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HomeMy WebLinkAboutBonds $8,850,000DELAFIELD &WOOD LLP ONE CHASE MANHATTAN PIJ~ZA NEW YORK~ NY 10005 (212) 820-9416 $8,850,000 Public Improvement Serial Bonds-2008 (Our File Designations: 2615/31862) Mr. John Cushman Town Comptroller Town of Southold 53095 Main Road Southold, New York 11971 Dear John: May 29, 2008 The closing of the above-referenced Bond issue took place in our offices today and I enclose herewith two (2) complete transcripts of proceedings for your records. Please do not hesitate to contact me if you should have any questions regarding the enclosed documents. Thanking you and with kind personal regards, I remain Sin~, Gerard~Femafidez, Jr. GFjr/gb Enclosure NEW YORK WASHINGTON NEWARK 541998.1 031862 CERT ONE CHASE MANHATTAN NEW YORK, NY lOOO5 W~/V~V. HAWKIN S.CO M May 29, 2008 Financial Security Assurance, Inc. 31 West 52nd Street New York, New York 10019 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 $8,850,000 Public Improvement Serial Bonds-2008, dated May 15, 2008. 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. ONE CHASE MANHATTAN pLAZA NEW YORK) NY 10OO5 May 29, 2008 Financial Security Assurance, Inc. 31 West 52nd Street New York, New York 10019 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 $8,850,000 Public Improvement Serial Bonds-2008, dated May 15, 2008. 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. Very truly yours, ONE CHASE MANHATTAN pLAZ~ NEW YORK~ NY IOOO5 May 29, 2008 The Town Board of the Town of Southold, in the County of Suffolk, New York Ladies and Gentlemen: We have examined a record of proceedings relating to the authorization, sale and issuance of $8,850,000 Public Improvement Serial Bonds-2008 (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, two bond resolutions duly adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds of the Town to finance open space preservation and the acquisition of land and construction of building improvements, and the Certificate of Determination executed by the Supervisor as of May 2, 2008, determining the terms, form and details of issuance of said $8,850,000 serial bonds and providing for their public sale. The Bonds are dated May 15, 2008, mature on May 15 in the principal amounts in each of the following years, and bear interest at the respective rates per annam payable November 15, 2008 and semiannually thereafter on May 15 and November 15 in each year until maturity, as set forth below: Year of Principal Interest Year of Principal Interest Maturity Amount Rate Maturity Amount Rate 2009 $325,000 4.00% 2020 $400,000 4.00% 2010 325,000 4.00 2021 425,000 4.00 2011 325,000 4.00 2022 425,000 4.00 2012 350,000 4.00 2023 425,000 4.00 2013 350,000 4.00 2024 450,000 4.00 2014 350,000 4.00 2025 450,000 4-1/8 2015 375,000 4.00 2026 450,000 4.25 2016 375,000 4.00 2027 450,000 4.25 2017 375,000 4.00 2028 475,000 4.25 2018 400,000 4.00 2029 475,000 4.25 2019 400,000 4.00 2030 475,000 4.25 The Bonds maturing on or before May 15, 2018 will not be subject to redemption prior to maturity. The Bonds maturing on or after May 15, 2019 will be subject to redemption prior to maturity, at the option of the Town, on May 15, 2018 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 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 other documents 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, ~ve 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 thereofi 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. This opinion is issued as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any action hereafter taken or not taken, or any facts or circumstances, or changes in law or in interpretations thereof, that may hereafter occur, or for any other reason. Very truly yours, REGISTERED REGISTERED NO. R-1 $325,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORI~G~AL NUMBER May 15, 2009 4.00% y 15, 2008 844572 KC0 REGISTERED OWNER: I~, ~O. PRINCIPAL SUM: THREE HUNDRED TWENTY-FIVE THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bon.d at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein I "Fi ..... cai ed scal Agent ), or any successor thereto, and to pay interest on such pnnc~pal sum from May 15, 2008 or from the most recent interest paym ~ I~k~to which interest has been paid at the INTEREST RATE (stated aboveJ, ~a~ ~e'~nber 15, 2008 and semiannually thereafter on May 15 and N.o~tl~"MOtc~year until maturity. Interest hereon shall be payable by wire tra~e~l~house funds by the Town or its agent on each interest payment date to the rd~d b"~ner hereof at his address as it appears on the registration books of the Town mainT~ned 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. The faith and credit of such Town are hereby irrevocably pledged to the punctual payment of the principal of and interest on this bond according to its terms. It is hereby certified and recited that all conditions, acts and things required by Constitution and statutes of the State of New York to exist, to have happened and to have been performed precedent to and in the issuance of this bond, exist, have happened and have been performed, and that the issue of bonds of which this is one, together with all other indebtedness of the Town of Southold, is within every debt and other limit prescribed by the Constitution and laws of such State. IN WITNESS WHEREOF, the TOWN OF SOUTHOLD has caused this bond to be executed in its name by the manual signature of its Supervisor and itscorporate_seal to be impressed hereon and attested by the manual signature of its Town Clerk. ~..~ TOWN OF SO Supervisor Town of Southold, New York Public Improvement Serial Bond-2008 This bond is one of an authorized combined issue, the aggregate principal amount of which is $8,850,000, 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 N w York (the Law ), two bond resolutions duly adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds of the Town to finance open space preservation and the acquisition of land and construction of building improvements, and the Certificate of Determination executed by the Supervisor as of May 2, 2008, ,d, etermining the terms, form and details of issuance of said $8,850,000 serial bonds (the Bonds") and providing for the public sale thereof (the "Certificate of Determination") The Bonds are issuable in the form of registered bonds without coupons in denominations of $5,000, or any integral multiple thereof. This Bond is transferable or exchangeable, as provided in the Certificate of Determination, only upon the books of the Town kept for that purpose at the office of the Fiscal Agent, by the registered owner hereof in person, or by his attorney duly authorized in writing, upon the surrender of this Bond together with a written instrument of transfer or exchange satisfactory to the Fiscal Agent duly executed by the registered owner or his attorney duly authorized in writing, and thereupon a new Bond or Bonds, in the same aggregate principal amount and of the same maturity, shall be issued to the transferee or the registered owner in exchange therefor as provided in the Certificate of Determination and upon the payment of the charges, if any, therein prescribed. The Bonds maturing on or before May 15, 2018 will not be subject to redemption prior to maturity. The Bonds maturing on or after May 15, 2019 will be subject to redemption prior to maturity, at the option of the Town, on May 15, 2018 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. 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 Ladies and Gentlemen: We have examined a record of proceedings relating to the authorization, sale and issuance of $8,850,000 Public Improvement Serial Bonds-2008 (the "Bonds"), of the To~vn 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, two bond resolutions duly adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds of the Town to finance open space preservation and the acquisition of land and construction of building improvements, and the Certificate of Determination executed by the Supervisor as of May 2, 2008, determining the terms, form and details of issuance of said $8,850,000 serial bonds and providing for their public sale. The Bonds are dated May 15, 2008, mature on May 15 in the principal amounts in each of the following years, and bear interest at the respective rates per annum payable November 15, 2008 and semiannually thereafter on May 15 and November 15 in each year until ma[urity, as set forth below: Year of Principal Interest Year of Principal Maturity Amount Rate Maturity Amount Rate 2009 $325,000 4.00% 2020 $400,000 2010 325,000 4.00 2021 425,000 4.00 2011 325,000 4.00 2022 425,000 4.00 2012 350,000 4.00 2023 425,000 4.00 2013 350,000 4.00 2024 450,000 4.00 2014 350,000 4.00 2025 450,000 4-1/8 2015 375,000 4.00 2026 450,000 4.25 2016 375,000 4.00 2027 450,000 4.25 2017 375,000 4.00 2028 475,000 4.25 2018 400,000 4.00 2029 475,000 4.25 2019 400,000 4.00 2030 475,000 4.25 The Bonds maturing on or before May 15, 2018 will not be subject to redemption t~rior to maturitv. The Bonds maturing on or after May 15, 2019 will be subject to redemption prior to maturity, at the option of the Town, on May 15, 2018 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 ~ssued only m fully registered form w~thout ~nterest 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 s, uch 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 dems~ons, 0) ~nterest 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 other documents 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 cimumstance, 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 ~dditional 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. This opinion is issued as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any action hereafter taken or not taken, or any facts or circumstances, or changes in law or in interpretations thereof, that may hereafter occur, or for any other reason. Very truly yours, /s/Hawkins Delafield & Wood LLP STATEMENT OF INSURANCE Financial Security Assurance, Inc. ("FSA"), New York, New York, has delivered its municipal bond insurance policy (the "Policy") with respect to the scheduled payments due of principal of and interest on this Bond to the Town of Southold, Suffolk County, New York, or its successor, as paying agent (the "Paying Agent") for the $8,850,000 Public Improvement Serial Bonds-2008. Said Policy is on file and available for inspection at the principal office of thc Paying Agent and a copy thereof may be obtained from FSA or the Paying Agent. ASSIGNMENT FOR VALUE RECEIVED, the Undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE the within Bond and does hereby irrevocably constitute and appoint Attorney to transfer said Bond on the books kept for registration of said Bond, with full power of substitution in the premises. Dated: Signature Guaranteed: Notice: Signature(s) must be acknowledged or proved, or in the alternative, certified as to its genuineness by an officer of a bank or trust company located and authorized to do business in New York State. Notice: The signature to this assignment must cor- respond with the name as it appears upon the face of the within bond in every particular, without alteration or enlargement or any change whatever REGISTERED REGI UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2010 4.00% May 15, 2008 844572 KD8 REGISTERED OWNER: CEDE & CO. ' THREE HUNDRED TWENTY-FIVE THOUSAND DOLLARS PRINCIPAL SUM: The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value rec.eived promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the ToWn Clerk, Town of Southo,!d, Town Hal!: 53095 Main Road, Southold, New York, as fiscal agent (herein called Fiscal Agent ), or any successor thereto, and topay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 mmntmned 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 pub ic 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 REGISTERED NO. R-3 $325,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2011 4.00% May 15, 2008 844572 KE6 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: THREE HUNDRED TWENTY-FIVE THOUSAND DOLLARS - The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 $350,000 STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2012 4.00% May 15, 2008 844572 KF3 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: THREE HUNDRED FIFTY THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation o£ the State o£New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse gunds 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 gurnished in writing by such registered owner to the Fiscal Agent as o£the close of business on the last day o£the month preceding each interest payment date. The principal of and interest on this bond are payable in any coin or currency o£the United States of America which> at the date of payment, is legal tender for the payment o£public and private debts; provided, however, that interest on this gully 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-5 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF DATE RATE ORIGINAL ISSUE May 15, 2013 4.00% REGISTERED OWNER: CEDE & CO. May 15, 2008 REGISTERED $350,000 CUSIP NUMBER 844572 KGI PRINCIPAL SUM: THREE HUNDRED FIFTY THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to xvhich interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 TIlE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN REGISTERED REGISTERED NO. R-6 $350,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 DATE OF CUSIP MATURITY INTEREST DATE RATE ORIGINAL NUMBER ISSUE May 15, 2014 4.00% May 15, 2008 844572 KH9 REGISTERED OWNER: CEDE & CO. PRINCIPAL~SUM: THREE HUNDRED FIFTY THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southo~Id, Town Hat!: 53095 Main Road, Southold, New York, as fiscal agent (herein called Fiscal Agent ), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the 1NTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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-7 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2015 4.00% May 15, 2008 844572 KJ5 REGISTERED OWNER: CEDE & CO. REGISTERED $375,000 PRINCIPAL SUM: THREE HUNDRED SEVENTY-FIVE THOUSAND DOLLA'RS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually therea~2er on May 15 and November 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 REGISTERED NO. R-8 $375,000 UNITED STATES OF AME~CA COUNTY TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SE~L BOND-2008 MATU~TY INTEREST DATE OF CUSIP O ¢ NAL May 15- 2016 4 00% Mav 15- 2008 844572 ~Z ~GiSTERED OWNER: CEDE & CO. P*NCIPAL SUM THeE HUND*D SEVENTY-F*E THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal co~oration of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the ~GISTE~D O~R named above, or registered assigns, on the MAT~TY DATE (stated above), the P~CIP~ S~ (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold Town Hall 53095 Main Road Southo d New York as fiscal agent (herren called F~scal Agent ), or any successor thereto, ~d to pay tnterest on such pnnc~pal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the ~ST ~TE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 15 in each year until maturity Interest hereon shall be payable by wire transfer or clearinghouse ~nds by the Town or its agent on PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2017 4.00% May 15, 2008 844572 KL0 REGISTERED OWNER: CEDE&CO. PRINCIPAL SUM: THREE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of 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 F'scal 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 tnterest 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 REGISTERED NO. R-10 $400,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2018 4.00% May 15, 2008 844572 KM8 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: FOUR HUNDRED THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for Value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay inte. rest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereat'ret on May 15 and November 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-Il UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2019 4.00% May 15, 2008 844572 KN6 REGISTERED OWNER: CEDE & CO. REGISTERED $400,000 PRINCIPAL SUM: FOUR HUNDRED THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to_pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to Which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereaRer on May 15 and November 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. NO. R-12 $400,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2020 4.00% May 15, 2008 844572 KPI REGISTERED OWNER: CEDE & CO. PRINC}PAL SUM: FOUR HUNDRED THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor theret9, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 REGISTERED NO. R-13 5;425,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2021 4 00% May 15, 2008 844572 KQ9 REGISTERED OWNER: CEDE & CO. FOUR HUNDRED TWENTY-FIVE THOUSAND DOLLARS PRINCIPAL SUM: The TOWN OF SOUTHOLD, in the County of i~qnff~2~,teadn2~i~2rPavl, e corporation of the State of New York, hereby acknowledges itsel ' a u received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successqr thereto, and to pay interest on such principal sum from May 15, 2008 or from the mOst recent interest payment date to which interest has been paid at the 1NTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 o 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 REGISTERED NO. R-14 $425,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2022 4.00% May 15, 2008 844572 KR7 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: FOUR HUNDRED TWENTY-FIVE THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from th~ most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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-15 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2023 4.00% May 15, 2008 844572 KS5 REGISTERED OWNER: CEDE & CO. REGISTERED $425,000 PRINCIPAL SUM: FOUR HUNDRED TWENTY-FIVE THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State o£New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PKINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 o£public and private debts; provided, however, that interest on this fully registered bond shall be paid by wire trans£er or clearinghouse Funds as set forth above REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREIN. May 15, 2024 4.00 '/o May 15, 2008 844572 KT3 REGISTERED REGISTERED ND.R-,6 4 0,000 UNITED STATES OF AMEmCA STATE OF NEW YO~ suvvoL TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SE~L BOND-2008 INTEREST . TZ OmGINAL NUMBER ISSUE ~GISTERED OWNER: CEDE & CO. PmNCIPAL SUM: FOUR HUNDRED FIFTY THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the ~GIS~D O~R named above, or registered assigns, on the MAT~ITY DATE (stated above), the P~CIP~ S~ (stated above) upon presentation and surrender of this bond at the o~ce of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, ~008 or from the most recent interest payment date to which interest has been paid at the ~TE~ST ~TE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 15 in each year until maturity. Interest hereon shall be payable by wire transfer or clearinghouse ~nds by the Town or its agent on each nterest 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 ~rnished in writing by such registered o~er 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 ~lly registered bond shall be paid by wire transfer or cle~inghouse ~nds as set fo~h above. ~FE~NCE IS M~E TO T~ F~T~R PROVISIONS OF THIS BO~ SET FORTH ~. REGISTERED NO. R-17 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF DATE RATE ORIGINAL ISSUE May 15, 2025 4-1/8% REGISTERED OWNER: CEDE & CO. May 15, 2008 REGISTERED $450,000 CUSIP NUMBER 844572 KU0 PRINCIPAL SUM: FOUR HUNDRED FIFTY THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the iNTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 lS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH HEREiN. REGISTERED REGISTERED NO. R-18 $450,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2026 4.25% May 15, 2008 844572 KV8 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM. FOUR HUNDRED FIFTY THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum ' from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the iNTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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-19 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF DATE RATE ORIGINAL ISSUE May 15, 2027 REGISTERED $450,000 CUSIP NUMBER 4.25% May 15, 2008 844572 KW6 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: FOUR HUNDRED FIFTY THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 REGISTERED NO. R-20 $475,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2028 4.25% May 15, 2008 844572 KX4 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: FOUR HUNDRED SEVENTY-FIVE THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 REGISTERED NO. R-21 $475,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2029 4.25% May 15, 2008 844572 KY2 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: FOUR HUNDRED SEVENTY-FIVE THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the INTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 REGISTERED NO. R-22 $475,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY INTEREST DATE OF CUSIP DATE RATE ORIGINAL NUMBER ISSUE May 15, 2030 4.25% May 15, 2008 844572 KZ9 REGISTERED OWNER: CEDE & CO. 'PRINCIPAL SUM: FOUR HUNDRED SEVENTY-FIVE THOUSAND DOLLARS The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OWNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRINCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, To~vn of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the 1NTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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 T~E DEPOSITORY TRUST COMPANY 5.5 Wator Street New York, New York 10041 Attention: Phone: Telecopy: Under~vriting 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 Southold, in the Comity of Suffolk, New York $8,850,000 Public Improvement Serial Bonds - 2008, dated May 15, 2008, maturing May 15, 2009 - 2030 CUSIP # 844572 KC0 - KZ9 (TWENTY-TWO CERTIFICATES) $ VALUE $8,850,000 The Depository Trust Company (DTC) acknowledges receipt from Hawkins Delafield & Wood LLP (the trustee, transfer agent, underwriter or other agent of the issuer, hereafter referred to as the "Agent") of possession, custody and conh-ol of the above securities for safekeeping. DTC is authorized to hold these securities in safekeeping until DTC is instructed by telephone or in writing by one of the below designated OcPresentatives of the Agent either to: (1) deliver the securities by book-entry to the DTC account of the lead underwriter (or to the DTC count of its clearing agent) or (2) return the said securities to the Agent In the event DTC is instructed to return said secnrities, DTC shall retum the securities to the Agent as soon as practicable, but, in m~y event, no later than tbe DTC business day following the day such instruction is received. DTC shall hold the Agent, its officers and employees, harmless from any liability, loss, damage, and reasonable expense of any kind in connection with any loss, damage, theft or destmction of any kind of said securities while they are in the possession, custody or control of DTC, its officers or employees or in the event securities are released from the control UfDTC without the sp~fic approval of the Agent pursuant to this Safekeeping Agreement. ~ TFI~ AGENT By: Authorized Representative of Trustee/Agent PRINT N PdvlE PRINT NAME ORGANIZATION ( PRINT NAM]~ ORGANIZATION ( DTC accepts authorization of closings on the phone number listed below: (212) 855-3752 (212) 855-3753 (212) 855-3755 (212) 855-3754 The Depository Tru om ny By: Title: Date ORGANIZATION ( ) '[ELEPHONE NO ) TELEPHONE NO TELEPHONE NO 543520.1 031862 MSC (T~) 5.29' 08 9:15/8T. 9:14/N0. 4fl63955420 P 14 29~myO~ g9:10:37 gl00 ~ CDC INQUIR~NT 1 OF ~ *' ~G~ VS7~0414 TYPE 10 TRN SEQ 000060O DATE 08/~5/29(1~) ID GI RFC ENTER/~7:46'~l SOURCE ~%L SITE ~KL [ ~RT CUST ~G~010~ CHP PS~ INPUT ~Y 0529 B1QGC06~ 001144 R~CYCLE 00 ASSOC TR~ D~BIT/ 0666Z2~30 ~ROOS~VZLT & CROSS I~C ~C FE 01 * * NONE ORG' TRN MAIL OF 08/05/29 AMOUNT 8,687,064.33 O~D CUS ONE EXCHANGZ PLAZA * * 55 BROADWAY 22ND FLOOR NEW YOkE NY 10007- DR VAL DAT~ DR ADV CBCH CR VAL DATE ~9 MAy 08 FUNDS S CBAM O~G DATE 29 MAY 08 ORD R~ GR~D~T ABA/02140791~ OR PAY PR 01 * ' N O N E * * BN RRN MAIL OF 08/05/~9 CR ADV TP ADV BNTYP N ACCNT /01~410863Q PARTY NOR?~ FOR~ BANK CAPITAL ONE N.A. MELVILLE NY CBCtl CMAM TOW~ OF SOUTHHOLD, NY ULT BEN£ D~TAIL ~AYMT BANM PRIORITY MZSSAGE NEXT SEQ ACTION TOWN QF SOUTHHOLD, NY CTS PRE APPROVE D ID DATE INFO INV~ ERR 'TEXT TO P, ETURN PROCESS DATR 2008/150 "FRO~ (THU) 5. 29' 08 9:15/ST. 9:14/N0, 486B955420 P 12 29May08 09t10'46 0100 ** GDO IN UIR 10 ' Q R~--~NT i OF 1 **,~,r ¥o,~0414 TYP~ TEN SEQ 0000700 DATE 08/~5/29(~50) ID GI ~C ENTER/ SOURCE MAL SITE BRKL /~ALERT CUST ~G~ 0100 CMP PSN INPUT ~Y 0529 B1QGC01~O010$~ ~E~CL~ 00 ASSOC TRN~ CHP OSN ~ I ~Y ~STATU~ 80 DEgIT/ 0666~530 R~SEV~LT & CROSS FE 01 ' ~ N O N B ORG 'TEN MAIL OF 08/05/29 ~/~OUNT 50,500. O0 ORD CUS ONE F~CHANO~ PLAZA * * 55 BROADWAY 22ND FLOOR NEW YORK NY 10007- ~ VAL DATE DR ADV CBCH CR VAL DATE 29 MAY 08 FUNDS S CBA~ ORG DATE 29 MAY 0~ ORDBK CREDIT ABA/0~00001~ OR ~AY FE 01 * " N 0 N E * * BN RRN MAIL OF 08/05/29 CR ADV TP ADV mNTYP N ACCNT ~ABT¥ BK OF NYC BANK OF NEW YOR~ NEW YORK NY 10005-2901 CBAM cMAM FINANCIAL SECURITY ASSURANCE INC. ULT SENE OETAIL RKF: TOWN OF SOUTHOLD, NY PAYMT BANK/ PRIORITY NEXT ACTION PRE APPROV~ D TD DATE INFO PRESS PF6 PHONED INV% ERR TEXT TO RETURN PROCESS DATE 2008/1~0 SUPERV1SOR'S CERTIFICATE OF AWARD 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: 1. On May 13, 2008, at ll:00 o'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, seven (7) sealed bids were received for the purchase of $8,850,000 Public Improvement Serial Bonds-2008 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 May 2, 2008, 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 $8,850,049 75 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 of the Bonds, computed as follows: 541998 I 031862 CERT Gross Interest ................................... Less Premium Bid Over Par Net Interest Cost Net Interest Rate $4,473,00000 4975 $4,472,95075 41158% 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 each of the years 2009 to 2024, inclusve, at 400%; Bond maturing in the year 2015, at 4-1/8%; and Bonds maturing in each of the years 2026 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 May 2, 2008) 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 13th day of Supervisor 541998 1O31862 CERT TOWN CLERK'S CERTIFICATE (SEAL) 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 May 29, 2008. 