 Component Unite: General obligation bonds 272,569 3,000,000 222,569 3,050,000 195,000 2,855,000 TOWN OF SOUTH OLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 4. INDEBTEDNESS (continued) LONG TERM DEBT (continued) General Obligation Bonds - The Town borrows money in order to acquire land or equipment or construct buildings and improvements. This enables the cost of these capital assets to be bome by the present and future taxpayers receiving the benefit of the capital assets. These Iong-tenn liabilities, which are backed by the full faith and credit of the Town, bear interest at various rates from 2.95% to 6.375% and have maturity dates in 2006 through 2021. Future prindpal and interest payments to maturity for both the primary govemment and the component units are as foUows: Year Endina 2006 2007 2008 2009 2010 2011-2015 2016-2021 $ PrindDal 950,000 979,098 995,000 1,025,000 1,000,000 4,390,000 2.960.000 $ Interest 405,624 376,466 345,307 312,347 277,956 910,394 265.814 Totals 9; 12299 098 9; 2893908 Other long-tenn liabilities for claims and judgments, compensated absencas, retirement system and the estimated liability for landfill closure and post closure costs are to be paid by the fund that gave rise to the liability. During the year ended 2005, the Town issued $2,380,000 in general obligation bonds with an interest rate ranging fi"om 2.50% to 3.75% to advance refund $2,210,000 of outstanding 1993 and 1995 Serial bonds with Interest rates between 5.00% and 5.10%. The net proceeds of $2,392,833 include an original issue premium of $12,833 which were used in part to pay insurance, undelWliting fees and administrative costs of $70,075 with the balance deposited In an irrevocable trust with an escrow agent to provide for all future debt service payments on the various general obligation bonds. As a result, these bonds are considered to be defeased and the liability for those bonds has been removed fi"om the Town. The Towns advance refunded the various general obligation bonds In order to reduce its total debt service payments over the nexl10 years by $100,505 and to obtain an economic gain of $66,538 (difference between the present values of the debt service payments on the old and new debt). 5. RETIREMENT SYSTEM Plan Descriotlon The Town of Southold partidpates in the New York State and Local Employees' Retirement System (ERS) and local Police and RreRetirement System (PFRS). This is a cost-sharing multiple- employer retirement system. The System provides retirement benefits as well as death and disability benefits. Obligation of employers and employees to contribute and benefits to employees are governed by the New York State Ratirement and Social Security Law (NYSRSSL). As set forth In the NYSRSSL, the Comptroller of the State of New York (Comptroller) serves as sole trustee and administrative head of the System. The Comptroller shall adopt and may amend rules and regulations for the administration and transaction of the business of the System and for the custody and control of their funds. A publicly available aMual report containing finandal statements and required supplemental infonnation for the Employees' Retirement System may be obtained by writing to the New York State Retirement System, Governor Smith State Building, Albany, NY 12244. - 30- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 5. RETIREMENT SYSTEM (continued) Fundino Policv The System is nonconbibutory except for employees who joined the New York Stale and Local Employees' Retirement System after July 27, 1976 and who have less than ten years of membership and less than ten years of credited service with a retirement system under the provisions of article fourteen or fifteen of the NYSRSSL, who contribute 3% of their salary. Prior to October 1, 2000, all employees who joined the System after July 27, 1976 were required to contribute 3% of their salary. Under the authority of the NYSRSSL, the Comptroller shall certify annually the rates expressed as proportions of payroll of members, which shall be used In computing the conbibutions required to be made by employers to the pension accumulation fund. The Town is required to contribute at an actuarially determined rate. The actual contributions were aqualto the actuarially required amounts and also include additional conbibutlons to fund various early retirement incentives made available to the Town employees. The credits and miscellaneous adjustments represent modification made by the ERS for prior year's conbibutions. The required contributions, for the Primary govemment, for the aJrrent year and two preceding years were: 2005 2004 2003 ERS $ 1,068,200 $ 992,023 $ 443,861 $ $ $ PFRS 1,016,937 679,079 240.756 The Town's contribution to the system was 100% of the contributions requi'ed each year. 6. POST EMPLOYMENT BENEFITS In addition to providing pension benefits, the Town provides health Insurance coverage and survivor benefits for retired employees and their survivors. Substantially all of the Town's employees may become eligible for these benefits if they reach normal retirement age while working for the TO'Ml. Health care benefits are provided through either a self-funded plan whose premiums are based on the benefits paid during the year or are provided in acconlance with New York State Health Insurance Rules and Regulations (administered by the New York State Department of Civil Service) through the New York State Empire Plan (the "Empire Plan") whose premiums are based on the benefits paid throughout the State during the year. The Town recognizes the cost of providing benefits by recording its share of insurance premiums or the actual benefits paid as expenditure in the year paid. The Town's union contracts and ordinances require that it provide Its eligible enrollees with benefit coverage under either the self-funded plan or the Empire Plan. Under the provisions of the Empire Plan, premiums are adjusted on a prospective basis for any losses experienced by the Empire Plan. The Town has the option to terminate its participation In the Empire Plan at any time without liability for its respective share of any previously incurred loss. During the 2005 year, $3.014,128 was paid on behalf of 88 retirees and 207 active employees and is recorded as an expenditure In the General Fund. 7. COMPENSATED ABSENCES Town employees are granted vacation and sick leave and earn compensatory absences in varying amounts. In the event of termination or upon retirement, an employee is entitled to payment for accumulated vacation and sick leave and unused compensatory absences at various rates subject to certain maximum limitations. .,. TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 7. COMPENSATED ABSENCES (continued) Estimated vacation, sick leave and compensatory absences accumulated by govemmental fund type employees have been recorded in the statements of net assets. Payment of vacation time and sick leave is dependent upon many faclors; therefore, timing of future payments is not readily determinable. However, management believes that sufficient resources will be made available for the payments of vacation, sick leave and compensatay absences when such payments become due. As of December 31, 2005, the value of the accumulated vacation time and sick leave was $5,779,826 for the primary govemment D. COMMITMENTS AND CONTINGENCIES Risk Management The Town Is self-Insured for both medical Insurance and general liability Insurance. The amount of medical claims outstanding at December 31, 2005 Is $200,131. This amount has been reserved agaInst fund balance In the General Fund. In common with other municipalities, the Town receives numerous notices of claims. Prior to 2005, coverage for bodily injury and property damage was previously written on a primary non-self Insured retention ("SIR") basis. Insurance market conditions and availability precluded the Town from obtaining coverage in 2005 without an SIR. As a result, in 2005 the Town self-Insured for bodily injury and property damage up to a maximum of $50,000 per claim. The $50,000 limitation was the minimum retention amount available to the Town. Claims in excess of $50,000 are covered by excess liability policies providing coverage for $10,000,000 per occurrence and in the aggregate. Although the eventual outcome of these 2005 claims cannot presently be determined, the Town's third party administrator has estimated unsettled claims at December 31, 2005 to be $94 thousand. These amounts have been reserved against fund balance in the General Fund. The Town is of the opinion that the ultimate settlement of the outstanding claims will not result in a material adverse effect on the Town's financlal position. Since 2005, there have been no Significant reductions in insurance coverage as compared to the prior year; in addition there were no setuements on excess of insurance coverage over the last three years. The Town Is also self-insured for unemployment benefits paid. Landfill Closure and Post.closure Care Costs Stale and federal laws and regulations require the Town to place a final cover on its landfill sites and to perform certain maintenance and monitoring functions at the sites for thirty years after closure. The Town ceased accepting waste at Its Cutchogue landfill as of October 8, 1993. The Town entered into a stipulation of settlement with the New Yark State Department of Environmental Conservation In October of 1994 In which all charges of operational violations at the Cutchogue landfill were dropped. Under the stipulation, the Town agreed to close and place a final cover over the landfill and. to pay a . civil penalty of $650,000 over seven years. Construction of the flnal cover commenced In the summer of 2001 and was completed In the fall of 2003. In addition to placement of the final cover on the landfill, state and federal regulations presently require the Town to perform certain maintenance and monitoring functions at the site for up to thirty years. Accordingly, as of December 31, 2005 the Town has recorded a liability of $612,395 which represents the provision to be made In future budgets for post-closure landfill costs. Actual costs may vary due to inflation or deflation, changes In technology, or changes in regulations or applicable laws. Actual costs associated with the placement of the final cover totaled $7,681,719. Financing for closure activities was provided through a $2,000,000 grant from the New York State Department of Environmental Conservation with the balance provided with a state subsidized loan through the New York Stale Environmental Facilities Corporation. Costs associated with post closure care will be covered by charges to future landfill users and future tax revenue. - 32- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December31,2005 D. COMMrrMENTS AND CONTINGENCIES (continued) Lease Commitments and Leased Assets The Town leases property and equipment under operating leases. Total rental expend~ures on such leases for the fiscal year ended December 31, 2005 were approximately $205,000. Future obligations over the primary terms of the Town's leases as of December 31 , 2005 are as follows: 2006 2007 2008 2009 and thereafter Total $ 115,9n 94,997 85,184 684.824 980 982 $ E. CONDENSED FINANCIAL STATEMENTS FOR THE DISCRETELY PRESENTED COMPONENT UNrTS The following represents condensed financial statements for the discretely presented component units as of and for the year ended December 31, 2005: Condensed S_ment of Net Assets: Due from Capllal Assets 01I1er Current Primary Net of Current Long-Term Net District Assets Government Depreciation Liabilities u_ Assets Fishers Island Feny $ 333,136 $ 119,344 $ 15,757,994 $ 2,439,520 $ 2,700,000 $ 11,070,954 Fishe.. Island Refuse and Garbage 640,862 631,328 3,026,171 1,235,336 3,063,025 Cutchogue-New Suffolk Park 125,725 28,382 124,218 28,382 249,946 Southo/d Park 21,550 63,406 648,159 65,677 667,438 Orient-East Marion Park 4,182 5,559 432,985 16,002 426,724 Mattltuck Park 190,451 85,771 1,204,103 141,156 155,000 1,164,169 Orient Mosqufto 32,386 15,355 9,680 15,355 42,066 $ 1,348,295 $ 949,145 $ 21,203,310 $ 3,941,428 $ 2,855,000 $ 16,704,322 Condenssd Slalement of _Illes: PRlgram General Rev...... Net Assets Properiy District Expenses Revenue Net Expense Tax Oll1er Change 1/1J05 12131J05 Fishero IsloOO Feny $ 2,714,385 $ 1,864,374 $ 830,011 $ 400,000 $ 2,026,871 $ (1,598,880) $ 9,474,094 $ 11,070,954 Fish... IsIend Refuse & Garbage 489,808 47,644 441,962 599,400 36,698 (194,136) 2,868,889 3,063,025 Cutchogue-New Suffolk Perk 136,633 138,633 141,000 2,850 (5,217) 244,729 249,946 SoulhoIdPOIIl 350,088 350,088 315,000 34,090 998 688,436 667,438 OrIent.East Marion POIIl 29,000 29,000 24,900 62 4,038 430,762 426,724 MatIiIuck Park 304,002 304,002 405,930 11,025 (112,953) 1,071,218 1,184,169 Orient Mosqullo 60,371 60,371 74,650 401 (14,680) 27,386 42,086 $ 4,086,085 $ 1,932,018 $ 2,154,087 $ 1,960,880 $ 2,111,997 $ (1,918,810) $ 14,785,512 $ 16,704,322 REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT DISCUSSION AND ANALYSIS TOWN OF SOUTHOLD GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year ended December 31, 2005 Original Final Variance Budget Budget Actual Positive/(Negative ) REVENUES Real property taxes $14,608,674 $ 14,608,674 $ 14,608,674 Other real property tax items 66,000 66,000 68,807 2,807 Non-property tax items 401,035 401,035 415,071 14,036 Departmental income 349,900 349,900 345,956 (3,944) Intergovemmental charges 194,160. 