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 1N WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Town, this/~ day of May, 2008 ~)-- - 'fown Clerk 541998 I 031862 CERT 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 13d-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 15B(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 15c2-12" 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 $8,850,000 Public Improvement Serial Bonds-2008, dated May 15, 2008, maturing in various principal amounts on May 15 in each of the years 2009 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, howeven 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 541998.1 031862 CERT (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: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on 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 (11 ) 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. 541998.1 031862 CERT 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 of the 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 of the 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. Section7. Amendments. WithouttheconsentofanyholdersofSecurities, 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); 541998.1 031862 CERT (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 A~reement or Contract. This Undertaking shall constitute the written agreement or contract for the benefit of Holders of Securities, as contemplated under Rule 15c2-12. 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 May 29, 2008. TOWN OF SOUTHOLD By__~ Supervisor 541998.1 031862 CERT 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 $8,850,000 Public Improvement Serial Bonds-2008 (the "Bonds"), dated May 15, 2008, 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 541998 I 031862 CERT 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 29th day of May, 2008. OFFICIAL TITLE Supervisor Town Clerk TERM OF OFFICE EXPIRES December 31,2011 December 31, 2009 (SEAL) I HEREBY CERTIFY that the signatures of the officers of the above-named Village, which appear above, are tree and genuine and that I know said officers and know them to hold thc respective offices set opposite their signatures Signature Title Name and Address of Bank 5419981 031862 CERT ATTORNEY' S CERTIFICATE I, Patricia A. Finnegan, Esq., 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 $8,850,000 Public Improvement Serial Bonds-2008, 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", 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 of taxes or other revenues for the payment of the Bonds, which has not been disclosed in the Official Statement relating to the Bonds 1N WITNESS WHEREOF, I have hereunto set my hand as of the 29th day of To¥~At~y ~ 5419981 031862 CERT CERTIFICATE OF DELIVERY AND PAYMENT I, SCOTT A. RUSSELL, the duly elected, qualified and acting Supervisor of the Issuer hereinafter named, HEREBY CERTIFY that on the 29th day of May, 2008, I delivered or caused to be delivered to Roosevelt & Cross, Inc., and Associates, New York, New York, the purchaser thereof, $8,850,000 aggregate principal amount of Public Improvement Serial Bonds- 2008 (the "Bonds") 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", 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 ..................................................... $ 177,000.00 Received at time of such delivery ...................................................... $8,687,064.32 Total amount received ........................................................................ $8,864,064.32 being full payment for said Bonds in accordance with the contract of sale thereof, computed as follows: Contract Price ..................................................................................... $8,850,049.75 Interest on said Bonds accrued to the date of delivery ..................... 14,014.57 Total .................................................................................................. $8,864,064.32 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 primed on each of said Bonds. 1N WITNESS WHEREOF, I have hereunto set my hand as of the 29th day of May, 2008. 541998.1 031862 CERT 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 May 2, 2008 and to be delivered thereunder in the aggregate principal amount of $8,850,000. Number of Issues: Amount and Title: Dated: Denominations, Numbers and Letters: Place of Payment of Principal and Interest: Maturities, Interest Rates and Payment Dates: 1 $8,850,000 Public Improvement Serial Bonds-2008 May 15, 2008 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. The office of the 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. Mature on May 15 in the principal amounts in each of the following years and bear interest at the respective rates per annum, payable November 15, 2008 and semiannually thereafter on May 15 and November 15 in each year until maturity, as set forth below: 541998 I 031862 CERT Year of Principal Interest Year of Principal Interest Maturity Amount Rate Maturity Amount Rate 2009 $325,000 400% 2020 $400 2010 325,000 400 2021 425 2011 325,000 4.00 2022 425 2012 350,000 4.00 2023 425 2013 350,000 400 2024 450 2014 350,000 400 2025 450 2015 375,000 400 2026 450 2016 375,000 4.00 2027 450 2017 375,000 4.00 2028 475 2018 400,000 4.00 2029 475 2019 400,000 4.00 2030 475 000 4.00% 000 4.00 000 4.00 000 4.00 000 4.00 000 4-1/8 000 4.25 000 4.25 000 4.25 000 4.25 000 4.25 The Bonds maturing on or before May 15, 2018 will not be subject to redemption prior to maturity. The Bonds maturing on or after May 15, 2019 will be subject to redemption prior to maturity, at the option of the Town, on May 15, 2018 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 541998 I 031862 CERT 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 $8,850,000 aggregate principal amount Public Improvement Serial Bonds-2008 (the "Bonds"), dated May 15, 2008 and issued on May 29, 2008, 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 Resolutions, the Code or the Regulations (each as defined in Exhibit A): ARTICLE I General I 1 Authority of Signatory_. 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 connection 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 14 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 5419981 031862 CER~I 1.6 No Composite Issue. 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 51 l(a) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or any successor provision to Section 2In(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 110 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 1RS 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. 541998 1 031862 CERT 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 two bond resolutions duly adopted by the Town Board on their respective dates, (the "Resolutions" or "Resolution"), as referred to in the Certificate of Determination relating to the Bonds, executed by the Supervisor as of May 2, 2008 (the "Certificate"). 2.2 Purpose of Issue. The proceeds from the sale of the Bonds will be used to provide financing for various projects in and for the Town (the "Projects"), 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. The proceeds of sale of the Bonds will be used to provide original funds for the Projects. For purposes of the Code, the Bonds shall constitute Construction Bonds as defined herein. 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 governmental 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 governmental unit. 26 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 Unrelated/Related 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 For 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 5419981 031862 CERT 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 27, 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 29 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. § 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 §1 150-2(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 Projects 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 1.150-l(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/Rebate 3 1 Issue Price The initial offering price to the public of the Bonds is the Issue Price of the Bonds and at which price a substantial amount of each maturity of the Bonds was sold, as evidenced by the certificate of the representative of the underwriters, included as part of the record of proceedings for the Bonds 3.2 Temporary Period. With respect to the 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, and the amount of such commitment(s) with respect to such 541998 I 031862 CERT Projects will or do exceed the amount equal to 5% of $8,850,000, being the aggregate amount of obligations to be issued for such Projects. (b) In the event the Projects have not been completed, work on the acquisition, construction or accomplishment of such Projects will proceed or is proceeding ~vith due diligence to completion and the final sales proceeds will be allocated to expenditures with due diligence. (c) It is reasonably expected that at least 85 percent of the net sale proceeds of such Bonds will be expended within three years from the date of this Certificate. Accordingly, the sale proceeds and investment proceeds of the Bonds may be invested without restriction as to yield for a temporary period of 3 years from the date hereof, subject to the rebate requirements set forth in Article IV of this Certificate. 3.3 No Excess Proceeds. The total proceeds of sale of do not exceed the total cost of the Projects. 3 4 Source of Repayment Funds. The Bonds will be paid from taxes and other revenues 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 bond year or one-twelfth of the debt service on the Bonds for the immediately preceding bond year. 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 Bonds 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 governmental 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 5419981 031862 CERT that such allocation does not cause the value of Nonpurpose Investments allocated to the Bonds to exceed the Universal Cap Generally, if Gross Proceeds of the 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: (i) amounts allocable to Replacement Proceeds, (ii) amounts allocable to Transferred Proceeds, (iii) 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 of re-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 ora 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. 38 Yield. When used in this Certificate, the term Yield is computed as described in Exhibit A and in connection with the Bonds, refers to the yield computed by the actuarial or present ~vorth method using a 360-day year and semiannual compounding, and means that discount rate which, when used in computing the present worth of ali payments of principal and interest to be paid on an obligation, produces an amount equal to the Issue Price thereo£ The Yield on the Bonds is as shown in Form 8038-G. 3.9 Yield Reduction Payments The Issuer may make yield reduction payments, as such term is defined in the Regulations, to reduce the yield on investments under certain circumstances. The Issuer will consult with Bond Counsel prior to making any such payments. 3 10 No Replacement Proceeds The weighted average maturity of the Bonds, as set forth in the Form 8038-G, does not exceed 120 percent of the average reasonably expected useful life of the Projects 3 11 No Prohibited Payments The Issuer has not entered into and will not enter into any transaction to reduce the yield on the investment of the proceeds of the Bonds in such a manner that the amount to be rebated to the federal government is less than it would have been had the transaction been at arm's length and the yield on the issue not been relevant to either party 3.12 Rebate Options With respect to the investment of the proceeds of the Bonds, the Issuer will: 5419981 031862 CERT (a) invest all gross proceeds at all times from the date hereof until expended in investments not constituting investment property for purposes of Section 148 of the Code such as obligations of a state or of a political subdivision of a state, the interest on which is excluded from gross income for purposes of Federal income taxation under Section 103 of the Code and is not a preference item for purposes of the alternative minimum tax imposed by Section 55 of the Code, (b) invest all gross proceeds in obligations having a yield that does not exceed the yield on the Bonds, or (c) comply with the provisions regarding rebate described in Article IV below. 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(0 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 of Investments The Issuer will record the date of receipt, 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 (f) of this Section, the Issuer will determine the Rebate Amount on each Computation Date The Rebate Amount as of any Computation Date is 541998 1 031862 CERT 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 Entirely 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 coTnprising 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 xviIl 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 5419981 031862 CER]' (d) Exception for Gross Proceeds Entirely 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 Entirely Spent Within Twenty-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 xvill 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. (f) $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, as determined under paragraph (c), are Iess 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 5419981 031862 CERT earnings limitation is deemed satisfied if the annual debt service on the issue does not exceed $2,500,000~ For purposes of this paragraph (f), 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. 43 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 42 untiI 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 43. 541998 I 031862 CERT 45 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 ~ny hand and affixed the corporate seal of Town of Southold, as of the 29th day ~~ of May, 2008 Supervisor 541998 I 031862 CERT Exhibit A Definitions (This exhibit includes definitions of certain terms which may not be used in 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 carry over 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 $8,850,000 Public Improvement Serial Bonds-2008 "Capital Project" means all capital expenditures, plus related working capital expenditures to which the de minimis rule under Treas. Reg. Section I 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 $I,000 on the Final Computation Date 541998 I 031862 CER'[' "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. §1. 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 expenditurfis 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 ora United States Treasury Obligation that is purchased directly from the United States Treasury is its purchase price. (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 5419981 031862 CERT 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 of the 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 compt~ting 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 under~vriters or wholesalers are not included in the definition of "public" for purposes of the preceding sentence lfthe 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 541998 1 031862 CERT 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 1.148-9(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 original 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 541998 1 031862 CERT "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 annually, 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 i'1 (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 he 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 project referred to in the Resolutions, which is being financed by the Bonds. "Qualified 501(c)(3) Bonds" means bonds which meet the definition contained in Section 145 of the 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 541998 1 031862 CERT 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) Purpose 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 no~t 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 541998.1 031862 CER'I contract, an option or may take another form. A contract will no~t 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 of the 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 of the 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-last rule in Treas. Reg. Section 1.148-6(d)(3)(i) that ar~ 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). Series. "SLG" means a U.S. Treasury Book Entry Security, State and Local Government "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 ora 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 of the 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 5419981031862 CERT 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 anniversary 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 ora Bond, the Value ora 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 bond 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 ora 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 541998 ] 031862 CERT 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 1% 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 1% 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 541998 1 031862 CERI' CERTIFICATE OF TH~ SUPERVISOR WITH RESPECT TO TIlE OFFICIAL STATEMENT OF THE TOWN OF SOUTHOLD, NEW YORK, DATED MAY 2, 2008, DISTRIBUTED 1N CONNECTION WiTH THE SALE OF THE $8,850,000 PUBLIC IMPROVEMENT SERIAL BONDS-2008 I, SCOTT A. RUSSELL, Supervisor of the Town of Southold, in the County of Suffolk, New York (the "Town"), HEREBY CERTIFY that as of May 2, 2008, the date of the Official Statement of the Town prepared and distributed in connection with the sale of the $8,850,000 Public Improvement Serial Bonds-200g (the "Bonds"), and at all times subsequent thereto, up to and including the date of the delivery of the Bonds on May 29, 2008, 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 May 29, 2008 (SEAL) IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of the Town as of the 29th day of May, 2008 Supervisor 5419981 031862 CERT ACCOUNTING & FINANCE DEPT. John A. Cushman, Town Comptroller Telephone (631) 765-4333 Fax (631 ) 765-1366 E-mail: accounting @ town.southold.ny.us TOWN HALL ANNEX 54375 Main Road P.O. Box 1179 $outhold, NY 11971-0959 http://southoldtown.norlhfork.neff TOWN OF SOUTHOLD OFFICE OF THE SUPERVISOR May 6, 2008 Gerard Fernandez, Jr. Hawkins, Delafield & Wood One Chase Manhattan Plaza New York, NY 10005 Re: Town of Southold, NY $8,850,000 Public Improvement Serial Bonds -- 2008 Your file designations: 2615/31862 DearJerry: Pursuant to your letter of May 2, 2008 regarding the above referenced serial bonds, enclosed please find the executed Certificate of Determination executed by Supervisor Scott Russell and sealed and certified by Town Clerk Elizabeth A. Neville. Your assistance regarding this matter is appreciated. Please contact me should you require any additional information. CC: Very truly yours, Elizabeth A. Neville, Town Clerk./ Robert Sikora, Munistat Services, Inc. CERTIFICATE OF DETERMiNATION BY THE SUPERVISOR RELATIVE TO THE TERMS, FORM AND DETAILS OF SALE AND ISSUANCE OF $8,850,000 PUBLIC IMPROVEMENT SERIAL BONDS-2008 OF THE TOWN OF SOUTHOLD, NEW YORK, AND PROVIDiNG FOR THE PUBLIC SALE THEREOF I, SCOTT A. RUSSELL, Supervisor of the Town of Southold, in the County of Suffolk, New York (the "Town"), HEREBY CERTIFY that pursuant to the powers and duties delegated to me, as 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 herein and subject to the limitations prescribed in said bond resolutions, I have made the following determinations: 1. Authorization, Principal Amount, Maturity Schedule and Designation. (a) resolution entitled: Of the $22,500,000 serial bonds of the Town authorized pursuant to the "Bond Resolution of the Town of Southold, New York, adopted February 27, 2007, authorizing the acquisition of interests or rights in real property, including, but not limited to, development rights in open agricultural lands, within said Town, for the preservation of open spaces and areas and to maintain and enhance the conservation of natural resources, provided, however, that no such interests or rights in real property shall be acquired until all relevant provisions of the State Environmental Quality Review Act have been complied with and a final declaration as to environmental impact has been duly declared, stating the estimated maximum cost thereof is $22,500,000, appropriating said amount therefor, authorizing the issuance of $22,500,000 serial bonds of said Town to finance said appropriation and stating that land installment purchase obligations are authorized to be issued pursuant to this Bond Resolution," duly adopted by the Town Board on the date therein referred to, $7,500,000 serial bonds shall be issued (no bond anticipation notes having been heretofore issued), and shall mature on May 15 in the principal amounts of $275,400 in each of the years 2009 to 2011, inclusive; $296,600 in each 541998.1 031862 CERT of the years 2012 to 2014, inclusive; $317,800 in each of the years 2015 to 2017, inclusive; $339,000 in each of the years 2018 to 2020, inclusive; $360,200 in each of the years 2021 to 2023, inclusive; $381,300 in each of the years 2024 to 2027, inclusive; and $402,600 in each of the years 2028 to 2030, inclusive. (b) The $1,350,000 serial bonds of the Town authorized pursuant to the resolution entitled: "Bond Resolution of the Town of Southold, New York ("Town"), adopted February 26, 2008, authorizing the Town to (a) acquire from the Southold Union Free School District, for use as a Town Recreation Center and for other Town purposes, the certain parcel of land in the Town, containing 4.3 aces more or less, known as the "Peconic School Property," located at 1170 Peconic Lane, and designated on t, he Suffolk County Land and Tax Map as 1000-075.00-01.00-013.000, including the Peconic School Building and all other buildings and improvements thereon, at the estimated maximum cost of $1,100,000, and (b) construct improvements to such Peconic School Building and all other buildings, at the estimated maximum cost of $250,000; stating the estimated total cost thereof is $1,350,000; appropriating said amount therefor and authorizing the issuance of $1,350,000 serial bonds of said Town to finance said appropriation.," duly adopted by the Town Board on the date therein referred to, shall be issued (no bond anticipation notes having been heretofore issued), and shall mature on May 15 in the principal amounts of $49,600 in each of the years 2009 to 2011, inclusive; $53,400 in each of the years 2012 to 2014, inclusive; $57,200 in each of the years 2015 to 2017, inclusive; $61,000 in each of the years 2018 to 2020, inclusive; $64,800 in each of the years 2021 to 2023, inclusive; $68,700 in each of the years 2024 to 2027, inclusive; and $72,400 in each of the years 2028 to 2030, inlusive. (c) Said $7,500,000 bond and said $1,350,000 bond shall be combined for the purposes of sale and issuance into a single bond issue in the aggregate principal amount of 541998.1031862CERT $8,850,000 (the "Bonds"), and each of said bonds shall be designated "PUBLIC IMPROVEMENT SERIAL BOND-2008." Said Bonds shall mature on May 15 in the aggregate principal amounts of $325,000 in each of the years 2009 through 2011, inclusive; $350,000 in each of the years 2012 through 2014, inclusive; $375,000 in each of the years 2015 through 2017, inclusive; $400,000 in each of the years 2018 through 2020, inclusive; $425,000 in each of the years 2021 through 2023, inclusive; $450,000 in each of the years 2024 through 2027, inclusive; and $475,000 in each of the years 2028 through 2030, inclusive. 2. Issue Date. The Bonds shall be dated May 15, 2008. The date of each Bond shall appear on the face thereof under the caption "Date of Original Issue," and each Bond shall bear interest from such date. 3. Interest Rate, and Dates and Medium of Payment. The Bonds shall bear interest from their date at a rate or rates per annum necessary for the Town to sell said Bonds, the bidder to name a rate or rates of interest in multiples of one-hundredth of 1% or multiples of one- eighth of 1% which the Bonds are to bear, and said bidder may state different rates of interest for Bonds maturing in different calendar years; provided, however, that (i) only one rate of interest may be bid for all Bonds maturing in any one calendar year, and (ii) variations in rates of interest so bid shall be in ascending progression in order of maturity so that the rate of interest on Bonds maturing in any particular calendar year shall not be less than the rate of interest applicable to Bonds maturing in any prior calendar year. The exact rate or rates shall be determined by the undersigned Supervisor upon the receipt of bids therefor, as hereinafter set forth, payable on November 15, 2008 and semiannually thereafter on May 15 and November 15 in each year until maturity, payable in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. Interest shall be paid by 541998.1 031862 CERT wire transfer or in clearinghouse funds on each interest payment date, payable to the person in whose name the Bond is registered at his address shown upon the books of the Town kept for that purpose at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York (the "Fiscal Agent"), as of the close of business on the last day of the month preceding each such interest payment date. 4. Bonds Subiect to Prior Redemption. The Bonds maturing on or before May 15, 2018 will not be subject to redemption prior to maturity. The Bonds maturing on or after May 15, 2019 will be subject to redemption prior to maturity, at the option of the Town, on May 15, 2018 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. 5. Denominations, Numbers and Letters. The Bonds maturing in each year shall be issued as fully registered bonds in denominations of $5,000 or any integral multiple thereof,. The Bonds shall be numbered separately and consecutively upward with the letter "R" prefixed thereto, and shall be transferable and exchangeable as provided herein. 541998.1 031862 CERT 6. Book-Entry System. The Bonds when issued shall be (i) registered in the name of Cede & Co., as nominee of The Depository Trust Company, 55 Water Street, New York, New York ("DTC"), and (ii) deposited with DTC to be held in trust until maturity. Only one Bond will be initially issued for each maturity in the aggregate principal amount of such maturity. DTC is an automated depository for securities and clearinghouse for securities transactions, and will be responsible for establishing and maintaining a book-entry system for recording the ownership interests of its participants, which include certain banks, trust companies and securities dealers, and the transfers of the interests among its participants. The DTC participants will be responsible for establishing and maintaining records with respect to the beneficial ownership interests of individual purchasers in the Bonds. Individual purchases of beneficial ownership interests in the Bonds may only be made through book entries (without certificates issued by the Town) made on the books and records of DTC (or a successor depository) and its participants, in denominations of $5,000 or integral multiples thereof. Beneficial owners of the Bonds will not receive certificates representing their interest in the Bonds. Principal of and interest on the Bonds will be payable by the Town or its agent by wire transfer or in clearinghouse funds to DTC or its nominee as registered owner of the Bonds. Transfer of principal and interest payments to participants of DTC will be the responsibility of DTC; transfer of principal and interest payments to beneficial owners by participants of DTC will be the responsibility of such participants and other nominees of beneficial owners. The Town will not be responsible or liable for payments by DTC to its participants or by DTC participants to beneficial owners or for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants. 541998.1 031862 CERT 7. Discontinuance of Book-Entry System. In the event that (a) DTC determines to discontinue providing its service ~vith respect to the Bonds by giving notice to the Town and discharging its responsibilities with respect thereto under applicable law, and the Town fails to appoint a successor securities depository for the Bonds, or (b) the Town determines to discontinue the system of book-entry transfers through DTC (or a successor securities depository), then bond certificates shall be delivered to the beneficial owners upon registration of the Bonds held in the beneficial owners' names. After such registration the beneficial owners shall become the registered owners of the Bonds. In such event, the Supervisor of the Town shall execute a Supplemental Certificate of Determination which will set forth the terms, form and details of issuance of such bond certificates. 8. Fiscal Agent. The Town Clerk is hereby appointed as Fiscal Agent for the Bonds pursuant to, and to act in accordance with, applicable provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York. In the event that the book-entry system described in Section 6 above is discontinued, the Town may appoint a bank or trust company located and authorized to do business in New York State to act as successor Fiscal Agent in connection with the issuance of bond certificates. 9. Execution of Bonds. The Bonds shall be executed in the name of the To~vn by the manual signature of the Supervisor, and shall have the corporate seal of the Town, or a facsimile thereof, affixed, imprinted, impressed or otherwise reproduced thereon and attested by the manual signature of the Town Clerk. 10. Transfer of Bonds. Each Bond shall be transferable only upon the books of the Town, which shall be kept for such purposes at the office of the Fiscal Agent, by the registered owner thereof in person or by his attorney duly authorized in writing, upon surrender 541998.1 031862 CERT thereof together with a written instrument of transfer satisfactory to the Fiscal Agent duly executed by the registered owner or his duly authorized attorney. Upon transfer of any such Bond, the Town shall issue in the name of the transferee a new Bond or Bonds of the same aggregate principal amount and maturity as the surrendered Bond. The Town and the Fiscal Agent may deem and treat the person in whose name any Bond shall be registered upon the books of the Town as the absolute owner of such Bond, whether such Bond shall be overdue or not, for the purposes of receiving payment of, or on account of, the principal of and interest on such Bond and for all other purposes, and all such payments so made to any such registered owner or upon his order shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid, and neither the Town nor the Fiscal Agent shall be affected by any notice to the contrary. 11. Regulations With Respect to Exchanges and Transfers. In all cases in which the privilege of exchanging or transferring Bonds is exercised, the Town shall execute and the Fiscal Agent shall deliver Bonds in accordance with the provisions hereofi All Bonds surrendered in any such exchanges or transfers shall forthwith be cancelled by the Fiscal Agent. For every such exchange or transfer of Bonds, the Town or the Fiscal Agent may make a charge sufficient to reimburse it for any tax, fee or other governmental charge required to be paid with respect to such exchange or transfer, and may charge a sum sufficient to pay the cost of preparing each new Bond issued upon such exchange or transfer, which sum or sums shall be paid by the person requesting such exchange or transfer as a condition precedent to the exercise of the privilege of making such exchange or transfer. The Town shall not be obliged to make any such exchange or transfer of Bonds between the last day of the month preceding an interest payment date and such interest payment date. 541998.1 031862 CERT 12. Sale of Bonds. The Bonds shall be sold upon sealed proposals to be received by the undersigned Supervisor on May 13, 2008, at 11:00 o'clock A.M. (Prevailing Time), at the offices of Munistat Services, Inc., 12 Roosevelt Avenue, Port Jefferson Station, New York, pursuant to the Notice of Sale, in substantially the form as provided in Appendix A, which shall be published at least once in (a) "THE BOND BUYER," published in the City of New York, not less than five (5) nor more than thirty (30) days prior to the date of said sale. A copy of such notice shall be sent not less than eight (8) nor more than thirty (30) days prior to the date of said sale to (1) the State Comptroller, Albany, New York 12236; (2) at least two banks or trust companies having a place of business in Suffolk County, or, if only one bank is located in such County, then to such bank and to at least two banks or trust companies having a place of business in an adjoining county; (3) "THE BOND BUYER," 1 State Street Plaza, New York, New York 10004; and (4) at least 10 bond dealers. The Bonds shall be delivered to the purchaser thereof on or about May 29, 2008, upon receipt by the Town of the purchase price therefor in Federal Funds, and deposit of the Bonds with DTC to be held in trust until maturity. 13. Form of Bonds. Said Bonds shall be in substantially the form set forth in Appendix B hereto. 14. SEC Rule 15c2-12. In order to assist bidders in complying with Rule 15c2- 12 promulgated by the Securities and Exchange Commission and as part of the Town's contractual obligation arising from its acceptance of the successful bidder's proposal, at the time of the delivery of the Bonds the Town will provide an executed copy of its "Undertaking to Provide Continuing Disclosure" in substantially the form set forth in Appendix C hereto. Said Undertaking will constitute a written agreement or contract of the Town for the benefit of holders of and owners of beneficial interests in the Bonds, to provide to (i) each nationally 541998.1 031862 CERT recognized municipal securities information repository, or to the Municipal Securities Rulemaking Board, and (ii) to the New York State Information Depository, if created, the annual financial information and notice of the occurrence of certain material events, as enumerated in said Rule 15c2-12. I HEREBY FURTHER CERTIFY that the powers and duties delegated to me to issue and sell the Bonds hereinabove described and referred to are in full force and effect and have not been modified, amended or revoked. 1N WITNESS WHEREOF, I have hereunto set my hand as of the ~.4~ day of May, 2008. Supervisor 541998.1 031862 CERT 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 copy of the Certificate of Determination executed by the Supervisor and the same is a tree and complete copy of the Certificate filed with said Town in the office of the Town Clerk; 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 has been adopted by said Town Board. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Town this 2nd day of May, 2008. (SEAL) Town'Clerk APPENDIX A TOWN OF SOUTHOLD, IN THE COUNTY OF SUFFOLK NEW YORK NOTICE OF $8,850,000 BOND SALE SEALED PROPOSALS will be received by the Supervisor, Town of Southold, New York, at the offices of Munistat Services, Inc., 12 Roosevelt Avenue, Port Jefferson Station, New York (Telephone No. 631-331-8888, Fax No. 631-331-8834) on Tuesday, May 13, 2008, until 11:00 o'clock A.M. (Prevailing Time) at which time they will be publicly opened and announced, for the purchase of $8,850,000 PUBLIC IMPROVEMENT SERIAL BONDS- 2008 (the "Bonds") due on May 15, as follows: $325,000 in the year 2009; $325,000 in the year 2010; $325,000 in the year 2011; $350,000 in the year 2012; $350,000 in the year 2013; $350,000 in the year 2014; $375,000 in the year 2015; $375,000 in the year 2016; $375,000 in the year 2017; $400,000 in the year 2018; $400,000 in the year 2019; $400,000 in the year 2020; $425,000 in the year 2021; $425,000 in the year 2022; $425,000 in the year 2023; $450,000 in the year 2024; $450,000 in the year 2025; $450,000 in the year 2026; $450,000 in the year 2027; $475,000 in the year 2028; $475,000 in the year 2029; and $475,000 in the year 2030. The Town reserves the right to change the time and/or date for the opening of sealed proposals. Notice of any such change shall be provided not less than 24 hours prior to the time set forth above for the opening of sealed proposals by means of a supplemental notice of sale to be transmitted over the Thomson Municipal News wire. The Bonds wilt be dated May 15, 2008, and will bear interest at the rate or rates per annum specified by the successful bidder therefor in accordance herewith, payable November 15, 2008 and semiannually thereafter on May 15 and November 15 in each year until maturity. The Bonds maturing on or before May 15, 2018 will not be subject to redemption prior to maturity. The Bonds maturing on or after May 15, 2019 will be subject to redemption prior to maturity, at the option of the Town, on May 15, 2018 and thereafter on any date, in ~vhole 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 541998.1 031862 CERT 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. The Bonds will be issued in the form of fully registered Bonds, in denominations corresponding to the aggregate principal amounts due in each year of maturity. As a condition to delivery of the Bonds, the successful bidder will be required to cause such Bond certificates to be (i) registered in the name of Cede & Co., as nominee of The Depository Trust Company, 55 Water Street, New York, New York ("DTC"), and (ii) deposited with DTC to be held in trust until maturity. DTC is an automated depository for securities and clearinghouse for securities transactions and will be responsible for establishing and maintaining a book-entry system for recording the ownership interests of its participants, which include certain banks, trust companies and securities dealers, and the transfers of the interests among its participants. The DTC participants will be responsible for establishing and maintaining records with respect to the beneficial ownership interests of individual pumhasers in the Bonds. Individual purchases of beneficial ownership interests in the Bonds may only be made through book entries (without certificates issued by the Town) made on the books and records of DTC (or a successor depository) and its participants, in denominations of $5,000 or integral multiples thereof. Principal of and interest on the Bonds will be payable by the Town or its agent by wire transfer or in clearinghouse funds to DTC or its nominee as registered owner of the Bonds. Transfer of principal and interest payments to participants of DTC will be the responsibility of DTC; transfer of principal and interest payments to beneficial owners by participants of DTC will be the responsibility of such participants and other nominees of beneficial owners. The Town will not be responsible or liable for payments by DTC to its participants or by DTC participants to beneficial owners or for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants. Each proposal must be a bid of not less than $8,850,000 for all of the Bonds and must state in a multiple of one-hundredth of 1% or a multiple of one-eighth of 1%, the rate or rates of interest per annum which the Bonds are to bear and may state different rates of interest for Bonds maturing in different calendar years; provided, however, that (i) only one rate of interest may be bid for all Bonds maturing in any one calendar year, and (ii) variations in rates of interest so bid shall be in ascending progression in order of maturity so that the rate of interest on Bonds maturing in any particular calendar year shall not be less than the rate of interest applicable to Bonds maturing in any prior calendar year. Each proposal must be enclosed in a sealed envelope and should be marked on the outside "Proposal for Bonds" and be addressed as follows to the Sale Officer, viz.: Hon. Scott A. Russell, Supervisor, Town of Southold, New York, c/o Munistat Services, Inc., 12 Roosevelt Avenue, Port Jefferson Station, New York. As a condition precedent to the consideration of his proposal, a good faith deposit (the "Deposit") in the form of a certified or cashier's check or a financial surety bond in the amount of $177,000.00 payable to the order of the Town of Southold is required for each bid to be considered. If a check is used, it must be drawn upon an incorporated bank or trust company to the order of"Town of Southold, New York" and must accompany the bid. Ifa surety bond is used, it must be from an insurance company licensed to issue such a bond in the State of New 541998.1 031862 CERT York, the claims paying ability of which is rated in the highest rating category by at least two nationally recognized statistical rating organizations, and such bond must be submitted to the Town or its Financial Advisor prior to the opening of the bids. The financial surety bond must identify each bidder whose deposit is guaranteed by such financial surety bond. If the bonds are to be awarded to a bidder utilizing a financial surety bond, then the purchaser is required to submit its Deposit to the Town in the form of a certified or cashier's check, or a wire transfer in such amount, as instructed by the Town or its Financial Advisor, not later than 3:00 o'clock P.M. (Prevailing Time) on the next business day following the award. If such deposit is not received by that time, the financial surety bond may be drawn by the Town to satisfy the Deposit requirement. No interest on the Deposit will accrue to the Purchaser. The Deposit will be applied to the purchase price of the Bonds. .The Bonds will be awarded and sold to the bidder complying with the terms of sale and offering to purchase the Bonds at the lowest net interest cost, and if two or more such bidders offer the same lowest net interest cost, then to one of said bidders selected by the Sale Officer by lot from among all said bidders. The successful bidder must also pay an amount equal to the interest on the Bonds, if any, accrued to the date of payment of the purchase price. No interest will be allowed on the good faith deposit. When the successful bidder has been ascertained, the Sale Officer will promptly return all deposits made to the persons making the same, except the deposit made by such bidder. Award of the Bonds to the successful bidder, or rejection of all bids, is expected to be made promptly after opening of the bids, hut the successful bidder may not withdraw his proposal until after 1:30 o'clock P.M. (Prevailing Time) of the day of such bid-opening and then only if such award has not been made prior to the withdrawal. The successful bidder will be promptly notified of the award to him, and if he refuses or neglects to pay the agreed price for the Bonds less the amount deposited by him, the amount deposited by him shall be forfeited to and retained by the Town as liquidated damages for such neglect or refusal. The right is reserved to reject all bids and any bid not complying with the terms of this notice will-be rejected. If the Bonds qualify for issuance of any policy of municipal bond insurance or commitment therefor at the option of a bidder, the purchase of any such insurance policy or the issuance of any such commitment therefor shall be at the sole option and expense of such bidder and any increased costs of issuance of the Bonds resulting by reason of the same, unless otherwise paid, shall be paid by such bidder. Any failure of the Bonds to be so insured or of any such policy of insurance to be issued, shall not constitute cause for a failure or refusal by the purchaser of the Bonds to accept delivery of and pay for said Bonds in accordance with the terms hereof. The proceeds of the Bonds will be used to provide original funds for open space preservation and the acquisition of land and building improvements. The Bonds are general obligations of the Town. There is no limitation, either as to rate or amount, upon ad valorem taxes upon taxable real property in the Town which may be required to pay the Bonds and the interest thereon. The State Constitution requires the Town to 541998.1 031862 CER]' pledge its faith and credit for the payment of the principal of the Bonds and the interest thereon and to make annual appropriations for the mounts required for the payment of such interest and the redemption of the Bonds. The State Constitution also provides that if at any time the appropriating authorities fail to make the required appropriations for the annual debt service on the Bonds and certain other obligations of the Town, a sufficient sum shall be set apart from the first revenues thereafter received and shall be applied for such purposes, and also that the fiscal officer of the Town may be required to set apart and apply such revenues as aforesaid at the suit of any holder of such obligations. The population of the Town is estimated to be 22,852. The debt statement to be ' filed pursuant to Section 109.00 of the Local Finance Law in connection with the sale of the Bonds, prepared as of May 2, 2008, shows the average full valuation of real property subject to taxation by the Town to be $9,238,966,836, its debt limit to be $646,727,678, and its total net indebtedness (inclusive of the Bonds) to be $37,499,300. The indebtedness to be evidenced by the sale of the Bonds will increase the total net indebtedness of the Town by $8,850,000. The Bonds will be delivered to DTC and shall be paid for in Federal Funds on or about May 29, 2008, at such place in New York City, and on such business day and at such hour, as the Sale Officer shall fix on three business days' notice to the successful bidder, or at such other place and time as may be agreed upon with the successful bidder. The deposit of the Bonds with DTC under a book-entry system requires the assignment of CUSIP numbers prior to delivery. It shall be the responsibility of the successful bidder to obtain CUSIP numbers for the Bonds prior to delivery and the Town will not be responsible for any delay occasioned by the inability to deposit the Bonds with DTC due to the failure of the successful bidder to obtain such numbers and to supply them to the Town in a timely manner. All expenses in relation to the printing of CUSIP numbers on the Bonds shall be paid for by the Town; provided, however, that the CUSIP Service Bureau charge for the assignment of said numbers shall be the responsibility of and shall be paid for by the successful bidder. The successful bidder will be furnished without cost with the approving opinion of the law firm of Hawkins Delafield & Wood LLP, New York, New York, to the effect that the 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. Said opinion shall also contain further statements to the effect that (a) 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, and (b) said law firm 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 relative to the Town which have been or may be furnished or disclosed to purchasers of the Bonds, and expresses no opinion with respect to such financial statements or other information or the accuracy or sufficiency thereof. The successful bidder may at his option refuse to accept the Bonds if prior to their delivery the certificate referred to in the following paragraph in form and tenor satisfactory to Bond Counsel is not delivered or if any income tax law of the United States of America is 541998.1031862CERT hereafter enacted which shall provide that the interest thereon is taxable, or shall be taxable at a future date, for federal income tax purposes, and in such case the deposit made by him will be returned and he will be relieved of his contractual obligations arising from the acceptance of his proposal. 