269,823 252,558 (17,265) Use of money and property 286,625 286,625 489,796 203,171 Licenses and permits 218,330 218,330 249,178 30,848 Rnes and forfeitures 112,000 112,000 140,192 28,192 Sale of property and compensation for loss 45,350 70,025 93,290 23,265 Miscellaneous local sources 86,646 113,654 432,269 318,615 State aid 2,348,264 2,483,083 2,637,870 154,787 Federal aid 270,000 270,000 174,348 (95,652) Total Revenues 18,986,984 19,249,149 19,908,009 658,860 EXPENDITURES General govemment support 5,545,742 5,764,043 4,641,568 1,122,475 Public safety 6,889,518 7,189,570 7,177,145 12,425 Public health 33,300 33,300 33,288 12 Transportation 420,500 466,131 446,877 19,254 Economic assistance and opportunity 993,400 982,510 901,139 81,371 Culture and recreation 388,870 398,370 354,768 43,602 Home and community services 299,101 316,755 315,273 1,482 Employee benefits 5,811,949 5,868,274 5,857,963 10,311 Debt service - principal and interest 1,773,100 1,577,799 1,560,055 17,744 Total Expenditures 22,155,480 22,596,752 21,288,076 1,308,676 Deficiency of Revenues Over Expenditures (3,168,496) (3,347,603) (1,380,067) 1,967,536 Other Financing Sources (Uses) Transfers in 5,488,341 5,559,682 2,642,859 (2,916,823) Transfers out (2,319,845) (2,212,079) (1,895,023) 317,056 Total Other Financing Sources (Uses) 3,168,496 3,347,603 747,836 (2,599,767) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses (632,231 ) $ (632,231 ) Fund Balance at Beginning of Year 6,639,693 Fund Balance at End otVear $ 6,007,462 See notes to the financial statements. -34- TOWN OF SOUTHOLD HIGHWAY FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL Year ended December 31,2005 Original Final Variance REVENUES Budget Budget Actual Positivel(Negative) Real Property Taxes $ 3,805,032 $ 3,805,032 $ 3,805,032 Other Real Property Tax Items 3,600 3,600 8.935 5,335 Non-Property Tax Items 111 111 Use of Money and Property 25,300 25,300 77,817 52,517 Licenses and Permits 5.000 5,000 11,126 6,126 Sale of Property and Compensation for Loss 1,000 1,000 2,796 1,796 Miscellaneous Local Sources 155,054 155,054 State Aid 223,700 223,700 188.147 (35,553) Total Revenues 4,063,632 4,063,632 4,249,018 185,386 EXPENDITURES Transportation 3,228,488 3,228,488 2,913,768 314,720 Employee Benefits 553,741 553.741 500,343 53,398 Debt Service - Principal and Interest 189.932 189,932 178,371 11,561 Total Expenditures 3,972,161 3,972,161 3,592.482 379,679 Excess of Revenues Over Expenditures 91,471 91,471 656,536 565,065 Other Financing Uses (Sources) Operating Transfers In 494,564 494,564 (494,564) Transfers Out (586,035) (586.035) (520.085) 65,950 Total Other Financing Uses (91.471) (91,471 ) (520,085) (428,614) Excess of Revenues Over Expenditures and Other Uses 136.451 $ 136,451 Fund Balance at Beginning of Year 920,396 Fund Balance at End of Year $ 1,056,847 See notes to the financial statements. _ ';lJ;_ OTHER SUPPLEMENTARY INFORMATION TOWN OF SOUTHOLD COMBINING BAlANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS December31, 2005 East-West Fire Southold fishers Solid Waste General Fund Special Protection Wastewater lsjand Sewer Management Part Town Grant District District District District Totals ASSETS Cash and Investments $ 740,370 $ 27,767 $ 176,492 $ 30,994 $ 270,513 $1,246,136 Accounts receivable, net of alk>wance 46,769 1,289 124,934 172,992 Due from other funds 152,519 92,199 4,752 325 483,244 733,039 Due from other govemments $ 5,000 5,000 State and Federal Receivables Prepaid expenditures 26,686 27,338 54,024 Total Assets $ 968,344 $ 5.000 $ 119,968 $ 181,244 $ 32.608 $ 908,029 $2,211,191 LIABIUTlES AND FUND EQUITY LIABILITIES Aooounts payable $ 14,395 $ 5,000 $ 12,658 $ 62 $ 195,071 $ 227,184 Due to other funds 6,974 20,700 27,674 Deferred revenue 99,666 92,198 $ 4,587 355,783 552,234 Total Uabilitles 121,035 5,000 104,854 4,587 62 571,554 807,092 FUND EQUITY Fund balance - reserved: Prepaid expenses 26,686 26,666 fund balance - unreserved: Designated ~ ensuing year's budget 344,246 4,350 348,596 Undesignated 474,3n 10,782 176,657 32,546 334,475 1,028,817 Total Fund Equity 645,309 15,112 176,857 32,548 334,475 1,404,099 Total Uabllilies and Fund Equity $ 966,344 $ 5,000 $ 119.966 $ 181,244 $ 32,608 $ 906,029 $2,211,191 -36- TOWN OF SOUTHOLD COMBINING STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES - NON-MAJOR GOVERNMENTAL FUNDS Year ended December 31, 2005 East-West Fire Southold Fishers Solid Waste General Fund Special Protection Wastewater Island Sewer Management Part Town Grant District District District District Totals REVENUES Real property taxes $ 538,n3 $ 413,058 $ 137,450 $ 1,814 $ 1,290,440 $ 2,381,335 Other real property tax items 1,220 290 97 2 907 2,516 Non property tax Items 213,788 213,786 Departmental Income 739,263 26,231 17,423 1,721,943 2,504,880 Intergovernmental charges 1,013 1,013 Use of money and property 28,321 2,689 6,666 1,190 25,226 64,092 Licenses and pennits 5,200 160,765 165,965 Sale of property and compensation for loss 6,556 100,581 109,137 Miscellaneous local sources 74,427 4,621 74,543 153,591 State aid 75,374 75,374 Federal aid $ 224,138 224,136 Total Revenues 1,684,940 224,136 416,037 175,065 20,229 3,375,416 5,895,825 EXPENDITURES General government support 99,895 99,895 pubnc safety 393,192 414,282 807,474 Public hearth 6,864 6,864 Home and community services 563,269 224,755 1,846 29,598 2,283,171 3,102,639 Employee benefits 210,778 212 233,870 444,858 Debt service - principal and interest 5,385 2.475 663,860 871,720 Total Expenditures 1,279,381 224,755 414,282 4,533 29,598 3,180,901 5,133.450 Excess (Deficiency) of Revenues Over expenditures 405,559 (819) 1,755 170,532 (9,369) 194,517 762,375 Other Financing Uses: Operating transfers out (264,969) (239,751) (504,720l Total Other FInancing Uses (264,969) (239,751) (504,720) Excess (Deficiency) of Revenues Over expenditures and Other Uses 140,590 (619) 1,755 170,532 (9,369) (45,234) 257,655 Fund Balance at Beginning ofVear 704,719 619 13,357 6,125 41,915 379,709 1,146,444 Fund Balances at End of Year $ 845,309 $ -Q.. $ 15,112 $ 178,657 $ 32,546 $ 334.475 $ 1,404,099 -37- DISCRETELY PRESENTED COMPONENT UNITS TOWN OF SOUTHOLD DISCRETELY PRESENTED COMPONENT UNITS COMBINING STATEMENT OF NET ASSETS December 31, 2005 Fishers Island Cutchogue- Southold Orlent..east Maffituck Orient Rshe.. RofU8e ond New Suffolk Parl< Marlon Park Perl< Mosquito Island Ferry Galbage DI$trIcI ParitDlalrk:t Dlsbict DistJ1<:t Distrtct District District (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Totals ASSETS Current Assets: Cash and Investments $ 259,882 $ 617,409 $ 125,726 $ 21.550 $ 4.182 $ 169,690 $ 32.386 $ 1.250,827 Accounts receivable. net of allowance 3,561 3.561 Due from primary government 119.344 631.328 28.382 .63,406 5,559 85.771 15.355 949.145 State and federal f8Ceivables 46,767 48,767 PrepaId charges 24.487 19.892 761 45,140 Total Current Assets 452.480 1.272,190 154,110 64,956 9.741 276,222 47.741 2.297.440 Non-Current Assets: Non-depreciable capital assets 11,203,523 2.442.737 101,198 588,647 432,985 515.306 15.284,596 DeprecIable capital 88sets. net of depreciation 4.554.471 563,434 23.020 59.312 688.797 9.680 5.918.714 Total Assets 16.210.474 4.298.361 278.328 733.115 442.726 1.480.325 57,421 23.500,750 LlABIUTlES Current LlabiOtles: Accounts payable and lICCnJed liabilities 421,634 1.910 10.443 8.815 442.802 Accrued Interest payable 62.371 1,570 63.941 Due to other governments 2,271 2,271 Other liabilities Deferred revenue 80.515 113,426 28.382 63,_ 5.559 85,n1 15.355 392,414 Due to other funds Bond antk::lpation notes payabkt 1,725,000 1,120,000 2.845.000 Non-current. IlablllUes due within one year General obligation bond, payable 150,000 45.000 195.000 Total Current UablUtles 2.439.520 1.235.336 28.382 65.6n 16.002 141.156 15,355 3.941,428 Noncurrent Uablllties: General obligation bonds payable 2,700,000 155,000 2.855,000 Total UablllUes 5,139.520 1235.336 28.382 65.6n 16.002 296.156 15.355 6.796.428 NET ASSETS Investment in capital assets. net of related debt 11,182,994 1,906,171 1.004.103 14.093.268 Unrestricted (112.040) 1,156,854 249.946 667 .438 426.724 180.066 42.066 2,611.054 Total NetAssels $ 11.070,954 $ 3,063.025 $ 249.946 $ 687.438 $ 426.724 $ 1,184.169 $ 42.066 $ 18.704.322 -38- TOWN OF SOUTliOLO DISCRETELY PRESENTED COMPONENT UNITS COMBINING STATEMENT OF ACTIVITIES Yssrended December 31. 2005 Fishers Island Cutchogue-- Southold Orient-East Mallltuck Orient Fishers Refuse and New Suffolk Pari< Marion Park Pari< Mosquito Island Feny Garbage District Parl<Dlstrlct District District District District District (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Totals REVENUES Program revenues $ 1,884,374 $ 47,844 $ 1,932,018 Real property taxes 400,000 599,400 $ 141,000 $ 315,000 $ 24,900 $ 405,930 $ 74,650 1.980.880 Other real property tax items 281 285 566 Miscellaneous revenue, other govemments 18,449 18,449 Interest and earnings 17,420 36,698 2,850 62 11,432 401 88,863 State Aid 684 684 Federal Aid 1,983,139 1.983,139 Other 6,898 34.090 (692) 40,296 Total Revenues 4,311,245 683,742 143,850 349.090 24,962 416.955 75,051 6,004,895 EXPENSES General government support 80,610 80,610 Public health 60,371 60,371 Transportation 2,532,192 2,532,192 Culture and recreatlon 138,633 350,068 29.000 296,780 814,501 Home and community services 16.942 478,890 495,832 Interest 84,641 10,716 7,222 102,579 Total Expenses 2,714,385 489,608 138,633 350,Q88 29,000 304.002 60,371 4.066,085 Changes In Net Assets 1,596,860 194.136 5,217 (996) (4,038) 112,953 14.660 1,918,810 Net Assets at Beginning of Vear 9,474,094 2,868,889 244,729 688,438 430,762 1,071,218 27,386 14,785,512 Net Assets at End of Year $11,070,954 $ 3,083,025 $ 249.946 $ 667 .438 $ 426.724 $ 1,184.169 $ 42.066 $16.704.322 -39- OTHER REPORTS TOWN OF SOUTHOLD SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS December 31. 2005 FEDERAL GRANTOR/PASS THROUGH GRANTORIPROGRAM TITLE U.S. Deoartment of Health & Human Services Passed throuah Suffolk County: Nutrition Services Incentive Program U.S Department of Health & Human Services Passed throuah Suffolk Countv: Nutrition U..S. Deoartment of Homeland Security Passed throuah the State of New Yark Buffer Zone Protection Plan U.S Department of Aariculture Natural Resouce Conservation Service Fann & Ranchland Protection Program U.S Department of Housina and Urban Develooment Passed throuah Suffolk Countv: Community Development Block Grant U.S Department of the Interior Fish and Wildlife Service Passed throullh the State of New Yark Department of Environmental Conservation: Coastal Wetlands Conservation Grant -40- FEDERAL CFDA NUMBER EXPENDITURES 93.053 $ 21,174 93.045 103,174 97.078 so,ooo 10.913 510,539 14.218 224,136 15.614 1,000,000 $ 1,909,023 TOWN OF SOUTHOLD NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS December 31, 2005 Note A - Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Town of Southold and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. -41- CERTIFIED PUBLIC ACCOUNTANTS. BUSINESS ADVISORS AND CONSULTANTS 25 Suffolk Court, Hauppauge, New .furk 11788 631.434.9500 . Fax 631.434.95/8 WWlv.Qvz.com REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS . Town Board Town of Southold Southold, New York We have audited the financial statements of the govemmental activities, each major fund, and the aggregate remaining fund information of the Town of Southold, New York as of and for the year ended December 31, 2005, which collectively comprise the Town of Southold's basic financial statements, and have Issued our report thereon dated June 8, 2006, which was qualified because the Town of Southold's discretely presented component units with the exception of one, the Fishers Island Ferry District, were not audited as of the report date. We conducted our audit in accordance with auditing standards generally accepted in the United Stales of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Intemal Control Over Financial ReDortina In planning and performing our audit, we considered the Town of Southold, New York's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the intemal control over financial reporting would not necessarily disclose all matters in the internal conrol over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the Internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be rnaterlal In relation to the financial statements being audited may occur and not be detected within a timely period by employees In the normal course of performing their assigned functions. We noted no matters involving the intetRaI control' over financial reporting and Its operation that we consider to be material weaknesses. ComDliance and Other Matters As part of obtaining reasonable assurance about whether the Town of Southold's financial statemenls are free of material misstatement, we performed tesls of its compliance with certain provisions of laws, regulations, contracts, and granls, noncompliance with which could have a direct and material effect on the determination of. financial statement arnounls. However, providing an opinion on compliance with those provislons was not an obJecttve of our audit, and accordingly, we do not express such an opinion. The resulls of our tests disclosed no Instances of noncompliance that are required to be reported under Government Auditing' standards. This report is intended solely for the information of the Town Board, management, others within the organization, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than those specified parties. Ql.I,...U-, ~ ( z.. f Jv -r ~I f? (/ Hauppauge, New York June 8, 2006 -42- ALBRECHT, VIGGIANO, ZURECK Ii. COMPANY, P.C. Wkl4..I1.4I.MDg"'OI'II!ICR~ -~" ..,~----~,---,-_.._,-~", CERTIFIED PUBLIC ACCOUNTANTS. BUSINESS ADVISORS AND CONSULTANTS 25 Suffolk Court, Hauppauge, New York 11788 631.434.9500 . Fax 631.434.9518 'WW)V, Qvz.com REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Town Board Town of Southold . Southold, New York Compliance We have audited the compliance of the Town of Southold, New York with types of compliance requirements described In the U_ S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended December 31, 2005. The Town of Soulhold's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulaUons, contracts, and grants applicable to each of Its major federal programs Is the responsibility of the Town of Southold. New York's management. Our responsibility is to express an opinion on the Town of Southold, New York's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted In the United States of America; the standards applicable to financial audits contained in Government Auditing standards, issued by the Comptroller General of the United Slates; and OMB Circular A-l33, Audits of states. Local Govemments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Town of Southold, New York's compliance with those requirements and performing such other procedures as we considered necessary In the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determlnalion of the Town of Southold, New York's compliance with those requlreme.nts. In our opinion. the Town of Southold, New York complied, In all material respects. with the requirements referred to above that are applicable to each of its major federal programs for the year ended December 31, 2005. Internal Control Over Compliance The management of the Town of Southold Is responsible for establishing and maintaining effective intemal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the Town of Southold's internal control over compliance with requirements that could have a direct and material effect on a major federal program In order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on the Internal control over compliance In accordance with OMB Circular A-l33. Our consideration of the intemal control over compliance would not necessarily disclose all matters in the internal control that might be a material weakness. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk of noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing the assigned functions. We noted no matters invoMng the internal control over comprJance and its operation that we consider to be material weaknesses. -43 - ALBRECHT. VIooIANO. ZURECK l50 CoMIWIY, P.C. . 1_. ...... OP' BKRINn:.MM11CNM. This report is intended solely for the information of the Town Board, management, others within the organization, and federal awarding agencies and pass-ihrough entities and is not intended to be and should not be used by anyone other than those specified parties. ~I V~I ~. .1-- J- e-,." t".c; Hauppauge, New York June 8, 2006 -44- TOWN OF SOUTHOLD SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended Oecember31, 2005 SUMMARY OF AUDIT RESULTS 1. The auditor's report expresses a qualified opinion on the financial statements of the Town of Southold due to the fact that six of the seven component units of the Town of Southold that were discretely presented were not audited. The remaining component unit, the Fishers Island Ferry District, was audited by other auditors. 2. No reportable conditions disclosed during the audit of the financial statements are reported in the "REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS~ None of the conditions are reported as a material weakness. 3. No instances of noncompliance material to the financial statements of the Town of Southold were disclosed during the audit. 4. No reportable conditions disclosed during the audit of the major federal award programs are reported In the "REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMS CIRCULAR A- 133". No material weaknesses were noted. 5. The auditor's report on compliance for the U.S. Department of the Interior- Fish and Wildlife Service expresses an unqualified opinion; the report on the remaining programs are unqualified. 6. No audit findings relative to the major federal award programs for the Town of Southold are reported in this schedule. 7. The Town of South old had two ''Type A" programs for the year ended December 31, 2005. 8. The program tested as a major program Includes: CFDA Number Name of Federal Proaram or Cluster 15.614 U.S. Department of the Interior Fish and Wildlife Service 9. The threshold for distinguishing Types A and B programs was $500,000. 10. The Town of Southold was determined to be a low-risk auditee. -45- TOWN OF SOUTHOLD SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended December 31,2005 FINDINGS-FINANCIAL STATEMENTS AUDIT REPORTABLE CONDITIONS - FINDINGS AND QUESTIONED COSTS- MAJOR FEDERAL AWARD PROGRAMS AUDIT. Questioned Cost -46- None None $ APPENDIX C INSURANCE ON THE BONDS AMBAC ASSURANCE Payment Pursuant to Financial Guaranty Insurance Policy Ambac Assurance Corporation ("Ambac Assurance") has made a commitment to issue a financial guaranty insurance policy (the "Financial Guaranty Insurance Policy") relating to the Bonds effective as of the date of insurance of the Bonds. Under the terms of the Financial Guaranty insurance Policy, Ambac Assurance will pay to The Bank of New York, in New York, New York or any successor thereto (the "Insurance Trustee"), that portion of the principal of and interest on the Bonds which shall become Due for Payment but shall be unpaid by reason ofNonpay,ment by the Obligor (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and/or interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the TrusteelPaying Agent. The insurance will extend for the term of the Bonds and, once issued, cannot be canceled by Ambac Assurance. The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandato!)' sinking fund installment dates, in the case of pnncipal, and on stated dates for payment, in the case of interest. If the Bonds become subject to mandato!)' redemption and insufficient funds are available for redemption of all outstanding Bonds, Ambac Assurance will remain obligated to pay principal of and interest on outstanding Bonds on the originally scheduled interest and principal !layment dates including mandato!)' sinking fund redemptIOn dates. In the event of any acceleration of the principal of the Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration, except to the extent that Ambac Assurance elects, in its sole discretion, to pay all or a portion of the accelerated principal and interest accrued thereon to the date of acceleration (to the extent unpaid by the Obligor). Upon payment of all such accelerated principal and interest accrued to the acceleration date, Ambac Assurance's obligations under the Financial Guaranty Insurance Policy shall be fully discharged. In the event the TrusteelPaying Agent has notice that any payment of principal of or interest on a Bond that has become Due for Payment and that is made to a Bondholder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recove!)' if sufficient funds are not otherwise available. The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment, (as set fourth in the Financial Guaranty Insurance Policy). Specifically, the Financial Guaranty Insurance Policy does not cover: I. payment on acceleration, as a result of a call for redemption (other than mandato!)' sinking fund redemption) or as a result of any other advancement of maturity. 2. payment of any redemption, prepayment or acceleration premium; and 3. nonpayment of principal or interest caused by the insolvency or negligence of any Trustee, Paying Agent or Bond Registrar, if any. If it becomes necessal)' to call upon the Financial Guaranty Insurance PolicY,l'ayment of principal requires surrender of Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy requires proof of Bondholder entitlement to interest payments and an appropriate assignment of the Bondholder's right to payment to Ambac Assurance. Upon payment of the insurance benefits, Ambac Assurance will become the owner of the Bond, appurtenant coupon, if any, or riJdit to payment of principal or interest on such Bond and will be fully subrogated to the surrendering Bondholder"s rights to payment. The insurance provided by the Financial Guaranty Insurance Policy is not covered by the property/casualty insurance security fund specified by the insurance laws of the State of New York. AMBAC ASSURANCE CORPORATION Ambac Assurance is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin, and is licensed to do business in 50 states, the District of Columbia, the Territo!)' of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of approximately $10,015,000,000 (unaudited) and statuto!)' capital of approximately $6,371,000,000 (unaudited) as of December 3 I, 2006. Statuto!)' capital consists of Ambac Assurance's policyholders' surplus and statuto7- contingency reserve. Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., Moody s Investor Service and Fitch Ratings have each assigned a triple-A financial strength rating to Ambac Assurance. Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in its Financial Guaranty Insurance Policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor of the Bonds. Ambac Assurance makes no representation regarding the Bonds or the advisability of investing in the Bonds and makes no representation regardmg, nor has it participated in the preparation of, the Official Statement otber than the information supplied by Ambac Assurance and presented under the heading "Appendix C". AVAILABLE INFORMATION The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the "Com~any"), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchan*e Commission (the "SEC"). These reports, proxy statements and other information can be read and copied at the SEC s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call t1ie SEC at 1-800- SEC-0330 for further information on the public reference room. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read atthe offices ofthe New York Stock Exchange, Inc., at 20 Broad Street, New York, New York 10005. Copies of Ambac Assurance's financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ari1bac Assurance's administrative offices and its telephone number are One State Street Plaza, 19th Floor, New York, New York, 10004 and (212) 668-0340. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following document filed by the Company with the SEC (File No. 1-10777) is incorporated by reference in this Official Statement: The Company's Annual Report of Form 10-K for the fiscal year ended December 31, 2006 and filed on March 1,2007. All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in "AVAILABLE INFORMATION". Ambac Ambac Assurance Corporation One State Street Plaza, 15th Floor New York, New York 10004 Telephone: (212) 668-0340 Financial Guaranty Insurance Policy Obligor: Policy Number: Obligations: Premium: Ambac Assurance Corporation (Ambac), a Wtsconsin stock insurance cotpOration, in consideration of the pa; ent of the premium and subject to the tel"lm of this Policy, hereby agrees to pay to The Bank of New York, as trustee, or its u essor (the "Insurance Trustee"), for the benefit of the Holders, that portion of the prtncipal of and interest on the above-desert 0 igations (the "Obligations") which shall become Due for Payment but shall be unpaid by reason of Nonpayment b e Obligo Ambac will make such payments to the Insurance Trustee within one (1) business day following Nonpayment. Upon a Holder's presentation and surrender to the Insurance Trustee of such un uncanceled and in bearer fonn and free of any adverse claim, the Insurance Trustee will d principal and interest which is then Due for Payment but is unpaid. Upon such disburse the surrendered Obligations and/or coupons and shall be fully subrogated to all of Ho e In cases where the Obligations are issued in registered form, the Insurance Trustee presentation and surrender to the Insurance Trustee of the unpaid Obligation, u with an instrument of assignment, in form satisfactory to Ambac and nsurance Holder's duly authorized representative, so as to permit ownership of shaHan nominee. The Insurance Trustee shall disburse interest to a er a Insurance Trustee of proof that the claimant is the person entitle 0 he p Insurance Trustee of an instrument of assignment, in form satlsfac 0 b Holder or such Holder's duly authortzed representa t Am c interest in respect of which the insurance disburs payment on regtstered Obligations to the extent 0 In the event that a trustee or paying or t e Obligation which has become Due fa nt an preferential transfer and theretofo r vered f m t a fInal, nonappealable order of a u of co juri ct on, of such recovery if sufficle nds se aVa1lab e. As used herein, the 0 er than (i) the Obligor or (11) any person whose obligations constitute the underlying secur gattons who, at the time of Nonpayment, is the owner of an Obligation or of a coupon relating ein, "Due for Payment", when referring to the principal of Obligations, is when the sch tu mandat emption date for the application of a required sinking fund installment has been reach not fer. any earlier date on which payment is due by reason of call for redemption (other than by appllcatlon of r red sinking fu tallments), acceleration or other advancement of maturity; and, when refening to interest on the Db g Hons e e h uled date for payment of interest has been reached. As used herein, "Nonpayment" means the failure of tie ro d sufficient funds to the trustee or paying agent for payment in full of all principal of and interest on the gations ch are Due for Payment. . This Po c celable. The premium on this Policy Is not refundable for any reason, including payment of the Obligations prior to m . This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due 10 respect of any Obligation, other than at the sole option of Ambac, nor against any rtsk other than Nonpayment. In witness whereof, Ambac has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by its duly authorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by Virtue of the countersignature of Its duly authorized representative. 01 er only upon v claim, together the Holder or such i e name of Ambac or its n y upon presentation to the toe Obligation and delivery to the nsurance Trustee, duly executed by the under such Obligation to receive the subrogated to all of the Holders' rtghts to made. noti that any payment of principal of or interest on an t a Holder by or on behalf of the Obligor has been deemed a t to the United States Bankruptcy Code In accordance with Holder will be entitled to payment from Ambac to the extent fd! /!..L President ........,..... .~..NCf ~... ..,\~~-.. 0-9~, /'c. ~"'c. oa ... ;#...~f' . ,,1/ _ \.... ~' \-, 'lftl ~.W' ','1, " ~I' \ \ i # '\ _ i, . /* "......~'lC'Olt,~~..... ~ ,;:;~.. ~~.~ Secretary Effective Date: Authortzed Representative THE BANK OF NEW YORK acknowledges that It has agreed to perform the duties of Insurance Trustee under this Policy. Fonn No.: 2B-0012 (1/01) Authorized Officer of Insurance Trustee A- Ambac Ambac Assurance Corporation One State Street Plaza, New York, New York 10004 Telephone: (212) 668-0340 Endorsement Policy lor: Attached to and forming part of Policy No.: The insurance provided by this Policy is not covered fund specified by the insurance laws of the State N ter, waive or extend any of the terms, conditions, provisions, agreements other than as above stated. ) Ambac has caused this Endorsement to be affixed with a facsimile of its corporate seal and to ized officers in facsimile to become effective as its original seal and signatures and binding lC conntersignature of its duly authorized representative. Ambac Assuraac:c Corporation {4/4 ............. #,)t.",MC'f ~\ , ..~~,.()i.'tO'iqj:::~!..o,. 11'-" .. '.... ,.~/ _ \'Y.... I.'i SEAL \'0', I I :'1: f I J : ,\. - II . \ / I , " ... . . , .....~/I('O"".~...... . \ -....- . '.......... ~~~ President Secretary Authorized Representative Form No.: 28-0004 G/97) Ambac Financial Guaranty Insurance Policy Obligor: TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK Ambac Assurance Corporation One State Street Plaza, 15th Floor New York, New York 10004 Telephone: (212) 668-0340 Policy Number: 26504BE Obligations: $14,650,000 Public Impro~ement Serial Bonds - 2007, dated April 15, 2007 and maturing on April 15 in the years 2008 through 2030, both inclusive. The Paying Agent is the Town of South old, Southold, New York. Premium: $31,000.00 Ambac Assurance Corporation (Ambac), a Wisconsin stock insurance corporation, in consideration of the payment of the premium and subject to the terms of this Policy, hereby agrees co pay to The Bank of New York, as trustee, or its successor (the "Insurance Trusteelt), for the benefit of the Holders, that portion of the principal of and interest on the above-described obligations (the "Obligations") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor. Ambac will make such payments to the Insurance Trustee within one (1) business day following written notification to Ambac of Nonpayment. Upon a Holder's presentation and surrender to the Insurance Trustee of such unpaid Obligations or related coupons, uncanceled and in bearer form and free of any adverse claim, the Insurance Trustee will disburse to the Holder the amount of principal and interest which is then Due for Payment but is unpaid. Upon such disbursement, Ambac shall become the owner of the surrendered Obligations and/or coupons and shall be fully subrogated to all of the Holder's rights to payment thereon. In cases where the Obligations are issued in registered form, the Insurance Trustee shall disburse principal to a Holder only upon presentation and surrender to the Insurance Trustee of the unpaid Obligation, uncanceled and free of any adverse claim, together with an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee duly executed by the Holder or such Holder's duly authorized representative, so as to permit ownership of such Obligation to be registered in the name of Ambac or its nominee. The Insurance Trustee shall disburse interest to a Holder of a registered Obligation only upon presentation to the Insurance Trustee of proof that the claimant is the person entitled to the payment of interest on the Obligation and delivery to the Insurance Trustee of an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee, duly executed by the Holder or such Holder's duly authorized representative, transferring to Ambac all rights under such Obligation to receive the interest in respect of which the insurance disbursement was made. Ambac shall be subrogated to all of the Holders' rights to payment on registered Obligations to the extent of any insurance disbursements so made. In the event that a trustee or paying agent for the Obligations has notice that any payment of principal of or interest on an Obligation which has become Due for Payment and which is made to a Holder by or on behalf of the Obligor has been deemed a ~referential transfer and theretofore recovered from the Holder pursuant to the United States Bankruptcy Code in accordance WIth a final, nonappealable order of a court of competent jurisdiction, such Holder will be entitled to payment from Ambac to the extent of such recovery if sufficient funds are not otherwise available. As used herein, the term "Holder" means any person other than (i) the Obligor or (ii) any person whose obligations constitute the underlying security or source of payment for the Obligations who, at the time of Nonpayment, is the owner of an Obligation or of a coupon relating to an Obligation. As used herein, "Due for Payment", when referring to the principal of Obligations, is when the scheduled m~turity date or mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments), acceleration or other advancement of maturity; and, when referring -to interest on the Obligations, is when the scheduled date for payment of interest has been reached. As used herein, wNonrayment" means the failure of the Obligor to have provided sufficient funds to the trustee or paying agent for payment in full 0 all principal of and interest on the Obligations which are Due for Payment. This Policy is noncancelable. The premium on this Policy is not refundable for any reason, including payment of the Obligations prior to maturity. This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due in respect of any Obligation. other than at the sole option of Ambac, nor against any risk other than Nonpayment. In witness whereof, Ambac has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by its duly authorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of the countersignature of its duly authorized representative. f~! /?.L. President ......,........ ",,).......C'E ~-'\ '- ...~,ortOa;,:;.";~~,.o '. 1'"(.... ...." ,<e" - ....,.... ~i \'0' "., c-r]l T i" :~:I t \ i I ,\ _ l, . \ ... I .. '. ,.. ..' I " .....~'fCO",.\ ..... , " ......