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. As part of the Town's contractual obligation arising from its acceptance of the successful bidder's proposal, the Town will furnish the successful bidder concurrently with the delivery of the Bonds with its Arbitrage and Use of Proceeds Certificate, which will contain provisions and procedures relating to compliance with the requirements of the Code and a certification 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. Under the Code, interest on the Bonds is to be taken into account in the computation of certain taxes that may be imposed with respect to corporations, including without limitation, the alternative minimum tax and the foreign branch profits tax. In addition, under the Code, an individual who owns the Bonds may be required to include in gross income a portion of his or her Social Security or railroad retirement payments and interest on the Bonds will be included as disqualified income when computing the earned income credit. Bondholders should consult their tax advisors with respect to the computation of alternative minimum tax or foreign branch profits tax liability, the earned income credit, or the inclusion of Social Security or other retirement payments in gross income. The opinion of Bond Counsel shall also contain further statements to the effect that, under existing statutes and court decisions and assuming continuing compliance with the Arbitrage and Use of Proceeds Certificate, (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 its opinion, Bond Counsel shall rely on certain representations, certifications of fact, and statements of reasonable expectations made by the Town in connection with the Bonds, and shall assume compliance by the Town with certain ongoing certifications in the Arbitrage and Use of Proceeds Certificate to comply 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, such opinion shall state that, under existing statutes, interest on the Bonds is exempt from New York State and New York City personal income taxes. Each successful bidder also must submit to the Town a certificate (the "Reoffering Price Certificate"), satisfactory to Bond Counsel, prior to the delivery of the Bonds, which states that: (a)(i) on the date of award, such successful bidder made a bona fide public offering of all Bonds of all maturities at initial offering prices corresponding to the prices 541998.1 031862 CERT or yields indicated in the information furnished in connection with the successful bid, and (ii) as of such date, the first price at which an amount equal to at least ten percent of each maturity of the Bonds was sold to the public was a price not higher or a yield not lower than indicated in the information furnished with the successful bid (the "first price rule"), with the exception of those maturities, if any, identified in such certificate, as to which such certificate shall explain the reasons why the first price rule was not satisfied, OR (b) such successful bidder has purchased the Bonds for its own account and not with a view to distribution or resale and not in the capacity of a bond house, broker or other intermediary, and the price or prices at which such purchase was made. For the purposes of the Reoffering Price Certificate, the "public" does not include bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers. In making such representations, the successful bidder must reflect the effect on the offering prices of any "derivative products" (e.g., a tender option) used by the bidder in connection with the initial sale of any of the Bonds. The Bonds will not be designated by the Town as "qualified tax-exempt obligations" pursuant to the provisions of Section 265 of the Code. The Official Statement is in a form "deemed final" by the Town for the purposes of Securities and Exchange Commission Rule 15c2-12 but may be modified or supplemented as noted below. In order to assist bidders in complying with Rule 15c2-12 and as part of the Town's contractual obligation arising from its acceptance of the successful bidder's proposal, at the time of the delivery of the Bonds the Town will provide an executed copy of its "Undertaking to Provide Continuing Disclosure." Said Undertaking will constitute a written agreement or contract of the Town for the benefit of holders of and owners of beneficial interests in the Bonds, to provide to (i) each nationally recognized municipal securities information repository, or to the Municipal Securities Rulemaking Board, and (ii) to the New York State Information Depository, if created, the annual financial information and notice of the occurrence of certain material events, as enumerated in said Rule 15c2-12. The Town will provide a reasonable number of Official Statements to the successful bidder within five (5) business days following receipt of a written request therefor made to the Town and its financial advisor. Such request may specify the applicable (a) offering price(s), (b) selling compensation, (c) rating(s), (d) credit enhancement and (e) identity and complete name of such bidder and any participating underwriters, and if so, the Official Statement will be modified or supplemented by the information so specified. Neither the Town nor its financial advisor shall be liable in any manner for any delay, inaccuracy, or omission on the part of the successful bidder with respect to such request, nor shall the Town's failure, as a result thereof, to provide the Official Statement (whether or not modified or supplemented) within the above time period, constitute cause for a failure or refusal by such bidder to accept . delivery of and pay for the Bonds in accordance with the terms hereof. The obligations hereunder to deliver or accept the Bonds pursuant hereto shall be conditioned on the availability to the successful bidder and delivery at the time of delivery of the Bonds of said approving opinion; of cerfificates in form and tenor satisfactory to said law firm evidencing the proper execution and delivery of the Bonds and receipt of payment therefor and 541998.1 031862 CERT including a statement, dated as of the date of such delivery, to the effect that there is no litigation pending or (to the knowledge of the signer or signers thereof) threatened relating to the Bonds; and of the several certificates as described in the Official Statement under the heading "Documents Accompanying Delivery of the Bonds." A copy of said approving opinion will appear on the Bonds. Copies of the Notice of Sale and the Official Statement may be obtained upon request from the offices of Munistat Services, Inc., 12 Roosevelt Avenue, Port Jefferson Station, New York I 1776, telephone number (631) 331-8888. Dated: May 2, 2008 SCOTT A. RUSSELL Supervisor and Chief Fiscal Officer 541998.1 031862 CERT PROPOSAL FOR BONDS May 13, 2008 Hon. Scott A. Russell Supervisor Town of Southold, New York c/o Munistat Services, Inc. 12 Roosevelt Avenue Port Jefferson Station, New York Dear Mr. Russell: Subject to the provisions and in accordance with the terms of the annexed Notice of Sale dated May 2, 2008, which is hereby made a part of this Proposal, we offer to purchase all of the $8,850,000 Public Improvement Serial Bonds-2008 of the Town of Southold, New York, described in said Notice of Sale, and to pay therefor the price of $8,850,000 plus $ , plus interest, if any, accrued on said Bonds from their date to the date of their delivery, provided that the Bonds maturing in the several years set forth below shall bear interest from their date until maturity at the respective rates per annum stated in the following table: Bonds maturing in the year 2009, at Bonds maturing in the year 2010, at Bonds maturing in the year 2011, at Bonds maturing in the year 2012, at Bonds maturing in the year 2013, at Bonds maturing in the year 2014, at Bonds maturing in the year 2015, at Bonds maturing in the year 2016, at Bonds maturing in thc year 2017, at Bonds maturing in the year 2018, at Bonds maturing in the year 2019, at % Bonds maturing in the year 2020, at % % Bonds maturing in the year 2021, at % % Bonds maturing in the year 2022, at % % Bonds maturing in the year 2023, at % % Bonds maturing in the year 2024, at % % Bonds maturing in the year 2025, at % % Bonds maturing in the year 2026, at % % Bonds maturing in the year 2027, at % % Bonds maturing in the year 2028, at % % Bonds maturing in the year 2029, at % % Bonds maturing in the year 2030, at % Check one of the following: We enclose herewith a certified or cashier's check in the sum of $177,000, made payable to the order of the Town of Southold, New York, which check is to be returned to the undersigned if the bid is not accepted; otherwise to be applied as part payment for the Bonds, or to be retained by the Town as and for liquidated damages in case we should not take up and pay for the Bonds in accordance with the terms of this Proposal. We are an authorized principal of a Financial Surety Bond with respect to this bid as described in the Notice of Sale. The following is our computation of the net interest cost, made as provided in the above-mentioned Notice of Sale, but not constituting any part of the foregoing Proposal for the purchase of $8,850,000 bonds under the foregoing Proposal: Gross Interest ............................................................................................... $ Less Premium Bid Over Par ......................................................................... $ Net Interest Cost ........................................................................................... Net Interest Rate .......................................................................................... % (four decimals) By: Telephone ( ) Return of the good faith check on May 13, 2008, in the amount of $177,000 from the Town of Southold, New York, is hereby acknowledged: 541998.1 031862 CERT APPENDIX B REGISTERED REGISTERED NO. R- $ UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OFSOUTHOLD PUBLIC IMPROVEMENT SERIAL BOND-2008 MATURITY DATE May 15, INTEREST DATE OF ORIGINAL CUSIP RATE ISSUE NUMBER May 15, 2008 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: The TOWN OF SOUTHOLD, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the REGISTERED OXVNER named above, or registered assigns, on the MATURITY DATE (stated above), the PRiNCIPAL SUM (stated above) upon presentation and surrender of this bond at the office of the Town Clerk, Town of Southold, Town Hall, 53095 Main Road, Southold, New York, as fiscal agent (herein called "Fiscal Agent"), or any successor thereto, and to pay interest on such principal sum from May 15, 2008 or from the most recent interest payment date to which interest has been paid at the iNTEREST RATE (stated above), payable November 15, 2008 and semiannually thereafter on May 15 and November 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. 541998.1 031862 CERT The faith and credit of such Town are hereby irrevocably pledged to the punctual payment of the principal of and interest on this bond according to its terms. It is hereby certified and recited that all conditions, acts and things required by the Constitution and statutes of the State of New York to exist, to have happened and to have been performed precedent to and in the issuance of this bond, exist, have happened and have been performed, and that the issue of bonds of which this is one, together with all other indebtedness of the Town of Southold, is within every debt and other limit prescribed by the Constitution and laws of such State. IN WITNESS WItEREOF, the TOWN OF SOUTHOLD has caused this bond to be executed in its name by the manual signature of its Supervisor and its corporate seal to be impressed hereon and attested by the manual signature of its Town Clerk. TOWN OFSOUTHOLD (SEAL) ATTEST: Town Clerk SPECIMEN By. Supervisor 541998.1 031862 CERT Town of Southold, New York Public Improvement Serial Bond-2008 This bond is one of an authorized combined issue, the aggregate principal amount of which is $8,850,000, 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"), two bond resolutions duly adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds of the Town to finance open space preservation and the acquisition of land and construction of building improvements, and the Certificate of Determination executed by the Supervisor as of May 2, 2008, determining the terms, form and details of issuance of said $8,850,000 serial bonds (the "Bonds") and providing for the public sale thereof (the "Certificate of Determination"). The Bonds are issuable in the form of registered bonds without coupons in denominations of $5,000, or any integral multiple thereof. This Bond is transferable or exchangeable, as provided in the Certificate of Determination, only upon the books of the Town kept for that purpose at the office of the Fiscal Agent, by the registered owner hereof in person, or by his attorney duly authorized in writing, upon the surrender of this Bond together with a written instrument of transfer or exchange satisfactory to the Fiscal Agent duly executed by the registered owner or his attorney duly authorized in writing, and thereupon a new Bond or Bonds, in the same aggregate principal amount and of the same maturity, shall be issued to the transferee or the registered owner in exchange therefor as provided in the Certificate of Determination and upon the payment of the charges, if any, therein prescribed. The Bonds maturing on or before May 15, 2018 will not be subject to redemption prior to maturity. The Bonds maturing on or after May 15, 2019 will be subject to redemption prior to maturity, at the option of the Town, on May 15, 2018 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. 541998.1031862CERT 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 Ladies and Gentlemen: We have examined a record of proceedings relating to the authorization, sale and issuance of $8,850,000 Public Improvement Serial Bonds-2008 (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, two bond resolutions duly adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds of the Town to finance open space preservation and the acquisition of land and construction of building improvements, and the Certificate of Determination executed by the Supervisor as of May 2, 2008, determining the terms, form and details of issuance of said $8,850,000 serial bonds and providing for their public sale. The Bonds are dated May 15, 2008, mature on May 15 in the principal amounts in each of the following years, and bear interest at the respective rates per annum payable November 15, 2008 and semiannually thereafter on May 15 and November 15 in each year until maturity, as set forth below: Year of Principal Interest Year of Principal Interest Maturity Amount Rate Maturity Amount Rate 2009 $325,000 % 2020 $400,000 2010 325,000 2021 425,000 2011 325,000 2022 425,000 2012 350,000 2023 425,000 2013 350,000 2024 450,000 2014 350,000 2025 450,000 2015 375,000 2026 450,000 2016 375,000 2027 450,000 2017 375,000 2028 475,000 2018 400,000 2029 475,000 2019 400,000 2030 475,000 541998.1 031862 CERT The Bonds maturing on or before May 15, 2018 will not be subject to redemption prior to maturity. The Bonds maturing on or after May 15, 2019 will be subject to redemption prior to maturity, at the option of the Town, on May 15, 2018 and thereafter, on any date, in ~vhole 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 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 other documents 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. 541998.1 031862 CERT 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 humbered Bond of said issue and, in our opinion, the form of said Bond and its execution are regular and proper. This opinion is issued as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any action hereafter taken or not taken, or any facts or circumstances, or changes in law or in interpretations thereof, that may hereafter occur, or for any other reason. Very truly yours, 541998.1 031862 CERT STATEMENT OF iNSURANCE 541998.1 031862 CERT ASSIGNMENT FOR VALUE RECEIVED, the Undersigned hereby sells, assigns and transfers unto PLEASE iNSERT SOCIAL SECURITY OR OTHER IDENTIFYiNG NUMBER OF ASSIGNEE PLEASE PRiNT OR TYPEWRITE NAME AND ADDRESS iNCLUDiNG POSTAL ZIP CODE OF ASSIGNEE the within Bond and does hereby irrevocably constitute and appoint Attorney to transfer said Bond on the books kept for registration of said Bond, with full power of substitution in the premises. Dated: Signature Guaranteed: Notice: Signature(s) must be acknowledged or proved, or in the alternative, certified as to its genuineness by an officer of a bank or trust company located and authorized to do business in New York State. Notice: The signature to this assignment must cor- respond with the name as it appears upon the face of the within bond in every particular, without alteration or enlargement or any change whatever 541998.l 031862 CERT Appendix C UNDERTAKING TO PROVIDE CONTINUING DISCLOSURE Section 1. Definitions "Annual Information" shall mean the information specified in Section 3 hereofi "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 13d-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 15B(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 15c2-12" 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 $8,850,000 Public Improvement Serial Bonds-2008, dated May 15, 2008, maturing in various principal amounts on May 15 in each of the years 2009 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 541998.1 031862 CERT (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: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on 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 (11) 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. 541998.1 031862 CERT 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 of the 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 broach of this Undertaking shall be an action to compel specific performance of the 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); 541998.1 031862 CERT (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 ~otice 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 15c2-12. 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. 1N WITNESS WHEREOF, the undersigned has duly authorized, executed and delivered this Undertaking as of May 29, 2008. B~ Supervisor and Chief Fiscal Officer 541998.1 031862 CERT ELIZABETH A. NEVILLE TOWN CLERK REGISTRAR OF VITAL STATISTICS MARHIAGE OFFICER RECORDS MANAGEMENT OFFICER FREEDOM OF INFORMATION OFFICER Town Hall, 53095 Ma/n Road P.O. Box 1179 Southold, New York 11971 Fax (631) 765-6145 Telephone (631) 765-1800 southoldtown.northfork.net OFFICE OF THE TOWN CLERK TOWN OF SOUTHOLD Robed P. Smith, Esq. Hawkins, Delafield & Wood LLP One Chase Manhattan Plaza New York, NY 10005 May 2, 2008 Re; Town of Southold, New York - $8,850,000 Public Improvement Serial Bonds - 2008 Dear Mr. Smith: I hereby certify that on this date I have caused to be filed in my office the Debt Statement prepared as of May 2, 2008 in connection with the above referenced bond issue. Li~l~r,' De~ Town Clerk (Seal) cc: John Cushman Robert Sikora AC 973 (Rev. 7/85) Cities under 125,000 population Counties Towns Villages STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER ALBANY, NEW YORK 12236 DEBT STATEMENT OF TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK PREPARED AS OF MAY 2, 2008 THE FOLLOWING IS A STATEMENT OF THE TOWN OF SOUTHOLD IN THE COUNTY OF SUFFOLK, NEW YORK, TO CONTRACT INDEBTEDNESS, AND IS PREPARED AS OF MAY 2, 2008 PURSUANT TO TITLE 8, ARTICLE II OF THE LOCAL FINANCE LAW. DEBT LIMIT Counties (except Nassau), cities, towns and villages ................................... $ 646~727,678 Multiply "Average Full Valuation" (page 5), Line 7 by .07 (Nassau County. 10) TOTAL NET INDEBTEDNESS Total Inclusions (page 5) ........................................................ $29,519,300 Less: Total Exclusions (Page 6) ................................................... 870,000 Total Net Indebtedness .......................................................... $ 28,649,300 NET DEBT-CONTRACTING MARGIN Debt Limit (Above) ............................................................ $646,727,678 Less: Total Net Indebtedness (Above) .............................................. 28,649~300 Net Debt-Contracting Margin .................................................... $ 618,078,378 PERCENTAGE OF DEBT-CONTRACTING POWER EXHAUSTED Divide "Total Net Indebtedness" by "Debt Limit" and enter result here .................................................................... 4.43 % PROPOSED BOND ISSUE The amount of bonds proposed to be sold at public sale on May 13, 2008 in connection with which this statement is made and filed is ...................................... $ 8,850~000 The amount of bond anticipation notes heretofore issued in anticipation of the sale and issuance of such bonds and included at "Borrowings" at Item 1 of Inclusions at page 5 is . $. -0- -1- STATEMENT OF TOTAL DEBT AVERAGE FULL VALUATION OF TAXABLE REAL ESTATE Computation of Average Full Valuation Based on Last Five Completed Assessment Roils (1) (2) (3) Taxable Assessed Full Valuation of Line For Fiscal Valuation of Final State Taxable Real Estate No. Year Ending Real Estate Equalization Rate (Column 1 - Column 2) 1. 12-31-04 101,872,561 1.49 6,837,084,630 2. 12-31-05 104,228,885 1.25 8,338,310,800 3. 12-31-06 105,502,965 1.13 9,336,545,575 4. 12-31-07 106,950,027 1.04 10,283,656,442 5. 12-31-08 108,292,749 0.95 11,399,236,736 6. Total of Lines 1 to 5 Inclusive ................................... $46,194,834,183 7. Average Full Valuation (1/5 of Total of Column 3 ................. 9,238,966,836 INCLUSIONS 1. Borrowings. Sec. 135.00(a)(1) ................................... 2. Real Property Liabilities. Sec. 135.00(a)(2) ......................... 3. Contract Liabilities. Sec. 135.00(a)(3) ............................. 4. Cities, Towns and Villages: Contract Liabilities: Housing Guarantees; Subsidies. Sec. 135.00(a)(4),(a)(4-a),(a)(4-b) ............................... 5. Cities, Towns, Villages: State Loans to Certain Housing Authorities and Municipalities. Sec. 135.00(a)(5) ................................ 6. Judgments, Claims, Awards and Determinations. Sec. 135.00(a)(6) ............................................. 7. Cities, Towns, Villages: Indebtedness Contracted by Certain District Corporations. Sec. 135.00(a) (7) ............................................ 8. Indebtedness Contracted or incurred Pursuant to Article II, Title 1-A of the Local Finance Law in relation to a Joint Service of Joint Water, Sewage, or Drainage Project: (See Instruction 5, Page 2.) (a) Borrowings: Several Indebtedness .............................. (b) Borrowings: Allocated or Apportioned Joint Indebtedness .......................................... /!} Real Property Liabilities ...................................... Contract Liabilities .......................................... Judgments, Claims, Awards and Determinations ................... TOTAL INCLUSIONS ........................... $ 29,519,300 $29,519,300 -2- GROSS JOINT INDEBTEDNESS The aggregate gross amount of all joint indebtedness before apportionment of allocation is ......................................... $ (See Instruction 6, page 3.) EXCLUSIONS 1. Tax and Revenue Obligations. Sec. 136.00(1) .............................. $. 2. Obligations Issued for other than Capital Improvements. Sec. 136.00(1-a) ...................................................... 3. Water Indebtedness. Sec. 136.00(2) ...................................... 4. Indebtedness Contracted for Self-Liquidating Projects. Sec. 136.00(3) ....................................................... 5. Sewer Indebtedness Contracted on or after January 1, 1962, and prior to January 1, 1994. Sec. 136.00(4-a) ............................... 6. Bonds for Pensions. Sec. 136.00(4) ...................................... 7. Cities and Villages with Population of 5,000 or More: Indebtedness for Housing and Urban Renewal Purposes. Sec. 136.00(8) ....................................................... (See also, if applicable, indebtedness for housing or urban renewal purposes (Sec. 136.00(8-a)). 8. Towns and Villages with Population of Less than 5,000: Subsidies or Guarantees for Housing Purposes. Sec 136.00(9) 9. Assets of Sinking Funds. Sec. 136.00(10) ................................. 10. Refunded and Refunding bonds. Sec. 136.00 ( 10-a)(10-b) 11. Cash on Hand for Debts. Sec. 136.00(11) ................................. 12. Appropriations. Sec. 136.00(12) ........................................ 13. Cities Only: School Indebtedness. Sec. 136.00(13) ..................................... 14. (a) Several Indebtedness Contracted in relation to a Joint Water Project. Sec. 15.50 ............................................. (b) Joint Indebtedness Contracted for such Purpose .......................... (~)i 15. (a) Several Indebtedness Contracted for a Joint Service and Excluded Pursuant to Local Finance Law, Sec. 15.20 and 123.00 ............................................................ (a). (b) The Apportioned or Allocated Amount of any such Joint . Indebtedness so Excluded ............................................ (b). 16. (a) Several Indebtedness Contracted for a Joint Sewage and/or Drainage Project and Excluded Pursuant to Local Finance Law, Sec. 123.00 and 124.10 .............................. (a). (b) The Apportioned or Allocated Amount of any such Joint Indebtedness so Excluded ............................................ (b). 870,000 TOTAL EXCLUSIONS ..................................... $ 870,000 SCHEDULE A PART 1. The following obligations will be sold at the sale in connection with which this debt statement is filed: Date Type Amount Object or Purpose of of to be for which Authorization Obligation Sold Authorized 02-27-07 SB 7,500,000 02-26-08 SB 1,350,000 Open Space Preservation Land Acquis. & Bldg. Improvements Total ............... $8,850,000 PART 2. The following bond anticipation notes have been issued in anticipation of the bonds listed in PART 1 above, and are now outstanding. Date of Note Amount Obiect or Purpose for which Authorized Total $ -0- The following symbols may be used: Serial Bond-SB; Statutory Installment Bond-SIB; Bond Anticipation Note BAN; Capital Note-CN; Tax Anticipation Note-TAN; Revenue Anticipation Note-RAN; Budget Note-BN; Certificate of indebtedness-CI; Sinking Fund Bonds-SFB. -4- SCHEDULE B PART 1. Date of Authorization The following obligations are authorized, unissued and will be sold prior to the sale of the obligations listed in Schedule A, PART 1. ToYFe Amount Object or Purpose to be for which Obligation Issued Authorized Total .................. $. -0- PART 2. The following obligations are authorized, unissued and will not be sold prior to the sale of the obligations listed in Schedule A, PART 1. Date ToY~e Amount of for which Authorization Obligation Authorized 02-25-03 SB 82,750 02-27-07 SB 22,500,000 08-28-07 SB 4,000,000 02-26-08 SB 1,350,000 04-22-08 SB 75,000 Object or Purpose for which Authorized Mattituck Inlet Shore Erosion Study Open Space Preservation* Open Space Preservation - Agric. Lands Acquis of Land and Bldg Impvts* Tax Collection Software Total $ 28,007,750 *To be funded in whole or inpart by the issuance of the Bonds in connection with which this Debt Statement is being filed. -5- VERIFICATION BY CHIEF FISCAL OFFICER State of New York SS: County of Suffolk Scott A. Russell, being duly swom, deposes and says: That he is the duly qualified, and acting chief fiscal officer of the Town of Southold, in the County of Suffolk, New York; that he prepared and has readthe foregoing debt state .ment and knows the contents thereof; that the same is tree to his own knowledge except as to the matters therein stated to be alleged upon information and belief, and that as to those matters he believes it to be true. "SIGNATURE Supervisor TITLE Town Hall - 53095 Main Road Southold, N.Y. 11971 MAIL ADDRESS SUBSCRIBED AND SWORN TO BEFORE ME THIS 2 "/~ DAY OF /2~/~j ,2008 NOTARY PUBLIC JOHN A CUSHHAN Notary Public, State of New York No, 01CU6174322 Qualified in Suffolk County Commission Expires September 17, 20// NEW ISSUE - SERIAL BONDS MOODY'S INVESTORS SERVICE - "Aaa"* See "Bond Ratings", herein In the oplnton of Hawkin~ Delafield & Wood LLP. Bond Counsel to the Town. under e.~isting statutes and court decisions and assummg continuing co?j~liance with certain tax certifications described herein, (i) interest on the Bonds is excluded from gross income for Federal income tar purposes pursuant to 3ection 103 of the Internal Revenue Code of 1986. as amended (the "Code '3, and 6i) interest on the Bonds is not treated as a prefere,n,,ce item in calculating the alternative mtnimum tax imposed on individuals and corporations under the Code. such interest, however, is included in the adjusted current earnings dj' certain corporations for purposes of calculatm.~ the alternattve minim,urn tax imposed on such corporations In addition, in the opimon of Bond Counsel to the Town. ,under ertstin.~ statutes, imerest on the t~onds ts' exempt jbom personal income taxes of New York State and its pohttcal subdivisions includmg The CIO,' oj'Ne~ York See '"Fax )dotters" herein The Bonds will NOT be designated by lhe Town as "qualified tax-exempt obltgations" pursuam to the provision of Section 265 of the Code $8,850,000 TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK (the "Town") Dated: May 15, 2008 PUBLIC IMPROVEMENT SERIAL BONDS - 2008 · ]BOOK-ENTRY-ONLY BONDS] Principal Due: Interest Due: BOND MATURITY SCHEDULE May 15, 2009-2030, inclusive November 15, 2008 and semi-annually thereafter in each year until maturity. Maturity Rate Yield Amount Maturity Rate Yield Amount Maturity Rate Yield $325,000 2009 4.00% 1.85% $375,000 2017 4.00% 3.45% $450,000 2024 4.00% 4. t0% 325,000 2010 4.00 2.25 400,000 2018 4.00 3.60 450,000 2025 4-% 4.15 325,000 2011 4.00 2.55 400,000 2019 4.00 3.70 450,000 2026 4.25 4.20 350,000 2012 4.00 2.75 400,000 2020 4.00 3.80 450,000 2027 4.25 4.25 350,000 2013 4.00 2.90 425,000 2021 4.00 3.90 475,000 2028 4.25 4.30 350,000 2014 4.00 3.00 425,000 2022 4.00 4.00 475,000 2029 4.25 4.35 375,000 2015 4.00 3.15 425,000 2023 4.00 4.05 475,000 2030 4.25 4-% 375,000 2016 4.00 3.30 *The ,B, onds matur, in~ in the years 2009 through 2018 inclusive are NOT insured by Financial Security Assurance (defined below) and are rated "Aa3 by Moody s (n, vestors Service,? Inc. T~ie scheduled payment of principal of and interest on the Bonds maturing in the years 2019 through 2030 inclusive (the Insured Bonds ) when due WILL BE guaranteed under an insurance policy ~to be issued concurrently with th,,e delivery of the Bonds by FINANCIAL SECURiTY ASSURANCE INC. (See Appendix C "Bond Insurance', herein. Also see "Boni] Rating , hereinO P FSA_ Security andSources of Payment: 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 taxabIe real property within the Town will be subject to the levy of affvalorem taxes, without l~mitatton as to rate or amount, for such purpose. Prior Redemption: The Bonds maturing on or after May 15, 2019 will be subject to redemption prior to maturity at the opt,!on of the own, on May 15, 21J18 on any ,d, ate and thereafter, in whole or ~n part, at par, in accordance with me terms described herein. See Optional Redemption" under "The Bonds, herein. Form andDenomination: The Bonds wi!l be issued as registered bonds, and, when issued, will be registered in the name of Cede & Co. as nominee of The Del>ositorv Trust Coml~any ('DTC") New York New York which will act as the Securities Depository for the Bonds. Individual purchases of the Bo'nds may be ~had~ only in book-entry form in denom}nations of $5,000 or integral multiples thereof. Bondholder,s, will not receive certificates representing their ownership interests m the Bonds purchased. See "Book-Entry-Only System" under "The Bonds, ' herein. Payment: Payment of the principal of and interest on the Bonds will be made by the Town to DTC which will in turn remit such payment to its Participants for subsequent distribution to the Beneficial Owners of the Bonds ~n accordance with standing ins.t~.ctions and,,customary practices, as is now the case with municipal securities held for the accounts of customers in bearer form or registered in street name. Payment to the Beneficial Owners will be the responsibility of the DTC Participant or Indirect Participant and not o]'DTC or the Town, ,,subject 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 & Wood LLP has not participated in the preparation of this Official Statement nor verified the accuracy, completeness or fairness of the information contained here n, and, accordingly, expresses no op n on w th respect thereto. The Bonds are offered subject to the final ?flproving opinion of Hawkins Delafield & Wood LLP, New York, New York, Bond Counsel, and certain other conditions. It is expected that dehvery of the Bonds in book-entry form will be made through the facilities of DTC on or about May 29, 2008 in New York, New York. This revised cover dated May 13, 2008, supp ements the Official Statement of the Town, May 2, 2008, relating to the obligations described therein and herein including certain information omitted fr~m such Official Statement i9 9ccordance 5vith Securities and Exchange Commission Rule 15c2-12 (the "Rule"), and shall constitute the ?own s final Official ~tat,,ement w~th~p. [he m~e,a, mng of,[he.,Ru~le. O, t. her than ,as set forth on th s revised cover page the table of contents, the section ent t ed "Bond Rating an,d the addition ot Appenmx t~ - ~ono tnsurance, there have been no other rev sons to the Official Statement· For a description of the Town s agreement to prowde continuing disclosure 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 Louisa P. Evans Albert J. Krupski Jr. V ncent M. Orlando William P. Ruland Thomas H. Wickham Elizabeth A. Neville, Town Clerk Peter W. Harris, Superintendent of Highways John A. Cushman II, Town Comptroller Patricia A. Finnegan, Esq. Town Attorney George Su van, 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 conta ned m th s Official Statemelt and if given or made, such other information or re~presenta,[ions, must.ngt be relied upon as having been author zed by the Town Th s Official Statement does not constitute an orrer to seu or tt~e sohc nation of an offer to bay nor shal there be any sale of the Bonds by any person in anyiur sdiction in which it is unlawful for such person to make such ol~f'er~ solicitation or sa e. The information set f6rt~ herein has been obta led by the Town f~om sources which are believed to be rehable but it is not guaranteed as to accuracy or completeness. T ~e nformation and expressions of opinion herein are subject to change w thout not~ce and ne ther the de very of th s Official Statement nor any sale made hereunder 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 Descripti~rib?;tfi~gt~6ds'iiiiiiiiiiiiiiiiiiill i ' ' iiiiiiiiiiiiiiiiiiiiiiiiiiii11 Optional Redemption .................................................... I Book-entry-only System ................................................... Certificated Bonds ................................................................. 3 Authorization and Purpose ................................................................. Secari.ty and Source of Payment ................................................. Remedies Upon Default ..................................................... ii i... ii iiiiii 3 THE TOWN 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 Contractthg Margin ......................... 8 Tren~t of Town Indebtedness ................... 8 Details of Short-Term Indebtedness Outstandin~ ........................... i .......... i i i i i ii i i 9 Debt Service Requirements - Outstanding Bond~ ......................... 9 Calculation of Estimated Overlapping and Underlying Indebtedness ................ Authorized But Un ssued Items ............................................................ 10 Capital Program ....................................................................... 10 Landfi C osure and Postclosure Care Costs .................................................. 11 FINANCES OF THE TOWN ................................................................ 11 Financial Statements and Accounting Procedures .............................................. 11 Fund Structure and Accounts ......................................................... l 1 Basis of Accounting ................................................................ 11 Investment Policy ...................................................................... 1 I Budgetary Procedures ....................................................... 12 F nanc a Operations .................................................................... 12 Revenues ............................................................................. 13 Real Prgpeny Taxes ................................................................ 13 State Aia ....... 13 Expenditures ........................................................... 13 Pension Systems .... ' .................................................................. 13 Con~' buttons to the Retirement Systems ..................................................... 14 Other Post Employment Benefits ........................................................... 14 REAL PROPERTY TAX INFORM[ATION .................................................... 15 Real Property Taxes .................................................................... 15 Tax Levy and Collection Record ........................................................... 15 Tax Collection Procedure ................................................................ 15 Tax Rates ............................................................................. 15 Large Taxable Properties ................................................................. 15 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 Counset ................................................................ 17 Certain Ongoing Federal Tax Requirements and Certifications ................................... 17 Certain Collateral Federal Tax Consequences ................................................. 17 Original Issue Discount .................................................................. 17 Bond Premium ......................................................................... 18 Information Reporting and Backup Withholding ............................................... 18 Miscellaneous ......................................................................... 18 DOCUMENTS ACCOMPANYING DELIVERY OF THE BONDS ................................. 19 Absence of Litigation .................................................................... 19 Legal Matters .......................................................................... 19 Closing Certificates ..................................................................... 19 DISCLOSURE UNDERTAKING ............................................................. 20 BOND RATING ........................................................................... 20 FINANCIAL ADVISOR .................................................................... 21 ADDITIONAL INFORMATION ........................................... : ................. 21 APPENDIX A: FINANCIAL INFORMATION APPENDIX B: FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006 APPENDIX C: BOND INSURANCE ii OFFICIAL STATEMENT $8,850,000 TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK PUBLIC IMPROVEMENT SERIAL BONDS - 2008 [BOOK-ENTRY-ONLY BONDS] S _ ,Th. is .Official Statement and the appendices hereto prese,n,t.s certa,!,n, nform,a, tion relating to the Town of outi~otg, tn the County of Suffolk, in the State of New York (the Town, Count~ and "State," resnectivelv~ in connection w~th the sale of $8,850,000 Public Improvement Serial Bonds - 2008 (tile "Bonds") of the'Town. ~J Allguotations from and summaries and explanations of provisions of the Constitution and Laws of the State and acts anaproceedings of the Town contained]~ere n do not purport to be complete and are qualified in their entirety by reference to the official compilation thereof and a 1 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 of the Bonds The Bonds will be dated May 15, 2008, and will mature on May 15, in each of the years 2009 to 2030, inclusive, in the principal amounts as set forth on the cover page hereof. Th¢~ 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, New York, New York ("DTC"). DTC wilt act as Securities Depository for the Bonds. Individual purchases of the Bonds may be made in book-entry form only, in denominat ons of ~5,000 or integral multiples thereof. Purchasers will not receive certificates representing their interest in the Bonds. Interest on the Bonds will be payable November 15, 2008 and semi-annually thereafter on May 15 and November 15, in each year until maturity. Principal and interest will be pa d by the Town to the Securities Depositor, which will in turn remit such principal and interest to its Participants, for subsequent distr bution 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 May 15, 2018 will not be subject to redemption prior to maturity. The Bonds maturing on or after May 15, 2019 will be sul~ject to redemption prior to maturity, at the option of the Town, on May 15,2018 and thereafter on any date, in whole or in part, and if ~n 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 thegiving of notice which ident ties the Bonds to be redeemed, by mailing such notice to the registered holders thereof at their respect ve addresses as shown upon the registration books otthe Fiscal Agent at least 30 days prior to the date set for any such redempt on. If not ce of reoemption 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 the Bonds shall cease to accrue from and after such redemption date. Book-entry-only System DTC will act as securities depositor), for the Bond,s (the "Bonds"). The Bonds w be ssued as fully- registered Bonds registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by au aathorized representative of DTC. One fldly-registered Bond certificate will be iss ed for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, th, e world's largest dep,o, sitory, is a limited-purpose trust company organized under the New York Banking Law, a 'banking organization ~ithinthemeaningoftheNewYorkBankingLaw, amemberoftheFederal Reserve System a "clearing corporation' within the meaning of the New York Umform Commercial Code and a "clearing agency" registere~[ pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds anal prow'des asset servicing for over 2 million issues of U.S. and non-U.S, etluity is'~ues corporate and municipal d,,ebt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Particilsants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and otfier 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 certit%ates. Direct Participants,include both U.S. and non-U.S, securities brokers and itealers, banks trust companies, clearing corporations andcerta!n~,other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTC-C 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 of DTCC) as well as by the New York.Stock Exchange, Inc. the American Stock Exchange LLC and the National Association of Securities Dealers, lnc. Access to the DTC system is also available to others such as both U.S. andnon-U.S, securitiesbrokersanddealers banks~tmstcompanies andclearingcorp%,a, tionsthatclearthrough or maintain a custodial rel,ationship with a Direct Partmipant either directly or inthrect[.y ( 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. Mbre 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, howeveh 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 ot'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 subse§uent 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 oCDTC. 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 of the 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 may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain respons b e for keep ng 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 t~me 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 of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and correspondin~ 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 a, nd customary practices as is the case with bonds held for the accounts of customers in bearer form or registered in 'street name?' and will ~e the responsibility of such Participant and not of DTC 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 of DTC) is the responsibility of the Town disbursement of such payments to Direct Participants will be the responsibili.t7 of DTC~ and itisbursement of such payments to the Benefic alOwners will be the responsibility of Direct and Inthrect 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 system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates w~ll be printed and delivered. The information in this section concernin~ DTC and DTC's book-entry s/stem has been obtained from sources that the Town believes to be reliable, but tl% Town takes no responsibility for the accuracy thereofi THE TOWN WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO PARTICIPANTS, TO INDIRECT PARTICIPANTS OR TO ANY BENEFICIAL OWNER WITH RESPECT TO(I)THE ACCURACY OF ANY RECORDS MAiNTAINED BY DTC, ANY PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (II) THE PAYMENTS BY DTC 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 2 NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO BONDHOLDERS; (1V) ~HE SELECTION BY DTC OR ANY PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TORECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS; OR (V) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDOWNER. Certificated Bonds DTC may discontinue providing its services with respect to the Bonds at any time by giving notice to the Town and discharging its responsibilities with respect thereto under appli.c~ble law or the Town may terminate its participation in the system ofbook-ent?y-only transfers through DTC at an3 time. Iu the event that such book-entry- only system is discontinued the following, provisions will apply: Ttie Bonds will be in registered form m denominations of $5,000 or integral multiples thereof. Principal of and interest on the Bonds when due will be Eayable at the principal corporate trust office ora bank or trust company to be named by the Town as the fiscal agent. Certificated Bonds may be transferred or exchanged at no cost to the owner of such Bonds at any time prior to maturity at the corporate trust office of the fiscal agent for Bonds of the same or anyother authorizer]denomination or denominations in the same aggregate principalamount upon the terms set forth in the certificate of the Town Supervisor authorizing the sale o]VtheBonds andfixing the details thereof and in accordance with the Local Finance Law. 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 GeneralMunicipal 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 two capital projects in and for the Town. Such projects, and the respective principal amounts of Bonds to be issued for each, are as follows: Date Amount to Authorized Purpose be issued 02-27-07 Open Space Preservation ...................................... $ 7,500,000 02-26-08 Land Acquisition and Building Improvements ...................... 1,350,000 Total ................................. .$ 8,850,000 The proceeds of the Bonds will provide original funds for the above referenced projects. For further information regardingbond 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 belween the Town and the owner thereof. The Bonds will be general obligations of the Town and will contain a pledge of the 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 authority to levy ad valorem taxes on all the taxable real property within the Town without limitation as to rate or amount. Under Article VIII of the State Constitut on, the Town is required to pledge its faith and credit for the payment of the principal of and interest on the Bonds and the State Legislature ~s specifically precluded from restricting the power of the Town to levy taxes on taxable real estate thereof. 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 duc to the date of payment. As "a general rule, property and funds of a~ municipal corporation serving the public welfare and interest have not been judicially subjected to execution or attachment to satisfy a judgment, altheugh judicial mandates to officials to appropriate and pay judgments out of current funds or thc proceeds of a tax levy have been issued. Remedies for enforcement of payment are not expressly included in the Town's contract with holders of its bonds and notes although any I~ermanant repeal by statute or constitutional amendment ora Bondholder's remedial right to judicial enforcement otthe contract should, n thc opinion of Bond Counsel, be held unconstitutional. The State has consented that any municipality in thc State may file a petition with any United States district court or court of bankruptcy under anyprovision of the laws of thc United States, now or hereafter in effect, for thc composition or adjustment ofmunicipa~indebtedncss. Subject to such consent, under the United States Constitution, Congress has jurisdiction over such mat~ers and has enacted amendments to the existing federal bankruptcy statute, generally to the effect and with the purpose of affording municipal corporatiens, under certain circumstances, with easier access to judicially approved adjustment of debts, includingj udicial control over identifiable and unidentifiable creditors. In recent times, certain events and legislation affecting remedies on defau t have resulted in litigation. While courts of final jurisdiction have upheld and sustained the rights of bondho ders, 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 ofessentia services. No principal or interest payments on Town indebtedness are past due. The Town has never defaulted in the payment of the principal of and interest on any indebtedness. THE TOWN There follows in this Official Statement a brief description of the Town, together w th certain nformation concerning its economy and governmental organization, its indebtedness,, current major revenue sources and expenditures and general and specific funds. General Information The Town, with a land area of 54.5 square miles, is located in eastern Suffolk County on the north fork of Longlsland. Settlement took place in 1640. The Village ofGreenport is located who yw thin the Town. TheTown also includes the area of Fishers Island which is located app.roximately twelve miles east of the mainland. Fishers lsland is accessible only by water or air with feny service operating between the Island and New London, Connecticut. The Town isprimaril~y a rural resort area with substantial shopping facilities availab e at Greenport, at various shopping centers within the ~ own, and at Riverheadjust to the west. Some commercial services are available within the Town in the hamlets of Southold, Cutchogue and Mattituck. Agriculture has been a major industry in the Town since its origins. In recent years, farm crops have g~radually evolved from basic production to nursery crops including shrubs, sod, potted plants and other ornamentals. ~x substantial portion of these products are shipped by ferry across Long Island Sound for distribution throughout New England. A number of vineyards have been established and wine-making is an important industry. Fishing and fish processing are now growing industries due to improved transportation facilities. The Town s a so a major summer resort area, ut I zing bays, inlets and Long Island and Block Island Sounds. The main highways in the Town are New York State Route 25 and the North Road Ra transportation is provided by the Long Island Rail Road with stations at Mattituck, Southold and Greenport Ferry service is also available between Orient Point, east of Greenport, and New London, Connecticut as well as from Greenport to Shelter Island. Electric service is provided by the Long Island Power Authority; gas service isprovided by Keyspan Energy Corporation. Fire protection is the responsibihty of volunteer fire and fire protection distr ets T-he Town provides its own police protection. In the Village of Greenport, electric service and fire protection are provided by the Village. Government Subject to the provislons of the State Constitution, the Town operates pursuant to the Town Law, the General MunicipalLaw, the Local Finance Law otherlawsgenerallyapplicabletotheTown, and any spec a awsspec ficay a~pplicable to the Town. Under such laws, there is no authority for the Town to have a charter, but pursuant to the ~ own Law and other Iaws generally applicable to home role the Town may from time to time adopt local laws which do not conflict with existing laws as enacted by the State. The legislative power of the Town is vested in the Town Board, which consists of five members, elected for a term of four years, and 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. Six independently governed school districts are located wholly or partially within the To.,wn, which rely on their own taxing powers granted by the State to raise revenues. The schooldistricts use the Town s assessment roll as their basis for taxation of properly located within the Town. 4 Employees The Town provides services through approximately 216 full-time and 69 part-time employees, some of whom 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 ............................ I~4[ePrOximate Date Contract mbership Expires 168 12-31-10 47 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: Town of Suffolk New York Year Southold County State 1970 ..................................... 16,804 1,127,030 1980 ..................................... 19,172 1,284,231 1990 ..................................... 19,836 1,321,977 2000 ..................................... 20,599 1,419,369 2007 ..................................... 22,852 1,504,947 Source: U.S. Bureau of the Census, Long Island Power Authority, New York State Department of Labor. Median Income of Families 1980 1990 2000 Town $21,013 $43,082 $61,108 County 24,194 53,247 72,112 State 20,180 39,741 51,691 18,241,391 17,557,288 17,990,455 18,976,457 19,297,729 Source: U.S. Department of Commerce, Bureau of the Census. Per Capita Money Income 1980 1990 2000 Town $8,258 $19,037 $ 27,619 County 7,576 18,481 26,577 State 7,496 16,501 23,389 Source: U.S. Department of Commerce, Bureau of the Census. Unemployment Rate Statistics Unemployment statistics are not available for the Town as such. The smallest area for which such statistics are available (which 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 data in this Statement that the Town is necessarily representative of the County or vice versa. Annual Averages: 2003 ............................ 2004 ............................. 2005 ............................. 2006 ............................. 2007 ............................. 2008(2 months) .................... Suffolk New York County State 4.3% 6.2% 4.5 5.9 4.2 5.0 3.9 4.5 3.8 4.5 4.8 5.3 Source: Department of Labor, State of New York Selected Listing of Larger Employers Name Mattituck-Cutchogue UFSD ....................... Eastern Long Island Hospital ....................... Plum Island ADC ................................ Town of Southold ............................... Peconic Landing ................................. Southold UFSD ................................. San Simeon by the Sound ......................... Greenport UFSD ................................ Type Public School Hospital U.S. Govt. Facility Local Government Life Care Community Public School Nursing Home Public School Approx. No. of Employees 385 35O 300 285 2O4 175 154 108 INDEBTEDNESS OF THE TOWN Constitutional Requirements The State Constitution limits the power of the Town (as well as other municipalities and school districts of the State) to issue obligations and contract indebtedness. Such constitutional limitations include the following, in summary form, and are generally applicable to the Town and the Bonds: Purpose and Pledge. Subject to certain exceptions, the Town shall not give or loan an~/money or property to or in aid of any individual or private corporation or private undertaking or give or loan its credit to or in md of any of the foregoing 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 or, in the alternative, the weighted average period of probable usefulness of the several objects or purposes for which it is contracted. No installment may be more than fifty per centam in excess of the smallest prior installment, unless the Town Board provides for substantially level or declining debt service in the manner prescribed by the State Legislature. The Town is re~luired to provide an annual appropriation for the payment of interest due duringthe year on its indebtedness and Ior the amounts required in such year for the amortization and redemption of itsbonds and notes. Debt Limit. Pursuant to the Local Finance Law, the Town has the Power to contract indebtedness for any Townpurpose authorized by the Legislature of the State provided the aggregate principal amount thereof shall not exceedseven percentum of the average five-year full valuation of the taxal01e real estate located in the Town and subject to certain enumerated exclusions and deductions such as debt contracted to provide water, self-liquidating facdities 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 particular assessment roll by the final equalization ratio established for such assessment roll by the State Office of Real Property Services (the "ORPS'). The State Legislature is required to prescribe the manner by which such ratio shall be determined. Average full valuation is determined by taking the sum of the full valuations of the last five completed assessment rolls and dividing snch sum by five. Statutory Procedure In general, the State Legislature has authorized the power and procedure for the Town to borrow and incur indebtedness by the enactment of the Local Finance La, w subject of course to the constitutional provisions set fi)rth above. The power to spend money, however, generall~ derives from other law, including the Town Law and General Municipal Law of thc State. Pursuant to the Local Finance Law, the Town authorizes the incurrence of indebtedness, 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, which is the finance board of the Town. Certain bond resolutions may be subject to permissive referendum, or may be submitted to the Town voters at the discretion of the Town Boaro. If the resolution is submitted to the Town voters, 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 v o]at OhS. 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 specifies the maximum maturity of the bo'nds subject to the legal (Constitution, Local Finance Law and case aw) 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 originaIdate of borrowing. However, notes issued in anticipation of the sale of serial bonds for assessable nnprovements are not subject to such five year mit and mav be renewed subject to annual principal reductions for the entire period of pr.oba~ole usefulness oi~the purpose for~which sach notes were originally ~ssued. (See "Payment and Maturity under "Constitutional Requirements," and "Details of Short-Term Ind~:btedness Oatstanding.") 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. Computation of Debt Limit and Calculation of Net Debt Contracting Margin (As of May 2, 2008) Fiscal Year Ending December 31: State Assessed Equalization Valuation Rate Full Valuation 2004 ............................... $101,872,561 2005 ............................... 104,228,885 2006 ............................... 105,502,965 2007 ............................... 106,950,027 2008 ............................... 108,292,749 1.49% $ 6,837,084,630 1.25 8,338,310,800 1.13 9,336,545,575 1.04 10,283,656,442 0.95 11,399,236,736 Total Five Year Full Valuation ................................................ $46,194,834,183 Average Five Year Full Valuation ............................................. 9,238,966,836 Debt Eimit - 7% of Average Full Valuation ...................................... 646,727,678 Inclusions: Outstanding Bonds: GeneralnPurposes ..................................................... Other ........................................................... 23,540,000 Sub-Total ........................................................... 23,540,000 Bond Anticipation Notes .................................................... 5,979,300 Total Inclusions ........................................................ 29,519,300 Exclusions: Appropriations ......................................................... 870,000 Ottier nxclusions ........................................................ -0- Total Exclusions ........................................................ 870,000 Total Net Indebtedness Before Issuing the Bonds ................................. 28,649,300 The Bonds 8,850,000 Less: BANs to be paid from bond proceeds ...................................... -0- Net Effect of Issuing Bonds .................................................. ~ Total Net Indebtedness After Issuing the Bonds .................................. 37,499,300 Net Debt Contracting Margin After Issuing the Bonds ............................. $609,228,378 Percent of Debt Limit Exhausted ............................................... 5.80% Trend of Town Indebtedness The following table represents the outstanding indebtedness of the Town at the end of the last five preceding fiscal years. Fiscal Year Ending December 31: 2003 2004 2005 2006 2007 Debt Outstanding End of Year: Bonds .................. $6,950,000 Bond Anticipation Notes ... 14,768,302 Total Outstanding Debt ........ $21,718,302 $6,515,000 $12,299,098 $11,349,098 $25,020,000 12,625,600 11,720,000 8,244,000 6,224,000 $19,140,600 $24,019,098 $19,593,098 $31,244,000 Bond Anticipation Notes MaturiW 06-06-08 09-05-08 04-1%09 Details of Short-Term Indebtedness Outstanding Purpose Amounta Fishers Island Ferry District .................................. $I,500,000 Various Capital Projects ................................ 3,680,000 Var ous Capita Projects ..................................... 799,300 Total ................................................ a. To be funded from the proceeds of renewal notes and from available funds. Debt Service Requirements - Outstanding BondsI Fiscal Year Ending ~ December .~ 1: Principal 2008 ....................... $1,695,000 2009 ....................... 1,750,000 2010 ....................... 1,575,000 2011 ....................... 1,600,000 2012 ....................... 1,540,000 2013 ....................... 1,425,000 2014 ....................... 1,440,000 2015 ....................... 1,435,000 2016 ....................... 1,360,000 2017 ....................... 1,420,000 2018 ....................... 1,435,000 2019 ....................... 995,000 2020 ....................... 875,000 2021 ....................... 875,000 2022 ....................... 675,000 2023 ....................... 725,000 2024 ....................... 725,000 2025 ....................... 725,000 2026 ....................... 550,000 2027 ....................... 550,000 2028 ....................... 550,000 2029 ....................... 550,000 2030 ....................... 550,000 Totals ................... $25,020,000 $ 5,979,300 Interest Total $ 950 559 888 645 827 441 769 388 709 851 654 788 600 927 545 816 492 883 439 412 384,118 335,739 296,631 260,344 223,656 193,906 163,094 132,281 105,188 81,813 58,438 35,063 11,688 a. Exclusive of the Bonds. $9,161,669 $2,645,559 2,638,645 2,402,441 2,369,388 2,249,851 2,079,788 2,040,927 1,980,816 1,852,883 1,859,412 1,819,118 1,330,739 1,171,631 1,135,344 898,656 918,906 888,094 857,281 655,188 631,813 608,438 585,063 561,688 $34,181,669 9 Calculation of Estimated Overlapping and Underlying Indebtedness Overlapping Date of Percentage ATolta/ble~pica Units Report Applicable Indebtedness Count)' of Suffolk ..................... 10-23-07 3.71% $34,381,249 Village of Greenport ................... 05-31-07 100.00 12,132,000 School Districts: Fishers Island ............. 06-30-07 100.00 405,000 Greenport ................. 06-30-07 100.00 135,000 Mattituck-Cutchogue ....... 12-27-07 98.49 43,424,241 New Suffolk Common ...... 06-30-07 100.00 Oyster Ponds .............. 06-30-07 100.00 150,000 Southold ................. 11-30-07 100.00 10,090,681 Fire Districts (Est.) ..................... Various 100.00 2,750,000 Applicable Net Indebtedness $29,783,231 11,398,000 405,00O 122,000 39,973,151 150,000 10,090,681 2,750,000 $ 90,627,490 $ 81,831,382 Annual Financial Reports on file with the Office of the State Comptroller, or more recently published Official Statements. Authorized But Unissued Items The following Bonds are authorized but unissued: Date Authorized Purpose Amount 02-25-03 02-27-07 08-28-07 02-26-08 04-22-08 Mattituck Inlet Shore Erosion Study ................................. $ 82,750 Open Space Preservation: Non-Agricultural Land ...................... 22,500,000a Open Space Preservation: Agricultural Lands ......................... 4.000,000 Acquisition of Land and Building (Peconic School Property) .............. 11350,000a Tax Collection Software .......................................... 75,000 Total ................................. $28,007,750 a. To be funded in whole or in part by the issuance of the Bonds. 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 2008 is set forth below: Department 2008 General Town .................................... $6,727,928 Highway Dep_t .................................... 110,000 Solid Waste District ............................... 689,000 Wastewater Disposal District ....................... 1,500,000 Total ........................................... $ 9,026,928 Sources Appropriations ................................... Grants ....................................... Town Debt ................................. Total ........................................... $ 186,100 8,840,028 $ 9,026,828 10 Landfill Closure and Postclosure Care Costs The Town owns a landfill on a site in the unincorporated area of Cutchogne, commonly known as thc Cutchognc Landfill. The Town ceased accepting waste at its Cutchogue Landfill as of October 8, 1993. Placement of the final cover, referred to as capping, on the landfill was completed in November '~003. In addition to placement of thc final cover on thc landfill, state and fcdaral regulations presently require the Town to perform certain maintenance and monitoring functions at thc site for up to thirty years. The Town has and will continue to comply with said requirements. Thc ongoing post closarc costs arc estimated to be between $25,000 and $30,000 per year from 2008 through 2010. Thc Town paid $26,390 for such costs in 2007 and will continue to pay these costs in thc future. Actual costs associated with the capping totaled $7,681,720. Financing for closure activities was provided in pan 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. FINANCES OF THE TOWN Financial Statements and Accounting Procedures The Town maintains its financial records in accordance with the Uniform System of Accounts for Towns prescribed by thc State Comptrollar. Thc financial records of the Town are audited by independent accountants. Thc last such audit made ava able for public inspection covers the fiscal year ended December 31 2006. In addition, thc financial affairs of thc Town are subject to periodic compliance review by the Office of the State Comptroller to ascertain whether the Town has complied with thc requirements of various State and Federal statutes. In June 1999 thc Governmental Accounting Standards Board ["GASB') issued Statcmant 34, "Basic F nanc a Statcmants and Managemcnt's Discussions and Analysis for State and Local Governments". GASB required thc Town to implement this standard for the fiscal year ending December 31, 2003 and the Town has complied with such requirements. This Statcmant established new financial reporting requirements for state and local governments throughout thc United States. It required new information and restructuring of much of the information ihat governments have presented in the past. Comparability with reports issued in all prior years was affected. 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 aceordancc with special regulations, restrictions or limitations. There arc three basic fund types: (1) governmental funds that are used to account for basic services and capital projects; (2) proprietary funds that account for operations of a commercial naturc;~and~, (3) fiduc!ary funds. that account for assets held in a trustee capacity. Account groups, which do not represent tunas, arc used to recoru fixed assets and long-term obligations that are not accounted for in a specific funo. The Town presently maintains thc following governmental funds: General Fund, Highway Fund and Special Districts Funds, and thc Capital Projects Fund. Fiduciary funds consist of a Trust and Agency Fund. There are no proprietary funds. Account groups arc maintained for fixed assets and long-term debt. Basis of Accounting The Town's ~overnmental funds are accounted for on a modified accrual basis of accounting. Under the modified acc,rual b ,a,s~, reven,u, es are recognized when they become susceptible to accrual - that is, whe..n 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 Sect OhS 10 and 11 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 t me deposit accounts and certificates of deposit in excess of the amount insured under the Federal Deposit'Insurance Act, are required to be secured in accordance with the provisions of and subject to the limitations of Section 10 of the GML. 11 The Town may also temporarily invest moneys in: (1) obligations of the United States of America; (2) obligations guaranteed by agencies of the United States of America where the payment of principal and interest are guaranteed by the UnitedStates 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 I~articipation issued in connection with installment purchase agreements entered into by political subdivisions of the State pursuant to Section 109-b(10) of the GML; (6)obligations ora New York public b~/nefit corporation which are .made lawful investments for municipalities pursuant to the enabling statute of such public benefit cortmration; or (7) ?otwh~.case of moneys held in certain reserve funds established by the Town pursuant to law, in obligations of the All of the foregoing investments are required to be payable or redeemable at the option of the owner within such times as theproceeds will be needed to meet expenditures for purposes for which the moneys were provided and, in the case of obligations purchased with the proceeds of bonds or notes, shall be payable or redeemable in any event, at the option of the owner, within two years of the date of purchase. Unless registered or inscribed in the name of the Town, such instruments and investments must be purchased through, deliveredto and held in custody ora bank or trust company in the State pursuant to a written custodial agreement as provided by Section 10 of the GML. SThe Town Board has adopted an investment policy and such policy conforms with applicable laws of the tare governing tl~e cleposit anO 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 recJuired 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 15~. Estimates for each fire district situated within the Town must also [~e filed with the budget officer by this d~ate. 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 SeptemlSer. Subsequently, the Town Clerk presents the tentative ouoget to tl~e lown t~oarfl 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 budget. 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 'I'hursday immediately following the general election. At such hearing any person may express his opinion concerning the preliminary budget; however, there is no requirement orprowsion that the preliminary budget or any portion thereof ne ,voted on by members of the public. After the public hearing, the Town Board may furtfler change and revise the predminary 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~oudget 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 modifications to the annual budget includ ng the transfer of appropriations among line items must be approved by resolution of the Town Board. Budget Summaries for the 2007 and 2008 fiscal years may be found in Appendix A. Financial Operations The Supervisor functions as the chief fiscal officer as provided in Section 2 of the Local Finance Law; in this role, the Supervisor is responsible for the Town% accounting and financial reporting activities In addit on, the Supervisor is also the Town'sbudget officer and must therefore prepare the annual tentative budget for submission to the Town Board. Pursuant to Section 30 of the Local Finance Law, the Supervisor has been authorized to issue or renew certain specific types of notes. As required by ]aw, the Supervisor must execute an authorizing 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 authoriz ng, by resolution, a mater a financial transactions such as operating and capital budgets andbonded debt. Town finances are operatedprimarily through the General and Special Revenue Funds. The General Fund receives most of its revenue from real property tax and State aid. Current operatinl~ expenditures are l~aid from these funds subject to available appropriations. The Town also has refuse, sewer anal wastewater distr)cts, which are accounted for within ..... separate funds. The _primary_ sources, of income for these districts comes from specia assessments levied against district properties at the same time real estate taxes are levied. Cap ta projects and equipment purchases are accounted for in special capital projects funds. The Town observes a calendar year (January 1 through December 31) for operating andreporting purposes. 12 The Town receives most of its 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", heroin. State A id The Town receives 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 whatsoever and, in any event if appropriated and apportioned to the Town, payment can be made only if such monies are ava ab e therefore. The State is not constitutionally obliged to maintain or continue such aid. See Appendix A. Expenditures The major 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 of the expenditures for the five most recently completed fiscal years may be found in Appendix A. Pension Systems · Substantially,, all ,e, mployees of the Town are members of the New York State and Local Employees' ~Ret~rement 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 Re{ir~ment Systems are cost-sharing multiple public employer retirement systems The obligation ofemployers and employees to contribute and the benefits to employees aregoverned by the New York State Retirement System antiSocial Security Law (the "Retirement System Law"). The Retirement Systems offer a wide range ofp ans 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 paxments. All bene~ts generally vest after five years of credited service. The Retirement System Law generally l~rowdes that all participating employers in each retirement system are jointly and severally liable for any unfunded investments Such amounts are collected through annual billings to all ],~articipatingemployers. Generally, all employees,except certain part-time employees,participate in the Retirement ~ystems. The Retirement Systems are non~contrit~utory with respect to mem6ers hiredprior to July 27, 1976. All employees who became members on or after July 27, 1976 must contribute 3% of their gross annualsalary towards the cost of their retirement program. Chapter 86 of the Laws of 2000 elim hated the 3% for T er 3 and Tier 4 members w th 10 years of service cred t~ A pension reform bill was signed by the Governor into Law as Chapter 49 of the Laws of 2003 which changed the cycle of billing to match budget cycles of the Town. Under the previous method, the Town was unsure ~m, ofhow much ~t would have to pay to the system until after its budget was mp emented Under the new system the ~contribution for a given fiscal year will be based on the value of the pension l~und on the prior April 1 instead of the following April 1 so that the Town will be able to more accurately include the cost of the contr bution into its budget. Chgpter ~ requires the Town to make a minimum contribution of 4.5% of payroll every year, including years in which the investment performance of the fund would make a lower contribution possible. On July 20, 2004 the New York State Legislature passed a bill amending the General Municipal Law, Local Finance Law and the Retirement and Social Security Law. On July 30, 2004~ theGovemor s gned the new retirement system legislation into Law as Chapter 260 of the Laws of 2004. The bill g~ves the emp oyer the opt on to move the annual payment date for contributions from December 15t~ to February l~t effective December 15, 2004 It ncreases, from five to ten years, the maximum amortization period of the pomon of employer contribut OhS that exceeds 7% ofpayrolI for the 2004-2005 fiscal year of the Retirement System (April 1 - March 3 I) For the payment due December 15, 2008, it is estimated that the contribution will be approximately 11.5% of payroll. The Town paid its retirement obligation in full on December 15, 2007 and has included its tota ob gat on for the 2008 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 financ a position will not be ncgative'iy impacted as a resu~ of the potantial increase in such contributions. 13 Contributions to the Retirement Systems Fiscal Year Amount Ending of December 31: Contribution 2003 ....................................... $ 684,617 2004 ....................................... 1,670,102 2005 ....................................... 2,085,137 2006 ...................................... 1,837,992 2007 ....................................... 1,947,914 2008 (Budget) ................................ 2,033,160 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 acco,u, nt for post;retirement healthcare benefits as it accounts for veste,,d,j~,ensi,o,n 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 fo ow ng dates, based on the s ze of government measured'oy annual revenue: Annual Revenue Greater than $100 million Between $10 million and $100 million Less than $10 million Effective for Fiscal Year Ending After: December 15, 2006 December 15, 2007 December 15, 2008 School Districts and Boards of Cooperative Education Services unlike other municipal units of government in the State have been prohibited from reducingretiree health benefits or increasing health care contributions received or paid by retirees below the level ofbene¥its or contributions afforded to or rec[u, ired from active employees since the implementation of Chapter 729 of the Laws of 1994. This protection from unilateral reduction of benefits has been extended annually and continued through May 15, 2009 pursuant to Chapter 43 of the Laws of 2008. Legislative attempts to provide similar protection to retirees of other local units of government in the State have not succeeded as of this 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 benelSts 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 govemmenta financial statements. GASB 45 will require municipalities and school districts to account for OPEB liabilities much like they already account for pension liabilities, geoerally adopting the actuarial methodologies used for pensions, with adjustments for the different characteristms of OPEB and the fact that most municipalities and school districts have not set aside any funds against this liabiliVd. Unlike GASB 27 which covers accoonting for pensions, GASB 45 does not require municipalities or school districts to report a net (~PEB 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 present 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. Ifa municipality or school district contrit~utes an amount less than the ARC, a net OPEB obligation will result, which is required to be recorded as a liability on its financial statements. The actuarial study is in the process of being completed and is expected to be submitted to the Town in the ~ext several months. The Town's ARC is estimated to be approximately $4.5 million and its unfunded actuarial accrued ab tyisestimatedt~beappr~ximate~y$43mi~i~n.GASB45d~esn~trequirethattheunfunded~iabi~ity actually be amortized nor that it be advance funded, only that the municipality or school district account for its unfunded accrued liability and compliance in meeting its ARC. 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. I4 REAL PROPERTY TAX INFORMATION Real Property Taxes The Town derives a significant portion of its annual revenue through a direct real property tax. The following table presents the total tax lew, by pnrpose, with adjustmeuts and collection performance for each of the last five fiscal years. ~ Tax Levy and Collection Record 2004 Total Tax Levy ................ $79,909,681 Amount Collected ............. 