-.. . '.......... Effective Date: April 19, 2007 THE BANK OF NEW YORK acknowledges that it has agreed to perform the duties of Insurance Trustee under this Policy. Form No.: 2B-0012 (1/01) A-11118 ~cruwa Authonzed Officer of Insurance Trustee Ambac Ambac Assurance Corporation One State Street Plaza, 15th Floor New York, New York 10004 Telephone: (212) 668-0340 Endorsement Policy for: Attached ro and forming part of Policy No.: TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK 26504BE Effective Date of Endorsement: April 19, 2007 The insurance provided by this Policy is not covered by tbe property/casualty insurance security fund specified by tbe insurance laws of tbe State of New York. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned Policy other than as above stated. In Witness Whereof, Ambac has caused tWs Endorsement to be affIxed with a facsimile of its corporate seal and to be signed by its duly authorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of the cotultersignature of its duly authorized representative. Ambac Assurance Corporation f~/ /2L ............... ~\l""M('f~~ ,..~.,.Q&.-;g;...,....:co.eo' ," ,.,.t ,~~"I - ... "'.... -:i ~.y \\\ " ~'. \1 1 . \ , , .\ - ;" " '-"':::'JCO""~!"~/.' ,,-. ....-.- -''''--- ~~,~ President secretary Form No.: 28-0005 0/97) CERTIFICATE OF BOND INSURER In connection with the issuance of $14,650,000 in aggregate principal amount of Town of Southold, Suffolk County, New York (the "Obligor"), Public Improvement Serial Bonds - 2007, dated April 15, 2007 (the "Obligations"), Ambac Assurance Corporation ("Ambac") is issuing a Financial Guaranty Insurance Policy and Endorsement thereto (the "Insurance Policy") guaranteeing the payment of principal and interest when due on the Obligations, all as more fully set out in the Insurance Policy. Ambac On behalf of Ambac, the undersigned hereby certifies that: (i) the Insurance Policy is an unconditional and recourse obligation of Ambac (enforceable by or on behalf of the holders of the Obligations) to pay the scheduled payments of interest and principal on the Obligations in the event of a Nonpayment as defined in the Insurance Policy; (ii) the insurance premium of $31,000.00 was determined in arm's length negotiations in accordance with our standard procedures, is required to be paid as a condition to the issuance of the Insurance Policy and represents a reasonable charge for the transfer of credit risk; (iii) no portion of such premium represents a payment for any direct or indirect services other than the transfer of credit risk, including costs of underwriting or remarketing the Obligations or the cost of insurance for casualty of Obligation financed property; (iv) we are not co-obligors on the Obligations and do not reasonably expect that we will be called upon to make any payment under the Insurance Policy; and (v) the Obligor is not entitled to a refund of any portion of the premium for the Insurance Policy in the event that the Obligations are retired prior to their stated maturity. IN WITNESS WHEREOF, Ambac Assurance Corporation has caused this certificate to be executed in its name on this 19th day of April, 2007, by one of its officers duly authorized as of such date. AMBAC ASSURANCE CORPORATION By: U ~ :JD?l/l..-~ Dwighcl<.Wi, Vice President and Assistant General Counsel Ambac Ambac Assurance Corporation One State Street Plaza New York, NY 10004 212.668.0340 Fax: 212.509.9190 A member of the Ambac Fittand4l Group, 1"" April 19, 2007 Town of Southold Town Hall 53095 Route 25 Southold, NY 11971 Munistat Services, Inc. 12 Roosevelt Avenue Port Jefferson Station, NY 11776 Roosevelt & Cross, Inc. and Associates 55 Broadway New York, NY 10006 Hawkins Delafield & Wood LLP One Chase Manhattan Plaza New York, NY 10005 Ladies and Gentlemen: This opinion has been requested of the undersigned, a Vice President and an Assistant General Counsel of Ambac Assurance Corporation, a Wisconsin stock insurance corporation ("Ambac Assurance"), in connection with the issuance by Ambac Assurance of a certain Financial Guaranty Insurance Policy and Endorsement thereto, effective as of the date hereof (the "Policy"), insuring $14,650,000 in aggregate principal amount of Town of Southold, Suffolk County, New York (the "Obligor"), Public Improvement Serial Bonds - 2007, dated April 15, 2007 (the "Obligations"). In connection with my opinion herein, I have examined the Policy and such statutes, documents and proceedings as I have considered necessary or appropriate under the circumstances to render the following opinion, including, without limiting the generality of the foregoing, certain statements contained in the Official Statement of the Obligor dated March 27, 2007 relating to the Obligations (the "Official Statement") under the heading "APPENDIX C - INSURANCE ON THE BONDS". Based upon the foregoing and having regard to legal considerations I deem relevant, I am of the opinion that: I. Ambac Assurance is a stock insurance corporation duly organized and validly existing under the laws of the State of Wisconsin and duly qualified to conduct an insurance business in the State of New York. 2. Ambac Assurance has full corporate power and authority to execute and deliver the Policy, and the Policy has been duly authorized, executed and delivered by Ambac Assurance and constitutes a legal, valid and binding obligation of Ambac Assurance enforceable in accordance with its terms, except to the extent that the enforceability (but not the validity) of such obligation may be limited by any applicable bankruptcy, insolvency, liquidation, rehabilitation or other similar law or enactment now or hereafter enacted affecting the enforcement of creditors' rights. 3. The execution and delivery by Ambac Assurance of the Policy will not, and the consummation of the transactions contemplated thereby and the satisfaction of the terms thereof will not, conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Authority, Articles of Incorporation or By-Laws of Ambac Assurance, or any restriction contained in any contract, agreement or instrument to which Ambac Assurance is a party or by which it is bound or constitute a default under any of the foregoing. 4. Proceedings legally required for the issuance of the Policy have been taken by Ambac Assurance and licenses, orders, consents or other authorizations or approvals of any governmental boards or bodies legally required for the enforceability of the Policy have been obtained; any proceedings not taken and any licenses, authorizations or approvals not obtained are not material to the enforceability of the Policy. Ambac 5. The statements contained in the Official Statement under the heading "APPENDIX C - INSURANCE ON THE BONDS", insofar as such statements constitute summaries of the matters referred to therein, accurately reflect and fairly present the information purported to be shown and, insofar as such statements describe Ambac Financial Group, Inc. (the "Company") and Ambac Assurance, fairly and accurately describe the Company and Ambac Assurance. 6. The form of the Policy contained in the Official Statement under the heading "APPENDIX C - INSURANCE ON THE BONDS" is a true and complete copy of the form of the Policy. The opinions expressed herein are solely for your benefit, and may not be relied upon by any other person. Very truly yours, ~ Itvvv- Dwight K wa Vice President and Assistant General Counsel Ikd 26504be ," w Moody's Investors Service 99 Church Street New York, NY April 18, 2007 Ambac One State Street Plaza New York, NY 10004 To Whom It May Concern: Moody's Investors Service has assigned the rating of Aaa (Ambac Insured - Policy No. 26504BE) to the $14,650,000.00, Town of Southold, Suffolk County, New York - Public Improvement Serial Bonds-2007, dated April 15, 2007 which sold through negotiation on April 10, 2007. The rating is based upon an insurance policy provided by Ambac. Should you have any questions regarding the above, please do noi hesitate to contact Karen Malkowski at (201) 395-6370. Sincerely yours, ~1'JT" J&;mJ,Jiil '. , if , Joann Hempel Vice President I Senior Credit Officer JH I PS UNITED STATES OF ,&~IERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD 2066 BRIDGE;'IA~,IFT~N, MOTE FOE %~OUS The Town of Seathold, in ~ County of Suffolk, a mumcipal corporation al' the State of New York. hereby it.~If indebted and for value received promises to pa}.' to the bearer at' this Note, or if it be regi~ered, to the . the sum al'ONE igIILLION EIGHT HUNDRED SEVENTY THOUSAa~D DOLLARS ($1,870,000) on the t~h day of September, 2003, t~gethes v, ith mterest thereon fi-om the date hereoi'at the rate o1:' one and thirty.-five hundredths er couture (I.35%) I er annum, payable at maturity Both principal at'and mterest on this Note viii be prod in la',,.~bl money at The Bridgehampton National Bank, Southold Office, Southold, Ney, York At the request at'the holder, the To,,vn Clerk shall convert r~us Note rata a registered Note by regtstermg ttm the name the holder in the books ol' the Town kept in the otSce o£ such Tov, u Clerk and endorsing a certificate of such registration a~er which both princilml of and interest on this Not~ ~hall be payable only m the registered holder, [us legal This Note -=hall than be trar~t'erable only upen presentation to such Town Clerk v~th a :l such To'va Clerk shall thereupon registm' ~ Note in the name o£the trarm £eree un Ns kooks and shall Such u'ansfer sN~ll be dated, and m~ned by the registes~ ko!der, or his legal and it shall be duly acknowledged or proved, or in the alternative the signature thereto shall be cemfied ~ to its · a bank or trust company located and aur. hortzad to do busmess in t[us State. This Not,: is '..he only Note of an authorized combined :ene~ul ts~e. the ag~-egate principal amount ~:' ',,,N~c'q is 3~0.000. INs Note is :~su~d pursuant te the provisions of the Local Fmanca La~.t. ccnsutatmg Chapter 33-a at' the Consolidated o£the State o£New York, various bond resolutions adopted b'.. the Town Board on ~e~r re%t'~ecttve dates, authonzmg the ssuance of ~.--r'ial ~crtds for various purposes, and the Certificate o£ Determma~-inn executed b? a~.e Supervisor ac September l 3, This Note has been desi.m'mted b? the Tayto as a q~fied ~<-exernpt obhgadon pursuant to the provistans ~t' r~e Internal Revenue Code of 1986, as amended. 'Uae t'a~th and ;redit of such Tov, n of Southold are hereb}, uwe~ ccabl? pledged tbr ~e pancm~ pa)meat of ~.e pr',nc:pa3 and mterest on this Note accordmg to its terms. [t is hereb? cemfied and recited that all conditions, acts :md ,aSmgs toque'ed by '..he Con~imtien and statutes of :he $1ate =fNew York to exast, to have hapl~med and to have been performed precedent to and m the ~ssuance of llas Note. e:tist ltave performed, and tint this Note, together wiu% all other indebtednes~ of such T~x~n ~f Soutkold. i~ ~;:t~an pre~ibed by the Constitution and lav. s o(such State. D~ WITNESS WI-I~REOF. the Town of Southold has caused this Note to be st~ed by zts Super;isor. and its :orporate seal (or a facsimile thereo0 to be at, xed, impressed. ,.mpm'~ted. or other~ise reproduced hereon end arrested b': tls Tayto Clerk :md :_hSs Note to be dated as o£ the 13m day of September. 2002. (SEAL) f~' n~, Super~,,tser -- REGISTRATION CERTI~CA~'E It is h~reb?' cermied that the ~xtlun Note has ~:en re.mstered .~s £oilo~,s: Date of Regis~'ation Name o£ Rcgt>'t~ed Hold~ [ Registered by CERTIFICATE OF DETERMINATION BY THE SUPERVISOR RELATIVE TO AUTHORIZATION, SALE, ISSUANCE, FORM AND CONTENTS OF THE $1,870,000 BOND ANTICIPATION NOTE FOR VARIOUS PURPOSES-2002 OF THE TOWN OF SOUTHOLD, NEW YORK. I, Joshua Y. Horton, Supervisor of the Town of Southold, New York (herein called the "Town"), HEREBY CERTIFY that pursuant to the powers and duties delegated to me, the chief fiscal officer of the Town, by the Town Board of the Town, pursuant to the bond resolutions duly adopted and as referred to in paragraphs 1 to 9, inclusive, hereof, and subject to the limitations prescribed in said bond resolutions, I have made the following determinations: 1. A bond anticipation note of the Town in the principal amount of $33,500 shall be issued to renew, in part, the $80,000 bond anticipation note dated September 14, 2001, maturing September 13, 2002, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted July 7, 1998, authorizing the acquisition of the certain pierce or parcel of land containing 13.85 acres, more or less, situate on the west side of Peconic Lane, in the Town of Southold, at the estimated maximum cost of $210,000, including preliminary costs and costs incidental thereto to the financing thereof in the amount of $10,000, said land to be used for public park purposes; appropriating $210,000 therefor and authorizing the issuance of $210,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 14, 2001, the redemption of said $80,000 bond anticipation note having been heretofore provided to the extent of $46,500 from a source other than the proceeds of serial bonds. 2. A bond anticipation note of the Town in the principal amount of $30,000 shall be issued to renew, in part, the $64,000 bond anticipation note dated September 14, 2001, maturing September 13, 2002, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted May 12, 1998, authorizing the acquisition and installation of a computer system for use by the Police Department; stating the estimated maximum cost thereof is $170,000; appropriating said amount therefor and authorizing the issuance of $170,000 serial bonds of said Town to finance said appropriation," 404154.1 015832 CERT duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 14, 2001, the redemption of said $64,000 bond anticipation note having been heretofore provided to the extent of $34,000 from a source other than the proceeds of serial bonds. 3. A bond anticipation note of the Town in the principal amount of $167,000 shall be issued to renew, in part, the $224,000 bond anticipation note dated September 14, 2001, maturing September 13, 2002, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted April 11, 2000, authorizing the acquisition and installation of a computer system network, including hardware, sol, ware and appurtenant equipment, machinery, apparatus and furnishings, in Town offices~ stating the estimated maximum cost thereof is $335,000~ appropriating said amount therefor, including the appropriation of $50,000 current funds and authorizing the issuance of $285,000 serial bonds of said Town to finance the balance of said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 14, 2001, the redemption of said $224,000 bond anticipation note having been heretofore provided to the extent of $57,000 from a source other than the proceeds of serial bonds. 4. A bond anticipation note of the Town in the principal amount of$115,500 shall be issued to renew, in part, the $154,000 bond anticipation note dated September 14, 2001, maturing September 13, 2002, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted February 29, 2000, appropriating the amount of $260,000 for the increase and improvement of facilities of the Southold Solid Waste Management District, in said Town, including the expenditure of $67,500 of available Town funds to pay a part of said appropriation, and authorizing the issuance of $192,500 serial bonds of said Town to finance the balance of said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 14, 2001, the redemption of said $154,000 bond anticipation note having been heretofore provided to the extent of $38,500 from a source other than the proceeds of serial bonds~ 5. A bond anticipation note of the Town in the principal amount of $68,000 shall be issued to renew, in part, the $90,000 bond anticipation note dated September 14, 200l, maturing September 13, 2002, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: 404154.1 015832 CERT "Bond Resolution of the Town of Southold, New York, adopted May 8, 2001, authorizing the purchase ora catamaran patrol vessel to be used by the Marine Division of the Town Police Department, stating the estimated maximum cost thereof is $90,000, appropriating said amount therefor and authorizing the issuance of $90,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 14, 2001, the redemption of said $90,000 bond anticipation note having been heretofore provided to the extent of $22,000 from a source other than the proceeds of serial bonds. 6. A bond anticipation note of the Town in the principal amount of $224,000 shall be issued to renew, in part, the $280,000 bond anticipation note dated September 14, 2001, maturing September 13, 2002, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted July 31, 2001, authorizing the second phase of the original improvement and embellishment of the new public park and recreational area on the land containing 13.85 acres, more or less, on the west side of Peconic Lane, heretofore acquired and now owned by and situate in, said Town; stating the estimated maximum cost thereof is $280,000, including preliminary costs and costs incidental thereto and to the financing thereof; appropriating said amount therefor and authorizing the issuance of $280,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 14, 2001, the redemption of said $280,000 bond anticipation note having been heretofore provided to the extent of $56,000 from a source other than the proceeds of serial bonds. 7. A bond anticipation note of the Town in the principal amount of $257,000 shall be issued to renew, in part, the $330,000 bond anticipation note dated September 14, 2001, maturing September 13, 2002, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: duly adopted Determination "Bond Resolution of the Town of Southold, New York, adopted July 31, 2001, appropriating $330,000 to defray costs and expenses of the Suffolk County Water Authority associated with the extension of Authority water mains into a portion of Cutchogue, in the Town, stating the estimated maximum cost thereof is $330,000 and authorizing the issuance of $330,000 serial bonds of said Town to finance said appropriation," by the Town Board on the date therein referred to, and the Certificate of executed by the Supervisor on September 14, 2001, the redemption of said 404154.1015832 CERT $330,000 bond anticipation note having been heretofore provided to the extent of $73,000 from a source other than the proceeds of serial bonds. 8. A bond anticipation note of the Town in the principal amount of $550,000 shall be issued to renew, in part, the $575,000 bond anticipation note dated September 14, 2001, maturing September 13, 2002, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted July 31, 2001, appropriating the amount of $8,000,000, including the amounts of any grants that may be received from the United States and the State of New York for the increase and improvement of the facilities of the Fishers Island Ferry District, in said Town and authorizing the issuance of serial bonds of said Town in the principal amount of not to exceed $4,800,000 to finance that portion of said appropriation for which such grants are not available," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 14, 2001, the redemption of said $575,000 bond anticipation note having been heretofore provided to the extent of $25,000 from a source other than the proceeds of serial bonds. 9. A bond anticipation note of the Town in the principal amount of $425,000 shall be issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York adopted July 30, 2002, authorizing the construction of a new bridge on Peconic Bay Boulevard to cross Brushes Creek, in said Town; stating the estimated maximum cost thereof is $425,000; appropriating the said amount therefor, including the appropriation of moneys expected to be received from the State of New York to reimburse the Town; authorizing the issuance of not to exceed $425,000 serial bonds of the Town to finance said appropriation and stating the plan of financing includes the issuance of said serial bonds, the application of said state moneys to reimburse the Town and the levy and collection of taxes to pay principal of and interest on said bonds," duly adopted by the Town Board on the date therein referred to. 10. Said $33,500 note, said $30,000 note, said $167,000 note, said $115,500 note, said $68,000 note, said $224,000 note, said $257,000 note, said $550,000 note and said $425,000 note shall be combined for the purpose of sale into a single note issue in the aggregate principal amount of $1,870.000 (hereinafter referred to as the "Note"). 11. The terms, form and details of said Note shall be as follows: 404154.1 015832 CERT Amount and Title: Dated: Matures: Number and Denomination: Interest Rate per annum: Form of Note: $1,870,000 Bond Anticipation Note for Various Purposes- 2002 September 13, 2002 September 12, 2003 Number 4R-l, at $1,870,000 1.35% Substantially in accordance with form prescribed by Schedule B, 2 of the Local Finance Law of the State of New York. 12. The amount of bond anticipation notes originally issued in anticipation of the issuance of the serial bonds authorized pursuant to the bond resolutions referred to in paragraphs l to 9, inclusive, hereof, including the Note, is, respectively,O) $210,000, (2) $170,000, (3) $285,000, (4) $192,500, (5) $90,000, (6) $280,000, (7) $330,000, (8) $575,000 and (9) 425,000 the amount of bond anticipation notes which will be outstanding after the issuance of the Note, including said Note, will be, respectively, (1) $33,500, (2) $30,000, (3) $167,000, (4) $115,500, (5) $68,000, (6) $224,000, (7) $257,000, (8) $550,000 and (9) $425,000. 13. The serial bonds authorized pursuant to the resolution referred to in paragraphs 4 and 8 hereof, are for improvements which are assessable, and the serial bonds authorized pursuant to the resolutions referred to in paragraphs 1, 2, 3, 5, 6, 7 and 9 hereof, are for improvements which are non-assessable. 14 Pursuant to said powers and duties delegated to me, I DO HEREBY AWARD AND SELL said Note to The Bridgehampton National Bank, Southold Office, Southold, New York, for the purchase price of $1,870,000, plus accrued interest, if any, from the date of said Note to the date of delivery thereof and payment therefor, and I FURTHER DETERMINE that said Note shall be payable as to both principal and interest at The Bridgehampton National Bank, Southold Office, Southold, New York, and shall bear interest at the rate of one and thirty-five hundredths per centum (1.35%) per annum, payable at maturity. 15. Said Note shall be executed in the name of the Town by its Supervisor and the corporate seal of the Town (or a facsimile thereof) shall be affixed, impressed imprinted or otherwise reproduced thereon and attested by its Town Clerk. I HEREBY FURTHER CERTIFY that the powers and duties delegated to me to issue and sell the Note hereinabove referred to are in full force and effect and have not been modified, amended or revoked. IN WITNESS WHEREOF, I have hereunto set my hand this~t 3th day of September, 2002. Supervisor 404154.1015832 CERT CLERK' S CERTIFICATE I, Elizabeth A. Neville, Town Clerk of the Town of Southold, in the County of Suffolk, New York, HEREBY CERIIFY that I have compared the foregoing copy of the Certificate of Determination executed by the Supervisor and the same is a true and complete copy of the Certificate filed with said Town in my office as Town Clerk on the 13th day of September, 2002; and I FURTHER CERTIFY that no resolution electing to reassume any of the powers or duties mentioned in said Certificate and delegated to the Supervisor by the resolutions cited in said Certificate and exercised by the Supervisor has been adopted by said Iown Board. 1N WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Town this 13th day of September, 2002. (SEAL) 404154.1 015832 CERT ARBITRAGE AND USE OF PROCEEDS CERTIFICATE I, Joshua Y. Horton, Supervisor of the Town of Southold, in the County of Suffolk, New York (the "Issuer"), HEREBY CERTIFY and reasonably expect with respect to the issuance of the Issuer's $1,870,000 Bond Anticipation Note for Various Purposes-2002, being a combined issue of bond anticipation notes authorized in anticipation of the sale of serial bonds pursuant to various bond resolutions (hereinafter referred to as the "Note" or "Notes"), dated September 13, 2002, and maturing on September 12, 2003, as follows: Unless the context dearly requires otherwise, all capitalized terms used but not otherwise defined herein shall have the meanings set forth in Article II hereof or in the Resolutions, the Code or the Regulations (each as defined below). ARTICLE I General 1.1. Authority of Signatory. I am an officer of the Issuer and in the absence of the Supervisor, am charged with the responsibility for the execution, delivery, and issuance of the Note and am acting for and on behalf of the Issuer in signing this certificate. 