77,595,985 Returned to County Fiscal Year Ending December31: 2005 2006 2007 2008 $89,495,573 $89,934,663 $97,216,091 $103,216,661 83,356,976 86,628,595 94,288,000 60,650,000a Amount .................... 2,313,696 2,138,597 3,106,068 2,928,091 Percentage 2.90°¼ 2.39% 3.45% 3.01% Uncollected a~ '~ ;~' ~r ....... of Levy ................... None None None None a As of April 21, 2008. Tax Collection Procedure 42,566.661a 41.24%a NA Property taxes for the Town are collected by the Town tax receiver. Such taxes are due andpayable in equal installments on December 1 and May 10, but may be p.aid witho~ut penalty, by January 10 and May 31, respectively. l~[ The penalty added to delinquent taxes is one-twelfth the rate oi- interest Oetermined 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 1 eacl5 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. U, ncollected 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 Ending December 31: 2004 2005 2006 2007 2008 General - Townwide ................ $136.65 $139.73 $140.37 $151.02 $160.22 General - Outside Village ............ 4.53 5.43 4.90 3.99 7.84 Highway ...................... 31.12 38.37 40.68 39.63 41.74 Laree Taxable Pronerties 20'08 Assessment ~olla Assessed Name Type Valuation Peconic Landing at Southold ....................... LILCO, LIPA .~larketspan Keyspan ................. Village of Greenport-Power Plant .................... Fishers Island Dev. Corp ........................... Robins lsland HoldingLLC ......................... Alan Cardinale .................................. North Fork Bank ................................. Damianos, Herodotus .............................. New York Telephone ............................. Levin Family Ltmited Partnership .................... Anderson, Bradley & Francesca ..................... Norris Susan .................................... Laure L nks & Country Cub ....................... Kimogenor Pt Co ................................. DriftvTood Cove Commercial $ 1,707,704 Utility 1,559,020 Utility 585,000 Residential Development 363,200 Private Lands 330,500 Shopping Center 285,500 Bank Building 268,531 Vineyard 234,000 Utility 218,496 Motel& Restaurant 163,950 Farmland & Private Lands 121,400 Various Properties 111,800 Country Club 96,300 Co-Op 94,600 Co-Op 90,000 $6,230,001 b a. Assessment Roll established in 2007 for levy and collection of taxes during 2008 Fiscal Year. b. Represents approximately 5.75% of the total taxable assessed valuation of thc Town for 2008. 15 LITIGATION The Town is subject to a number of lawsuits in the ordinary conduct of its affairs. For the most part, any potential 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 forty-two property owners, alleging property damage in the form of erosion caused by a Town-owned jetty. The Town is engaged in studies to detemune the issues surrounding the alleged erosion its causes, and possible solutions. Although this case was first filed in 1997, discovery has not been completed. The issues in this case are complex and will require extensive expert testimony. The nature and extent of damages, if any, are unknown at this point. Insurance coverage may be available for potential liability, for alleged compensatory damages. The Town has denied any wrongdoing and intends vigorously to defend any further prosecution of this action. Quad Enterprises, et al. v. Town of Southold - This action arises from the Town Board of the Town of Southold's alleged refusal to approve a change of zone application filed by plaintiffs, which sought substantially to increase the zoning density of a parcel of landowned by a developer plaintiff. Plaintiffs assert claims under the [:air Housing Act, Americans with Disabilities Act, State and To,w? Law al!,eging housing discrimination against senior, handicapped and disabled residents, who are also named as Jane Doe plaintiffs. Plaintiffs seek declaratory relief granting their desired zoning, as well as compensatory and punitive damages in the-amount of $60 million ( $5 million for each of the six federal causes of action). Insurance coverage may be available for potential liability for alleged compensatory damages. Fact and expert discovery is proceeding. The Town has denied all wrongdoing and intends vigorously to contest these claims. Notices of Claim - One possible noteworthy Notice of Claim has been filed against the Town relating to police m~l~ice of Claim, the plaintiffdemands $5 million in damages for physica, J emotional and c~vil rights injuries related to an alleged incident, believed to be an arrest by Town police officers on or about February 21,2007 and prior arrests." Due to the vague nature of the allegations, 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 ora lawsuit. As of the date of this Official Statement, no lawsuit has been served upon the Town. 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 th~s Official Statement, incInding 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 commercial operations by corporate taxpayers and employers, as well as natural catastrophes, could adversely affect the assessed valuation of ']['own property and its ability to maintain fund balances andother 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 orprincipal value of the Bonds is dependent on the prevailing level of interest rates. If interest rates should increase, the price ora bond or note may dechne causing the bond or noteholder to potentially incur a capital loss if su'ch 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 Bankruptcy Act or otherwise, will not occur which might affect the market price of and the market for the Bonds. Ifa 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 within the State, both the ability of the Town to arrange for additional borrowings and the market for and market value of outstanding debt obligations, including the Bonds, could be adversely affected. Future amendments to applicable statutes affecting the treatment of interest paid on municipal bonds including thc Bonds, for income taxation purposes could have an adverse effect on the market value of the Bonds (see "Tax Matters" herein). 16 TAX MATTERS Opinion of Bond Counsel In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the Town under existing statutes and court decisions and assuming continuing compliance with certain tax certifications described herein, ([) interest on thc Bonds is excluded from gross income for Federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) interest on the Bonds is not treated as a preference tern in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such nterest, however, is included in the adjusted current earnings of certain corporat OhS for purposes of ca cu ating the alter,n, ative minimum tax imposed on such corporations. The Arbitrage and Use of Proceeds Cert ficate of the Town (the 'Tax Certificate"), which will be delivered concurrently with the delivery of the Bonds will contain provisions and procedures relating to compliance with applicable requirements of the Code. In rendering its opin on, Bond Counsel has relied on certain representations, certifications of fact, and statements o£reasonable expectat ohs made by the Town in connection with the Bonds, and Bond Counsel has assumed comp lance by the Town w th certain provisions and procedures set forth in the Tax 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. In addition, in the opinion of Bond Counsel to the Town, under existing statutes, interest on the Bonds is exempt from personal income taxes of New York State and its political subdivisions includin~ The City of New York. ~ee "Miscellaneous" below for a discussion of certain litigation that may relate to this New York State tax exempUon. Bond Counsel to the Town expresses no opinion regarding any other Federal or state tax consequences with respect to the Bonds. Bond Counsel renders its opinion under ex~sting statutes and court decisions as of the issue date, and assumes no obligation to update its opinion after the issue date to reflect any future action, fact or circumstance, or change in law or interpretation or otherwise. Bond Counsel expresses 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. Certain Ongoing Federal Tax Requirements and Certifications The Code establishes certain significant ongoing requirements that must be met subsequent to the issuance and delivery of the Bonds in order that interest on such Bonds 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 oftheBonds yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to tt~e Federal government. Nonco.m. pliance with such requirements may cause interest on the Bonds to become included in gross income for Federal income tax purposes retroactive to their issue date, irrespective ~ofthe date on which such noncompliance occurs or is discovered. The Town in executing the Tax Certificate x~iil certify 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 the exclusion of interest on the Bonds from gross income under Section 103 of the Code. Certain Collateral Federal Tax Consequences The following is a brief discussion of certain collateral Federal income tax matters with respect to the Bonds. It does not purport to address all aspects of Federal taxation that may be relevant to a particuIar owner of a Bond. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the Federal tax consequences of owning and disposing of the Bonds. Prospective owners of the Bonds should be aware that the ownership of such obligations may result in collateral Federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions property and casualty and life insurance compames, individual recipients of Social Security and railroad retirement benefits individuals otherwise eligible for the'earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is excluded from gross income for Federal income tax purposes. Interest on the Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Original Issue Discount Original issue dis~count" ("OLD') is the excess of the sum of all amounts payable at dqe stated maturit,~ of a ond (excluding certmn quahfied stated interest that ~s nncondmonally payable at least annually at prescribed rates) over the issue price of that maturity. In general, the "issue price" of a maturity' means the first price al which a substantial amomtt of the Bonds of that maturity was soId (excluding sales to bond houses, brokers, or similar persons acting iii the capacity as underwriters, placement agents, or wholesalers). In general, the issue price for each 17 maturity of the Bonds is expected to be the initial public offering p,~ice set forth in this Official Statement. Bond Counsel further is of the opinion that, for any Bondhaving OID (a Discount Bond"), OlD that has accrued and is properly allocable to the owners of the Discount Bond under Section 1288 of the Code is excludable from gross income for Federal income tax purposes to the same extent as other interest on the Bonds. In eeneral under Section 1288 of the Code, OID on a Discount Bond accrues under a constant yield method, based on pe~riodic compounding of interest over prescrib, ed accrual periods using a compounding rate determined by reference to the yield on that D~scount Bond. An owner s adjusted basis in a Discount Bond is increased by accrued OlD for purposes of determining gain or toss on sale, exchange, or other disposition of such Discount Bond. Accrued OID may be taken into account as an increase in the amount of tax-exempt income received or deemed to have been receivedfor purposes of determining various other tax consequences of owning a Discount Bond even though there will not be a corresponding 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 disposing of Discount Bonds. Bond Premium In general, if an owner acquires a Bond for a purchase price (excludingaccrued interest) or otherwise at a tax basis that refl,e, cts apremium over th~,e, sum of all amounts payable on the Bond after the acquisition date (excludingcertain qualifledstatedin,,terest thatisunc,,o, nditionally pa[¢ble at least annually at prescribed rates), that oremiumconstitutes"bondoremium onthatBond(a Premium Bond' ). Ingeneral, under Section 171 oftheCode, in owner of a Premium Boned must amortize the bond premium over the remaining term of the Premium Bond, based on the owner's yield over the remaining term of the Premium Bond, determined~oased on constant yieldprinciples (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization periodand y~eld may be required to be determined on the basis of an earlier call date that results in the lowest yield on such Premium 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 al 0cable to that period. In the case of a tax-exempt Premium Bond if the bond prermum 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 though it is sold or redeemed for an amount less than or equal to the owner's original ac~luisition cost. Owners of any Premium Bonds should consult their own tax advisors regarding the treatment of bona premium for Federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the acquisition, ownership, amortization of bond premium on, sale, exchange, or other disposition of Premium Bonds. Information Reporting and Backup Withholding Information reporting requirements apply to interest on tax-exempt obligations, including the Bonds. In general, such requirements are satisfied if the interest recipient co,,mpletes, and provides the payor w~th, a Form W-9, "Request for Taxpayer Identification Number and Certification or unless the recipient is one of a limited class .o.f exempt recipients including corporations. A recipient not otherwise exempt from ~nformation reporting who faJIs to satisfy the information reporting requirements wdl be subject to "backup withholding," which means that the ~ayor s required to deduct and withhold a ,t, ax from the interest payment calculated in the manner set forth in the t~ode. For the foregoing purpose, a "payor' generally refers to theperson or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient. If an owner purchasing a Bond through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In anyevent, backup withholding does not affect the excludability of the interest on the Bonds from gross income for Federal income tax purpos, e_s. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner s Federal income tax once the required information is furnished to the Internal Revenue Service. Miscellaneous Tax legislation, administrative action taken by tax authorities, and court decisions, whether at the federal or state level may adversely affect the tax-exempt status of interest on the Bonds under Federal or state law and could affect the market price or marketabi ty of the Bonds. Prospective purch,a?ers of the Bonds should be aware that the United States Supreme Court is in the process of reviewing Davis v. Dept. t~fRevenue of the Finance and Admin. Cabinet, 197 S.W. 3d 557 (Ky. App. 2006), cert. granted 1275.ct.2451 (2007)(mem.), a decision of a Kentucky appellate court, which held that provisions of Kentucky tax law that provided more favorable income tax treatment for holders of bonds issued by Kentucky municipal bond issuers than for holders of non-Kentucky municipal bonds violated the Commerce Clause of the United States Constitution. New York statutes provide more favorable New York income tax treatment for holders of bonds issued by the New York State and its political subdivisions, including the Bonds, than for bonds issued by 18 other states and their political subdivisions. If the United States Supreme Court were to affirm the holding of the Kentucky appellate conrt, subsequent New York judicial decisions or legislation des gned to ensure the constltutionality of New York tax law could, among other alternatives adversely affect the~ew York State tax exemption of outstanding bonds, including the Bonds to the extent constitutionally permissible, or resu t n the exemption from personal income taxes imposed by the New York State and its political subdivisions including The Cit'/of New Yor}c, of interest on certain bonds issued by other states and their political subdivisions, either ofwh ch actions could affect the market price or marketability of the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters. DOCUMENTS ACCOMPANYI1NG DELIVERY OF THE BONDS Absence of Litigation Upon 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 pending or threatened to restrain or enjoin the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds or any of the proceedings taken with respect to the issuance and sale thereof or the application of moneys to the payment of the Bonds, and further stating that there is no controversy or litigation of any nature now pending or threatened by or against the Town wherein an adverse judgment or ruling could have 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. Legal Matters Legal matters incident to the authorization issuance and sale of the Bonds will be subject to the final approving opinion of Hawkins Delafield & Wood LLP, Bond Counsel. Such opinion will be available at the time of delivery of the Bonds and will be to the effect that the 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. Said opinion shall also contain further statements to the effect that(a) the enforceability ofri_g?s 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, and (b) said law firm 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 relative to the' Town which have been or may be furnished or disclosed to purchasers of the Bonds, and expresses no opinion with respect to such financial or other information, or the accuracy or sufficiency thereof. Closing Certificates Upon the delivery of the Bonds, the Purchaser will be furnished with the following items: (i) a Certificate of the Town Supervisor to the effect that as of the date of this Official Statement and at all t~mes subsequent thereto, up to and including the time of delivery of the Bonds, this Official Statement did not and does not contmn 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 cop~ of this Official Statement; (ii) a Certificate signed by the Town Supervisor evidencing payment for the Bonds; (fii) a Signature Certificate evidencing the due execution of the Bonds, including statements that (a) no litigation of any nature ispending or threatened, restraining or enjoining the issuance and delivery of the Bonds or the levy and collection of taxes to pay the p,rincipal of and interest thereon, nor in any manner questioning the proceedings and authority under which the Bonds'~ ere 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 be~n repealed, revoked or rescinded; and (iv) an Arbitrage and Use of Procee~ts Certificate executed by the Town Supervisor, as described under "Tax Matters~'. 19 DISCLOSURE UNDERTAKING · T~is Official Statement is in a form "deemed final" b the Town f~ ~ · · CommlsslonRule 15c2-12 At the time ~,r~h~ a~; ...... c.~.'Y~o ..... ~thepu~°se~gfSecurJtiesandExchange "Undertaking to Provide Continuing Disclosure" (t[~e~"Undertakin~.~es~a~v~jT~r~'2ode.~~ ~ec.u...t~ copy ~,f. its agree, ment or contract of the Town for the benefit of holders of and~o~vners of ber~h-~i3d;2_'~?fi..s_n.t~ute~a wr?te.n (I) during any succeeding fiscal year of the Town in which the Bonds are outstanding, to a each nationall recognizedmunicipalsecuritiesinfonnationrel~ositorv("NRMSiR,~ancl(h~th x~ ,, l~ . ~ · Y p. ry,. eated~ ( SID ), (0 certain annual financial information, in a form generally consistent with ~e information contained or cross-referenced in th s Offica Statement nnrl~r f!a,~ ~ a' -- , ~-- ~ , Economic and Demogranhlc Information , 'Indebtedness of the Town' Fi .... Property Tax Informatmn~ and "Lift at' "' ' ' z nances of ~e Town , Real end of each fiscal year in~udin"rii~g~h~e~.a.*n~d~n~A~p-ge~n~d}x~`A~n.~r.`pr'~rt~the.~8~thday.f~I~wingthe the end of each fiscal year; Y s available and in no event later than 360 days after (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 payment delinquencies;(ii) non-payment related defaults; (iii) unscheduled draws on debt service reserves reflect ng financa difficu t es; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) subst tution of credit or hquiditv providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax-exempt status oi~the Bonds; (vii) modifications to rights of Bondholders; (viii) bond calls (ix) def~asances; (x) release, substitution, or sale of provertv securing repayment oftheBonds; and (x) 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 NRMSIRz or to the MSRB, and to (b) the SID, in a timely manner, notice of a failure to provide the annual financial Information by the date specified· The Town's Undertaking sha I remain in full force and effect until such time as the princioal o£ redemption pre~mifim,~, if,any: an.dfin, tere,st, on .the BonOs shall have been paid in full. The sole and exclusive i'eme~v for .o[ a_.e~.a?~t unue.r.t, the. un, ae,.rta~cm, g ~,s, an a~ction to compel specific performance of the undertakings of th~v~.-~'~i n, pv,~on or entity, lncluulng a no net otthe Bonds shall be entitled to teen-ear mcmo*~--. -~--- '~ -~ - ' ' , . -- --. ............ ta~y uamages mereunaer unuer any circumstances. Any fadure by the Town to comply with the Undertaking will not constitute a default with respect to the Bonds. The Town reserves the r ght 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 m effect. The Town is in compliance with all previous undertakings made pursuant to Rule 15c2-12. BOND RATING The Bonds maturing n the years 2009 through 2018, inclusive, are rated "Aa3" by Moody's Investors Service. The Bonds maturing in the years 2009 through 2018, inclusive, are NOT insured by Financial Security Assurance Inc. v ....on,noo,~y s I~nv~e,,st, o~rs.Se,rvl~e Inc:,.wdl assign its m..unicipal bond rating of "Aaa", the Bonds maturin~ in the 2~-* ~y~finro, ugn z~u, lpCl~Slve w~tl~ the understanding that upon delivery of the Bonds a nolic~ insulin- th° ~v,m~n.t wne~n?u~e.orme, p,r?cIpa, l of and interest on the Bonds maturing in the years 2019 th'fourth 2~30 incl~'siv~ wm ue Issuea Dy i~lnanclal becurlty Assurance Inc. ~ ' Such ratings reflect on y the views of such rat ng agency, and any desired explanation of the significance of such ratings shoul-d be obta ned from such rat ng agency. (36nerally, a rating agency bases its ratings on the information and materials furnished it and on nvestigation, studies and-assumptions by the rating agency. There is no assurance that a particular rat n~: w 1 apply for any ~iven period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originaf[y establishing the rating, circumstances so warrant. The underwriter has undertaken no responsibi/ity to br ng to the attention of the holders of the Bonds any proposed revisions or withdrawals. Any downward revisions or withdrawals of such ratings, could have an adverse effect on the market price of the Bonds. Such ratings should not be taken as a recommendation to buy or hold the Bonds. 20 FINANCIAL ADVISOR Manistat 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 thc Town Comptroller, Town of Southold, Town Hall, P.O. Box 1179, Southold, New York 11971, telephone number 631/765-4333, or from the office of Munistat Services, Inc. 12 Roosevelt Avenue, Port Jefferson Station, New York 11776, telephone number 631/33 -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 thc 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 May 13, 2008 By: s/s SCOTT A. RUSSELL Town Supervisor and Chief Fiscal Officer 21 APPENDIX A FINANCIAL INFORMATION ASSETS Cash and Investments Cash - Restricted Taxes Receivable Accounts Receivable Due From Other Funds Due From Trust Funds State and Federal Aid Receivables Due From Other Governments Supply Inventory Prepaid Expenses Deposit Balance Sheet General Fund Fiscal Year Ending December 31: 2005 2006 2007 $ 9,292,437 $ 8,339,472 0 0 0 0 24,533 22,346 176,390 190,208 68 0 81,849 110,153 1,867,136 2,075,955 1,204 2,099 498,344 426,200 0 0 Total Assets $ 11,941,961 $ 11,166,433 $ 21,437,689 0 0 17,263 74,500 0 62,377 826,834 1,275 460,951 0 LIABILITIES AND FUND EQUITY Accounts Payable Due to Other Funds Due to Other Governments Due to Trust Funds Due to Compnent Units Deferred Revenues 627,049 $ 701,018 1,888,241 1,205,516 393,570 243,292 7,044 12,601 0 0 3,018,595 3,619,307 830,531 2,974,237 8,925,786 0 0 5,066,541 Total Liabilities 5,934,499 5,781,734 17,797,095 Fund Balances - Reserved: Encumbrances 4,009 13,284 Insurance claims 1,105,879 513,329 Supply Inventory 1,204 2,099 Prepaid Expenses 498,344 426,200 Fund Balances - Unreserved: Designated - Ensuing Year's Budget 2,657,200 2,185,000 Undesignated 1,740,826 2,244,787 Total Fund Equity Total Liabilities and Fund Equity $ 6,007,462 5,384,699 11,941,961 $ 11,166,433 Sources: Audited Financial Reports of the Town (2005 and 2006) and Annual Financial Report (2007) unaudited. Table itself NOT audited. 193,04~ 588,614 0 0 1,816,000 2,486,139 5,083,794 22,880~889 A-1 Statement of Revenues, Expenditures and Changes in Fund Balance General Fund Town Wide Revenues: Real Property Taxes Other Real Property Tax Items Non-Property Tax Items Departmental Income Intergovernmental Charges Use of Money & Property Licenses & Permits Fines & Forfeitures Sale of Property & Comp. for Loss Miscellaneous Local Sources State Aid Federal Aid Fiscal Year Ending December 31: 2003 2004 2005 20Q6 2007 $ 13,247,572 $ 13,962,268 $ 14,608,674 $ 14,872,736 $ 16,205,9II 51,311 65,720 68,807 85,808 92,606 401,035 415,071 415,071 616,670 683,873 315,289 344,217 345,956 477,849 411,790 202,917 296,050 252,558 316,049 329,202 201,702 254,142 489,796 684,166 764,912 188,480 214,461 249,178 258,794 253,494 107,084 107,315 140,192 171,763 155,477 56,893 405,077 93,290 95,057 148,283 133,346 128,027 432,269 146,260 185,945 2,225,401 2,974,027 2,637,870 2,725,177 2,412,869 146,574 160,337 174,348 228,491 145,568 17,277,604 19,326,712 19,908,009 20,678,820 21,789,930 Expenditures: General Gox. ernment Support Public Safety Public Health Transportation Economic Assistance & Opportunity Culture & Recreation Home & Community Services Employee Benefits Debt Service Principal & Interest 3,751,469 4,395,571 4,641,568 5,177,745 5,234,683 6,033,207 6,254,365 7,177,145 7,371,280 7,816,643 32,988 33,288 33,288 32,988 35,238 398,358 401,866 446,877 452,050 550,906 833,501 931,566 901,139 949,740 1,064,905 317,769 304,071 354,768 384,983 345,540 228,578 341,764 315,273 530,270 417,654 2,617,783 4,868,116 5,857,963 5,811,868 6, I72,279 1,007,318 2,104,202 1,560,055 1,313,234 1,192,497 ~'otal Expenditures 15,220,97I 19,634,809 21,288,076 22,024,158 22,830,345 2,056,633 (308,0971 (1,380,0671 (1,345,3381 (1,040,4151 1,392,850 2,932,574 2,642,859 2,253,944 2,738,349 (1,910,7811 (1,304,1951 (I,895,0231 (1,531,3691 (1,998,8411 (517,9311 1,628,379 747,836 722,575 739,508 1,538,702 1,320,282 (632,2311 (622,763) (300,907) Excess (Deticiency) of Revenues Over Expenditures Operating Transfers In Operating Transfers Out Total Other Financing Sources (Uses) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses Fund Balance Beginning of Year 3,780,709 ~5;3_~19,411 _6,_6~39,693 6,007,462_ 5,384,_69~9 Fund Balance End of Year $ _.