1.2. Purpose of Certificate. This certificate is made for the purpose of establishing evidence of the expectations of the Issuer as of the date hereof as to future events regarding the amount and use of proceeds of the Note. It is intended and may be relied upon for purposes of Sections 103 and 148 of the Internal Kevenue Code of 1986, as amended (the "Code"), and as a certification described in Section 1.148-2(b)(2) of the Treasury Regulations (the "Regulations"). This certificate is executed and delivered as part of the record of proceedings in connection with the issuance of the Note. The provisions of this certificate constitute a contractual obligation of the Issuer in consideration for the purchase of and payment for the Note by the purchaser(s) thereof. 1.3. Reasonable Expectations. This certificate sets forth the facts, estimates and circumstances now in existence which form the basis for the Issuer's expectation that the proceeds of the Note will not be used in a manner that would cause the Note to be an arbitrage bond under Section 148 of the Code or a private activity bond under Sections 103 and 141 of the Code. To the best of my knowledge and belief, such expectation is reasonable and there are no other facts, estimates or circumstances that would materially change that expectation. 1.4. No Composite Issue No other governmental obligations have been sold fewer than 15 days prior to, or will be sold fewer than 15 days after, the sale date of the Note, pursuant to a common plan of financing which are expected to be paid from substantially the same source of funds as the Note~ 1.5 No Federal Guarantee. The Issuer represents and covenants that, except for the gross proceeds of the Note which are: (a) invested during the temporary period referred to 404154.1 015832 CERT in Article III, (b) held in any refunding escrow or (c) invested in obligations of the United States Treasury or in obligations issued pursuant to Section 2lB(d)(3) of the Federal Home Loan Bank Act, as amended by Section 511(a) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or any successor provision to Section 2lB(d)(3) of the Federal Home Loan Bank Act, as amended: (i) No portion of the payment of principal or interest with respect to the Note is or will be guaranteed directly or indirectly by the United States or any agency or instrumentality thereof(herein "federally guaranteed"); and (ii) No portion of the gross proceeds of the Note in excess of five percent of such gross proceeds is or will be (A) used in making loans the payment of principal or interest with respect to which is to be federally guaranteed, or (B) invested directly or indirectly in federally insured deposits or accounts. 1.6. Tax Representation. The Issuer expects to be able to and will comply with all the procedures and provisions set forth herein, and will do and perform all acts and things necessary and desirable within its reasonable control in order to assure that interest paid on the Note shall be excluded from gross income of the owners thereof for the purpose of federal income taxation. 1.7. Additional Information. The Issuer will provide such other information as may be required to assure the exclusion from gross income of interest on the Note for federal income taxation purposes. 1.8. Non-Purpose Investments Not more than 50% of the proceeds of the Note are being invested in investments not acquired to carry out the governmental purposes of the issue at a guaranteed yield and having a term of 4 years or more. 1.9 [RS Information Reporting. The Issuer will make a timely filing of the appropriate IRS Form 8038-G or 8038-GC. ARTICLE II Use of Project and Proceeds 2.1. Authorization. (a) The Note is authorized to be issued pursuant to applicable provisions of the laws of the State of New York and various bond resolutions adopted by the Town Board on their respective dates (the "Resolutions"), as referred to in the Certificate of Determination executed by the Supervisor on September 13, 2002. (b) For purposes of this Article II the term "proceeds" means the net amount (after payment of all costs and expenses associated with issuing the Note) received by the Issuer from the sale of the Note, excluding accrued interest. 404154.1 015832 CERT 2.2. Puroose of Issue. The Note is being issued to provide funds for various purposes in and for the Town ("the Project"), as further described in the Resolutions. 2.3. Use of Proceeds. The proceeds of sale of the Note in the amount of $1,445,000(the "Current Refunding Note") will be used, together with other available funds in the amount of $440,000, to redeem prior issues of bond anticipation notes which mature on September 13, 2002, in the aggregate principal amount of $1,885,00(the "Prior Issue"), heretofore issued to finance the Project. The balance of the proceeds of sale of the Note in the aggregate principal amount of $425,000 (the "New Money Note") will be used to provide original financing for the Project. 2.4. Ownership/Lease/Sale. The Project will be owned by the Issuer or another state or local governmental unit and will not be leased to any person who is not a state or local governmental unit. It will not (except to the extent that any of the projects financed involve grants) be sold or otherwise disposed of, in whole or in part, except for incidental sales of surplus items the proceeds of which will not constitute net operating profits or net capital profits to the Issuer, prior to the maturity date of the Note. 2.5. Private Loans. Not more than the lesser of 5 percent or $5,000,000 of the proceeds of the Note will be used directly or indirectly to make loans to persons other than a governmental unit. 2.6. Private Use. The aggregate amount of proceeds of the Note used directly or indirectly in a trade or business carried on by a person other than a state or local governmental unit ("Private Use"), will not exceed 10% of such proceeds in the event that more than 10% of the principal or 10% of the interest due on the Note during the term thereof is, under the terms of the Note or any underlying arrangement, directly or indirectly, secured by any interest in property used or to be used for a Private Use or in payments in respect of property used or to be used for a Private Use or is to be derived from payments, whether or not to the Issuer, in respect of property or borrowed money used or to be used for a Private Use. 2.7. Unrelated/Related Disproportionate Use. No more than 5% of the proceeds of the Note will be used directly or indirectly in the trade or business of a person other than a governmental unit that is unrelated or related and disproportionate to the governmental use of the property being financed, including any private loan financing described in Section 2.5 which meets this test. For purposes of this Arbitrage and Use of Proceeds Certificate, proceeds of the Note are allocable to an unrelated Private Use if such use is neither directly nor operationally related to a governmental use and proceeds of the Note are allocable to a disproportionate related Private Use to the extent that the proceeds of the Note which are to be used to finance property used by a nongovernmental person in a trade or business which is related to the governmental use of the property referred to in Section 26 above, exceeds the proceeds of the Note which are to be used for the governmental use to which such Private Use relates. 2.8 Other Private Uses Defined. For purposes of Section 2.6 and 2.7, a Private Use consists of any contract or other arrangement including, without limitation, leases, 404154.1 015832 CERT management contracts, guarantee contracts, take or pay contracts, or put or pay contracts, which provides for a use of the Projects by a person or persons who are not State or local governments on a basis different than the general public. Any management, or operations contract or agreement which provides for nongovernmental use will provide for reasonable compensation which is in no part based on net profits and will satisfy the provisions of(a), (b) or (c) below: (a) for contracts which provide compensation for each annual period based on a periodic fixed fee, a capitation fee or combination thereof, (i) the contract has a term (including renewal options) not exceeding five years; (ii) the issuer may terminate the contract, without penalty, at the end of any three year period, and (iii) at least 50% of the compensation paid is on a periodic, fixed fee basis; (b) for contracts entered into or materially modified (other than pursuant to a renewal option) after March 15, 1993, which provide compensation based on a per unit fee or a combination per unit and periodic fixed fee, (i) the contract has a term (including renewal options) not exceeding three years; (ii) the issuer may terminate such contract (without penalty) at the end of the second year of the term, and (iii) the amount of the per unit fee is specified in the contract or otherwise limited by the qualified user or a third party; (c) for contracts entered into or materially modified (other than pursuant to a renewal option) after March 15, 1993, which provide compensation based on a percentage of fees charged, (i) the contract has a term (including renewal options) not exceeding two years, (ii) the issuer may terminate the contract (without penalty) at the end of the first year, and (iii) the service provider primarily provides services to third parties or the contract involves a facility during an initial start-up period; (d) For purposes of this Section 2.8: (i) "capitation fee" means a fixed periodic amount paid under a management contract or agreement for each person for whom the service provider assumes the responsibility to provide all needed services for a specified period, provided the quantity and type of services actually provided vary substantially; (ii) "periodic fixed fee" means a stated dollar amount for services rendered during a specified period of time (i.e. SXX per month) which amount may automatically increase according to a specified, objective, external standard; and (iii) "per unit fee" means a stated dollar amount for each unit of service provided (i.e. SXX per medical procedure). 2.9. Pooled Loan Financings. To the extent the amount of proceeds of the Note to be used to make loans to any borrowers (including loans referred to in Section 2.5 above and loans to state or local governmental units) exceeds $5,000,000, at least 95% of the net proceeds 404154.1 015832 CERT of the issue (as defined in Section 150 of the Code but without including proceeds used to finance costs of issuance or capitalized interest) that are to be used to make loans, will have been used within 3 years of the date hereof to make such loans. The payment of legal and underwriting costs is not contingent and at least 95% of the reasonably expected legal and underwriting costs associated with issuance will be paid within 180 days of the date hereo£ 2.10. Output Facilities~ No more than 5% of the proceeds of the Note are to be used with respect to any output facility (other than a facility for the furnishing of water). No more than the lesser of $5,000,000 or 5% of the proceeds of the Note are to be used (directly or indirectly) for the acquisition of a nongovernmental output facility. ARTICLE IH Arbitra,,e/Rebate Exemption 3.1. TemporargPeriod-Refunding. With respect to the proceeds ofthe sale ofthe Current Refunding Note representing proceeds allocable to the Prior Issue: (a) All of the proceeds of the Prior Issue have been expended, or any such proceeds which have not been expended as of the date hereof, shall become transferred proceeds of this issue. Such transferred proceeds may be invested without restriction as to yield until three years after the date of original issuance of the Prior Issue. If any transferred proceeds remain unexpended after three years after the date of original issuance of the Prior Issue, such proceeds will be invested at a yield not in excess of the yield on the Note. (b) The proceeds of the Note will be used to refund the Prior Issue within 90 days of the date hereof, and may be invested during such time without restriction as to yield. 3.2. Temporatw Period-New Money. With respect to the New Money Note: (a) The Issuer has entered into or will enter into within six months from the date of this certificate, binding commitment(s) for the acquisition, construction or accomplishment of the Project cited in Section 2.2 hereof, and the amount of such commitment(s) with respect to such Project will or do exceed the amount equal to 5% of $425,000, being the aggregate amount of obligations currently issued for such Project. (b) Such Project has been completed, or, if such Project has not been completed, work on the acquisition, construction or accomplishment of such Project will proceed or is proceeding with due diligence to completion. (c) It is reasonably expected that at least 85 percent of the net sale proceeds of such New Money Note will be expended within three years from the date of this Certificate. No more than 50 percent of the proceeds of the Note will be invested in nonpurpose investments with a term of four years or more. 404154. l 015832 CERT 3.3. Rebate. (a) Neither the Prior Issue nor the New Money Note was or is subject to the rebate requirement imposed by Section 148 of the Code because, with respect to each: (i) the Issuer was or is a governmental unit with general taxing powers; (ii) the Prior Issue/New Money Note did not or does not constitute a "private activity bond" as that term is defined in Section 141 of the Code; (iii) ninety-five percent or more of the net proceeds of the sale of the Prior Issue/New Money Note was or is to be used for local governmental activities of the Issuer; and (iv) the Issuer (including all agencies, instrumentalities and political subdivisions of the Issuer) reasonably expected or expects that the aggregate face amount of all tax-exempt bonds issued by the Issuer during the calendar year in which the Prior Issue was issued and the current calendar year would not or will not exceed $5,000,000. For purposes of such determination, no tax-exempt obligation was or shall be taken into account if it was or is a current refunding obligation issued in the calendar year in which the Prior Issue/New Money Note (as applicable) was or is being issued which does not exceed the outstanding (redeemed) principal amount of the obligation to be refunded. (b) The Current Refunding Note is not subject to the rebate requirement imposed by Section 148 of the Code because all of the Gross Proceeds of such Current Refunding Note will be expended to pay the Prior Issue within 90 days of the date hereof and will, therefore, qualify for the six-month expenditure exception to rebate. 3.4. No Excess Proceeds. The total proceeds of sale of all bond anticipation notes issued to date for the Project do not exceed the total cost of the Project. 3.5. Source of Repayment Funds. The Note will be paid from taxes and the proceeds of other obligations of the Issuer issued to fund the Note. 3.6. Debt Service Fund. The taxes used to pay principal and interest on the Note, whether or not deposited in a debt service fund, will be expended within 13 months of the date of deposit in such fund, or the date of their accumulation, in the payment of debt service on the Note. Any amounts received from the investment of such deposit or accumulation will be expended within one year of receipt. The debt service fund, if any, will be used to achieve a proper matching of revenues and debt service and will be depleted at least annually except for a reasonable carryover amount which will not exceed the greater of the earnings on such fund for the immediately preceding year or one-twelfth of the debt service on the Note. 3.7. Sinking Funds. Except for the debt service fund described herein the Issuer has not created or established, and does not expect to create or establish, any sinking fund or 404154.1015832 CERT other similar fund which the Issuer reasonably expects to use to pay principal or interest on the Note. ARTICLE IV Bank Qualification 4.1. Designation. The Note is hereby designated as a "qualified tax-exempt obligation" pursuant to the provisions of Section 265 of the Code. (a) In making such designation it has been determined with respect to the Current Refunding Note that: (i) the Note currently refunds the Prior Issue; (ii) the Prior Issue was designated as a "qualified tax-exempt obligation"; (iii) the aggregate face amount of the Note does not exceed $10,000,000; (iv) the Prior Issue had a weighted average maturity of 3 years or less; (v) the maturity date of the Note, as measured from the original date of issuance of the notes issued pursuant to the Resolutions, in renewal of which such Note is being issued, does not exceed 30 years; and (vi) not more than $10,000,000 of obligations issued by the Issuer during the calendar year in which the Prior Issue was issued were designated by the Issuer as "qualified tax-exempt obligations." (b) In making such designation it has been determined with respect to the New Money Note that: (i) the Issuer does not reasonably anticipate that the amount of"qualified tax- exempt obligations" to be issued by the Issuer during the current calendar year will exceed $10,000,000; and (ii) the amount of "qualified tax-exempt obligations" issued by the Issuer during the current calendar year does not as of this date, and including this issue, exceed $10,000,000. IN WlTNESS WHEREOF, [ have hereunto set my hand and affixed the corporate seal of the Town of Southold this l 3th day of SeptemJper, 200Z j - Supervisor-- 404154. I 015832 CERT AFFIDAVIT AS TO NO CONFLICT OF INTEREST STATE OF NEW YORK ) :SS: COUNTY OF SUFFOLK ) Elizabeth A. Neville, being duly sworn upon her oath deposes and says: 1. I am the duly appointed, qualified and acting Town Clerk of the Town of Southold, in the County of Suffolk, New York (herein and in Schedule A annexed hereto called "Town"); 2. That with respect to the contract of sale of the Note of the Town described in the Certificate of Determination executed by the Supervisor on the 13t~ day of September, 2002, to the financial institution indicated in such Certificate, I have made a careful inquiry of each officer and employee of the Town having the power or duty to (a) negotiate, prepare, authorize or approve the contract or authorize or approve payment thereunder, (b) audit bills or claims under the contract, or (c) appoint an officer or employee who has any of the powers or duties set forth above, as to whether or not such officer or employee has an interest (as defined pursuant to Article 18 of the General Municipal Law) in such contract; 3. That upon information and belief, as a result of such inquiry, no such officer or employee has any such interest in said contract unless otherwise noted in Schedule A annexed hereto and by this reference made a part hereof Subscribed and sworn to before me this 13th day qf September, 2002. ~y P~blic, Sta~e of New York MEI.~NIE OOROStCI NOTARY PUBLiC,State oi New~d( No. 01004634870 ~llllied in S~o~ ~ - 404154.1 015832 CERT SCI-[EDULE A 1. , is a stockholder of the Purchaser owning or controlling, directly or indirectly, less than five per centum (5%) of the outstanding stock thereof but no disclosure of such interest by said officer is required pursuant to said Law. 2 , has an interest in the Purchaser solely by reason of employment as an officer or employee thereof, but the remuneration of such employment will not be directly affected as a result of said contract and the duties of such employment do not directly involve the procurement, preparation or performance of any such part of such contract. 3. , has publicly disclosed the nature and extent of such interest in writing to the governing board of the Town. Such written disclosure has been made a part of and set forth in the official record of proceedings of the Town. 4041~4.1 015832 CERT CERTIFICATES AS TO SIGNATURES, LITIGATION, AND DELIVERY AND PAYIvIENT WE, the undersigned officers of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", HEREBY CERTIFY that on or before September 13, 2002, we officially signed and properly executed by manual signatures the $l,870,000 Bond Anticipation Note for Various Purposes- 2002 (the "Note") of the Town, payable to bearer and otherwise described in Schedule A annexed hereto and by this reference made a part hereof, and that at the time of such signing and execution and on the date hereof we were and are the duly chosen, qualified and acting officers of the Town authorized to execute said Note and holding the respective offices indicated by the titles set opposite our signatures hereto for terms expiring on the respective dates set opposite such titles. WE FURTHER CERTIFY that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of said Note or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any manner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the lew or collection of said taxes, that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereof to their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. WE FURTHER CERTIFY that the seal which is impressed upon this certificate has been affixed, impressed, imprinted or otherwise reproduced upon said Note and is the legally adopted, proper and only official corporate seal of the Town. And, I, Joshua Y. Horton, Supervisor, HEREBY FURIHER CERTIFY that on September 13, 2002, I delivered, or caused to be delivered, said Note to The Bridgehampton National Bank, Southold Office, Southold, New York, the purchaser thereof, and that at the time of such delivery of said Note, I received from said purchaser the amount hereinbelow stated, in full payment for said Note, computed as follows: Pdce ............................................................................... $1,870,000 Imere~ on said Note accruedtothe d~e ofsuch delivery ............................................................. -0- Amount Received ............................................................... $1,870,000 404154.1 015832 CERT IN WITNESS WHEREOF, we have hereunto set our hands and said corporate seal has hereunto been affixed this 13th day of September, 2002. Signature Term of Office Expires December 31, 2003 December 31, 2005 Title Supervisor Town Clerk (SEAL) I HEREBY CERTIFY that the signatures of the officers of the above-named Town, which appear above, are true and genuine and that I know said officers and know them to hold khe respective offices set opposite their signatures. ~l~ ~d~h~p~ ~bmd ~nk / t/~ of ~ Sout~ld. hl¥ I 1971 ~// (.~ture) ' (T~e) (Name of Bank) 404154. l 015832 CERT ATTORNEY'S CERTII:ICATE I, Gregory F. Yakaboski, HEREBY CERTIFY that I am a licensed attorney at law of the State of New York, having offices at 53095 Main Road, Southold, New York, and I am the duly chosen, qualified and acting Town Attorney of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of the Note of the Town, payable to bearer and otherwise described as set forth in Schedule A annexed hereto and by this reference made a part hereof or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any manner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the levy or collection of said taxes, that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereof to their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of September, 2002. 404154. I 015832 CERT SCHEDULE A Amount and Title: Dated: Matures: Number and Denomination:Number Interest Rate per annum: $1,870,000 Bond Anticipation Note for Various Purposes-2002 September 13, 2002 September 12, 2003 4R-l, at $1,870,000 1.35% 404154 1 015832 CERT