¢,~1~9_,4~11 $ 6,639,693 $ 6,007,462 $ 5,384,699 $ 5,083,792 Sources: Audited Financial Reports of the Town (2003-20(161 and Annual Financial Report (2007) unaudited. 'laNe itself NO f auditc& A-2 Revenues: Real Property Taxes Other Real Property Tax ltems Non-Property Tax items Intergovernmental Charges Use of Money & Property Licenses & Permits Sale of Property & Comp. for Loss Miscellaneous Local Sources lnterfund Revenues State Aid Federal Aid Statement of Revenues, Expenditures and Fund Balance Highway Fund Fiscal Year Ended December 31: 2003 2004 2005 2006 2007 3,513,902 $ 3,520,332 $ 3,805,032 $ 4,095,347 $ 4,027,695 6,428 3,679 9,046 12,689 12,722 0 0 0 0 15,573 0 0 0 0 18,520 23,884 77,817 140,578 142,501 8,231 4,937 11,126 9,484 10,362 4,033 2,960 2,796 7,521 29,213 0 16 155,054 0 0 0 0 0 0 0 458,686 228,337 188,147 276,337 296,263 67,699 0 0 0 0 4,093,072 3,784,145 4,249,018 4,541,956 4,5 l 8,756 Expenditures: Transportation Employee Benefits Debt Service Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Residual Equity Transfer Operating Transfers In Operating Transfers Out Total Other Financing Sources (Uses) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses Fund Balance Beginning of Year Fund Balance End of Year 2,733,518 2,638,121 2,913,768 3,028,076 3,437,1'86 976,406 415,102 500,343 515,106 510,185 15,128 22,219 178,371 283,652 250,001 3,725,052 3,075,442 3,592,482 3,826,834 4,197,372 368,020 708,703 656,536 715,122 321,384 0 0 0 0 212 (690,390) (520,085) (452,648) (561,690~1~ (60,000) (60,000) (690,390) (520,085) (452,648) (561,484) 308,020 18,313 136,451 262,474 (240,100) 594,064 902,084 920,397 1,056,848 1,319,322 902,084 $ 920,397$ 1,056,848$ 1,319,322$ 1,079,222 Sources: Audited Financial Reports of the Town (2003-2006) and Annual Financial Report (2007) unaudited. Table itself NOT audited. A-3 Statement of Revenues, Expenditures and Changes in Fund Balance Non-Major Governmental Funds (1) Real Property Taxes Other Real Property Tax Items Non-Property Tax Items Departmental lncome Intergovernmental Charges Use of Money & Property Licenses & Permits Fines and Forfeitures Sale of Property & Comp. for Loss Miscellaneous Local Sources State Aid Federal Aid Fiscal Year Ending December 31: 2003 2004 2005 2006 2007 $ 2,197,525 $ 2,506,945 $ 2,381,335 $ 2,741,362 $ 3,345,811 874 3,105 2,516 4,489 5,278 117,449 336,139 213,786 229,346 234,091 2,339,227 2,517,584 2,504,880 2,275,935 2,197,288 1,614 1,013 1,013 1,809 905 18,147 21,365 64,092 95,272 130,926 139,620 199,849 165,965 163,780 169,338 49,000 0 0 0 0 44,450 76,069 109,137 135,662 247,014 230 5,025 153,591 6,652 73,265 161,393 72,651 75,374 127,278 93,135 111,299 166,368 224,136 41,163 210,175 ~xpenditures: General Government Support Public Safety Public Health Home & Community Services Employee Benefits Debt Service 5,180,828 5,906,113 5,895,825 5,822,748 6,707,226 134,969 92,514 99,895 103,654 87,969 749,904 739,198 807,474 869,154 948,267 6,408 6,664 6,864 7,104 7,370 3,230,201 3,225,586 3,102,639 3,363,781 3,797,322 874,049 371,038 444,858 470,377 468,988 117,562 88,803 671,720 822,590 1,089,449 Total Expenditures 5,113,093 4,523,803 5,133,450 5,636,660 6,399,365 Excess (Deficiency) of Revenues Over Expenditures 67,735 1,382,310 762,375 I86,088 307,861 Operating Transfers In Transfers Out 0 0 0 0 0 (483,500) (1,081,441) (504,720) (429,145) (534,804) Total Other Financing Sources (Uses) (483,500) (1,081,441) (504,720) (429,145) (534,804) (415,765) 300,869 257,655 (243,057) (226,943) 1,261,339 845,574 1,146,444 1,446,849 (2) 1,807,810 Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses Fund Balance Beginning of Year Fund Balance End of Year $ 845,574 $ 1,146,443 $ 1,404,099 $ 1,203,792 $ 1,580,867 (1) 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. (2) Difference due to Prior Year Accounting Adjustment Sources: Audited Financial Reports of the Town (2003-2006) and Annual Financial Report (2007) unaudited. Table itself NOT audited. A-4 Fund BUDGET SUMMARY Fiscal Year Ending December 31, 2007 Appropriations Less: Less: and Provisions Estimated Unexpended for Other Uses Revenues Balance General $ 22,951,102 General-Outside Village 1,869,139 Highway-Townwide 0 Highway-Outside Village 4,938,330 Community Development 136,000 Risk Retention Fund 1,015,000 Community Preservation Fund 10,697,328 Employees Health Plan 2,662,000 Total-Town $ 44,268,899 East-West Fire Protection District 509,828 Fishers Island Ferry District 3,038,000 Solid Waste Management District 4,058,562 Southold Wastewater District 128,316 Fishers Island Sewer District 20,000 F.I. Refuse & Garbage District 512,300 Orient Mosquito District 82,235 Subtotal-Special Districts $ 8,349,241 Orient-East Marion Park District 30,695 Southold Park District 315,000 Cutchogue-New Suffolk Park Dist. 145,000 Mattituck Park District 540,027 Subtotal-Park Districts $ 1,030,722 Fishers Island Fire District Orient Fire District East Marion Fire District Southold Fire District Cutchogue Fire District Mattituck Fire District Subtotal-Fire Districts Total-All Districts Grand Total Amount to be Raised by Ta._.~x $ 4,810,191 $ 1,935,000 $ 16,205,911 1,002,600 459,000 407,539 600 16,900 (17,500) 406,635 486,500 4,045,195 136,000 0 0 1,015,000 0 0 5,350,000 5,347,328 - 0 2,412,000 250,000 0 $ 15,133,026 $ 8,494,728 4,600 6,228 2,448,000 0 2,151,500 0 10,020 100,000 17,700 2,300 0 0 0 0 $ 4,631,820 $ 108,528 $ 20,641,145 499,000 590,000 1,907,062 512,300 82,235 $ 3,608,893 0 0 30,695 0 0 315,000 0 0 145,000 22,500 50,000 467,527 $ 50,000 $ 22,500 357,300 3,300 0 401,040 2,000 0 490,600 12,200 0 1,512,875 33,540 0 1,412,500 1,400 0 1,857,967 0 0 $ 6,032,282 $ 958,222 354,000 399,040 478,400 1,479,335 1,411,I~ 1,857,9~Y, $ 0 $ 5,979,842 15,412,245 $ ~59,681,144 $ 52,440 4,706,760 $ 19,839,786 158,528 $ 8,653,256 10,546,957 $ 31,188,102 Source: Adopted Budget of the Town. A-5 BUDGET SUMMARY Fund Fiscal Year Ending December 3 I, 2008 Appropriations Less: Less: and Provisions Estimated Unexpended for Other Uses Revenues Balance Amount to be Raised by Tax General $ 24,413,069 General-Outside Village 2,246,677 Highway Fund 5,198,627 Community Development 136,000 Risk Retention Fund 765,000 Community Preservation Fund 5,200,000 Employees Health Plan 2,892,500 Total-Town $ 40,851,873 $ 5,205,781 $ 1,816,000 $ 17,391,288 1,119,700 317,000 809,977 396,032 491,000 4,311,595 136,000 0 0 765,000 0 0 5,200,000 0 0 2,692,500 200,000 0 $ 15,515,013 $ 2,824,000 $ 22,512,860 Orient Road Improvement District 4,500 East-West Fire Protection District 552,863 Fishers Island Ferry District 3,220,775 Solid Waste Management District 4,224,695 Outhold Wastewater District 102,265 -Fishers Island Sewer District 30,950 F.I. Refuse & Garbage District 563,800 Orient Mosquito District 86,900 Subtotal-Special Districts $ 8,786,748 0 0 5,000 6,400 541,463 2,630,775 0 590,000 2,640,350 77,400 1,506,945 9,020 90,000 3,245 30,700 250 0 0 0 563,800 0 0 86,900 $ 5,315,845 $ 174,050 $ 3,292,353 Orient-East Marion Park District 34,780 Southold Park District 315,000 Cutchogue-New Suflblk Park Dist. 145,000 Mattituck Park District 560,229 Subtotal-Park Districts $ 1,055,009 0 0 34,780 0 0 315,000 0 0 145,000 29,000 50,000 481,229 $ 29,000 $ 50,000 $ 976,009 Fishers Island Fire District Orient Fire District East Marion Fire District Southold Fire District atChogue Fire District ttituck Fire District Subtotal-Fire Districts 359,700 483,940 536,380 1,631,025 1,412,000 1,978,770 $ 6,401,815 3,300 45,272 13,200 33,000 20,000 0 $ 114,772 0 356,400 0 438,668 0 523,180 0 1,598,025 0 1,392,000 0 1,978,770 0 $ 6,287,043 10,555,405 Total-All Districts 16,243,572 5,459,617 224,050 Grand Total $ _57,095,445 $ 20,974,~0_ $__3,04~050 $ 33,.0_~;8~265 Source: Adopted Budget of the Town. A-6 TOWN OF SOUTHOLD APPENDIX B FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006 NOTE: SUCH FINANCIAL REPORT AND OPINIONS WERE PREPARED AS OF THE DATE THEREOF AND HAVE NOT BEEN REVIEWED AND/OR UPDATED IN CONNECTION WITH THE PREPARATION AND DISSEMINATION OF THIS OFFICIAL STATEMENT. CONSENT OF THE AUDITORS HAS NOT BEEN REQUESTED OR OBTAINED. FINANCIAL SECTION Independent Auditors' Report .................................................................................................................... 1-2 IREQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis ................................................................................... 3-11 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Assets ......................................................................................................................... 12 Statement of Activities ............................................................................................................................. 13 Fund Financial Statements Governmental Fund Financial 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 Governmental Funds Statement of Revenues, Expenditures, And Changes in Fund Balances to the Statement of Activities ................................................ 16-17 Fiduciary Fund Financial Statements Statement of Fiduciary Net Assets ............................................................................................ 18 Notes to Financial Statements ................................................................................................................... 19-34 REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANGEMENT DISCUSSION AND ANALYSIS Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual General Fund .............................................................................................................. 35 Highway Fund .............................................................................................................. 36 OTHER SUPPLEMENTARY INFORMATION COMBINING FUND STATEMENTS: Non-major Governmental Funds Combining Balance Sheet ............................................................................................. Combining Statement of Revenues, Expenditures, and Changes in Fund Balances .................... DISCRETLY PRESENTED COMPONENT UNITS I I Discretely Presented Component Units: Combining Statement of Net Assets ....................................................................................................... Combining Statement of Activities ........................................................................................................ 37 38 39 40 CERTIFIED PUBLIC ACCOUNTANTS, BUSINESS ADVISORS AND CONSULTANTS 25 $~l'Olk Court, ]-]auppaug¢. N~ York ]] 755 631.434.9500 · Far 631.434.9518 INDEPENDENT AUDITORS' REPORT Honorable Supervisor and Town Board Town of Southold Southold, New York We have audited the accompanying financial statements of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Town of Southold, New York, as of December 31, 2006, and for the year then ended, which collecfively comprise the Town's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town's management. Our responsibility is to express an opinion on these financial statements based on our audit. Except as discussed in the following paragraph, we conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We betieve that our audit provides a reasonable basis for our opinion. The financial statements supporting the financial activities of 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, nor were we able to satisfy ourselves as to those financial activities by other auditing procedures. Those financial activities represent approximately 34% of the net assets of the discretely presented component units. The financial statements of the Fishers Island Ferry Distdct were audited by other auditors whose report thereon have been furnished to us and in our opinion, insofar as it relates to the amounts included for that one component unit, is based solely on the reports of the other auditors. In our opinion, except for the effects of such adjustments if any as might have been determined to be necessary had the unaudited component units financial statements been audited and based on our audit and the reports of other auditors, the financial statements referred to above present faidy, in all material respects, the financial position of the Town of Southold, New York, as of December 31, 2006, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Management's Discussion and Analysis and the budgetary information are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. -I- AL.BRECHT~ VI{3OIANO, ZURE:CK ~, COMF'ANY, P.C. 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. Hauppauge, New York September 11,2007 -2- REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 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, 2006. 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- term view of the Town's finances. For governmental 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 information about the Town's most significant funds. The remaining statements provide financial information about activities for which the Town acts solely as a trustee agent for the benefit of those outside of the government. Reportinf~ 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 (expense)/revenue. The reason for this kind of format 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 liabilities---,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 seven separate legal entities in its report (one ferry district, one sanitation district, one mosquito district and four park districts). Arthough 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). -3- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2006 Reportin.q the Town's Most Si.qnificant 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 government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that dan be spent in the near future to finance the Town's programs. We describe the relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in a reconciliation that follows these fund financial statements. The Town as Trustee Reportinq the Town's Fiduciary Responsibilities All of the Town's fiduciary activities are reported in a separate Statement of Fiduciaw 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 governmental activities. Condensed Statement of Net Assets Governmental Activities as of December 31, 2006 and 2005 Assets Current and other assets Capital assets Total assets Liabilities Current and other liabilities Long-term liabilities Total liabilities Net assets Invested in capital assets, net of related debt Unrestricted Total net assets $ 2006 2005 $ 23,769,534 $ 26,265,665 100,557,312 90,294,079 124,326,846 116,559,744 15,552,211 16,289,370 14,773,434 14,916,051 30,325,645 31,205,421 92,063,214 81,044,981 1,937,987 4,309,342 94,001,201 $ 85,354,323 TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE (continued) Total assets in the Town as of December 31, 2006 were $I24.3 million, an increase of 7.8 million. Total liabilities as of December 31, 2006 were $30.3 million, which represents a decrease of $800,000 from December 31, 2005. This results in a net asset balance of $94 million, an increase of $8.6 million. Of the Town's net asset balance $92 million were invested in capital assets, net of related debt; while $1.9 million was unrestricted. Changes in Net Assets Governmental Activities for the years ended December 31, 2006 and 2005 Program Revenues Charges for services Operating grants and contributions Capital grants and contributions General Revenues Real property taxes Other real property tax items Non-property tax items Interest earnings State aid - unrestricted Other Total Revenues Program Expenses General government support Public safety Public health Transportation Economic assistance and opportunity Culture and recreation Home and community services Interest on debt Total Expenses Increase in Net Assets $ 2006 2005 $ 9,231,396 $ 10,723,686 713,597 859,484 4,834,716 3,502,247 14,779,709 15,085,417 21,709,445 20,795,041 102,986 80,369 846,016 628,857 1,233,122 766,413 2,610,189 2,527,110 463,671 709,352 26,965,429 25,507,142 41,745,138 40,592,559 6,843,661 6,621,408 11,421,283 11,342,991 43,499 43,559 7,298,698 6,627,876 1,354,610 1,208,467 713,164 356,167 4,912,384 4,961,051 553,713 501,452 33,141,012 31,662,971 8,604,126 $ 8,929,588 -5- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 FINANCIAL ANALYSIS OF THE TOWN AS A WHOI F (continued) Net Cost of Services Governmental Activities for the year ended December 31, 2006 General government support Public safety Public health Transportation Economic assistance and opportunity Culture and recreation Home and community services Interest on debt Total Cost of Services $ 6,843,661 11,421,283 43,499 7,298,698 1,354,610 713,164 4,912,384 553,713 $ 33,141,012 Net Cost of Services Governmental Activities for the year ended December 31,2006 General government support Public safety Public health Transportation Economic assistance and opportunity Culture and recreation Home and community services Interest on debt Total Cost Program Net Cost of Services Revenues of Services $ 6,843,661 $ 319,565 $ 6,524,096 11,421,283 674,617 10,746,666 43,499 10,185 33,314 7,298,698 340,659 6,958,039 1,354,610 415,263 939,347 713,164 208,376 504,788 4,912,384 12,811,044 (7,898,660) 553,713 553,713 $ 33,141,012 $ 14,779,709 $18,361,303 The cost of all governmental activities this year was $33.1 million. The net cost of these services, however, after subsidized by program revenues including charges for services and program grants, was $18.4 million. The Town's change in net assets after general revenues of $27 million was an increase of $8.6 million. TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE (continued) $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,O0O,OO0 $- Expenses and Program Revenues Governmental Activities · Expenses · Program Revenues Charges for State aid - unrestricted 6% Real ~taxes Revenue by Source Governmental Activities For the year ended December 31,2006 Real property taxes $ 21,709,445 State aid - unrestricted 2,610,189 Charges for services 9,231,396 Other general revenues 2,645,795 Operating grants and contributions 713,597 Capital grants and contributions 4,834,716 $ 41,745,138_ -7- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 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. The following schedule presents a summary of the governmental funds - (general, special revenue, and capital projects) revenues and expenditures for the year ended December 31, 2006, and the amo,Jnt of change and percentage of total in relation to the prior year. 2006 2005 Increase % (Decrease) Change REVENUES Real property taxes Other real property tax items Non-property tax items Departmental income Intergovernmental charges Use of money and properly Licenses and permits Fines and forfeitures Sale of property and compensation for loss Miscellaneous local sources State aid Federal aid Total Governmental Fund Revenues EXPENDITURES General government support Public safety Public heatth Transpodation Economic assistance and opportunity Culture and recreation Home and community services Employee benefits Capital Debt service principal and interest Total Governmental Fund Expenditures $ 21,709,445 $ 20,795,041 $ 914,404 4.2% 102,986 80,369 22,617 22.0% 846,016 628,857 217,159 25.7% 2,753,784 2,850,836 (97,052) -3.5% 6,142,177 7,453,845 (1,311,668) -21.4% 1,376,729 906,664 470,065 34.1% 432,058 426,269 5,789 i .3% 171,763 140,192 31,571 18.4% 238,240 205,223 33,017 13.9% 303,912 1,292,371 (968,459) -325.2% 7,108,866 3,946,391 3,162,475 44.5% 595,604 1,909,023 (1,313,419) -220.5% $ 41,781,580 $ 40,635,081 $ 1,146,499 2.7% $ 5,281,399 $ 4,741,463 $ 539,936 102% 8,240,434 7,984,619 255,815 3.1% 40,092 40,152 (60) -0.1% 3,480,126 3,360,645 !19,481 3.4% 949,740 901,139 48,601 5.1% 3,748,764 3,457,407 291,357 7.8% 530,270 315,273 214,997 40.5% 6,797,351 6,803,164 (5,813) -0.1% 13,324,188 12,788,366 535,822 4.0% 2,504,007 2,439,675 64,332 2.6% $ 44,896,371 $ 42,831,903 $ 2,064,468 4.6% 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. -8- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2006 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets As of December 31, 2006 the Town had $100.5 million in net capital assets including land, buildings, improvements, machinery and equipment, and infrastructure. The Town's component units had $8.4 million in net capital assets including land, buildings, improvements, machinery and equipment, and sewer mains. Capital Assets at December 31, Primary qovernment Land Construction in progress Buildings Improvements other than buildings Machinery and equipment Infrastructure Total capital assets Less accumulated depreciation Primary government - Total net capital assets Component units Land Construction in progress Buildings improvements other than buildings Machinery and equipment Infrastructure Total capital assets Less accumulated depreciation Component units - Total net capital assets 2006 2005 $ 58,341,517 $ 47,772,278 220,114 1,608,081 8,307,223 4,574,513 13,618,159 13,498,954 9,916,143 9,522,815 70,694,655 70,038,525 161,097,811 147,015,166 60,540,499 56,721,087 $ 100,557,312 $ 90,294,079 2,213,759 $ 2,213,759 12,947,081 13,174,567 3,566,885 3,540,111 3,220,732 2,575,589 3,320,899 3,200,728 2,145,280 2,138,386 27,414,636 26,843,140 6,074,572 5,639,830 $ 21,340,064 $ 21,203,310 TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2006 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 fodh a summary of the Town's capital program. (Dollars in thousands): Equipment 2007 General Fund $ 540,467 Highway Fund 488,000 Special Districts 305,000 Total Equipment $ 1,333,467 improvements General Fund $ 2,786,961 Highway Fund 300,000 Special Districts 160,000 Total Improvements $ 3,246,961 Total Program $~ Additional information 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 A1 as of December 31, 2006. Subsequent to the year end the Town's credit rating was upgraded to Aa2. Debt Limit - 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 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 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 State Legislature is required to prescribe the manner by which such ratio shall be determined. Average full valuation is determined 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, 2006 was 3.35%. At December 31, 2006, the Town had approximately $8.5 million in long term general obligation bonds outstanding, of which $8 million was for general Town purposes. Aisc outstanding at year-end were bond anticipation notes in the amount of $7.7 million of which $6 mitlion was for general Town purposes. Additional information 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 31,2006 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES Property 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 4.26% 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 2006, financial assistance included state aid consisting of mortgage tax of $2.6 million, consolidated highway aid of $276 thousand, and community preservation aid of approximately $2.475 million. State aid per capita was $90.4 thousand and County local government assistance was $296.4 thousand. Additionally, if the State should not adopt its budget in a timely manner, municipalities and school districts in the State, 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 In 2003 the Town of Southold adopted the New York State Eady 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. The Town funds it retirement billing currently. 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, tf you have questions about this report or need additional financial information, contact the Town of Southold, Office of the Town Comptroller, Southold, New York. -11- BASIC FINANCIAL STATEMENTS TOWN OF $OUTHOLD GOVERNMENT-WIDE FINANCIAL STATEMENT STATEMENT OF NET ASSETS December 31,2006 ASSETS Current Assets: Cash and investments Accounts receivable, net of allowaaces Due from fiduciary funds Due from other governments Due from primary government State and federal aid receivables Prepaid charges Inventory of material and supplies Total Current Assets Non-Current Assets: Deferred charges, net of accumulated amortization Non-depreciable capital assets Depreciable capital assets, net of depreciation Total Non-Current Assets Total Assets LIABILITIES Current Liabilities: Accounts payable and accrued liabilities Accrued interest payable Bond anticipation notes payable Due to other governments Due to fiduciary funds Unearned revenue Non-current fiabilities due within one year General obligation bonds payable Due to Employees Retirement System Claims and judgments payable Estimated liability for landfill closure and postclosure care costs Total Current Liabilities Non-Current Liabilities: General obligation bonds payable Compensated absences Claims and judgments payable Estimated liability for landfill closure and postclosure care costs Total Non-Current Liabilities Total Liabilities NET ASSETS Investment in capital assets, net of related debt Unrestricted Total Net Assets Primary Governmental Component Activities Units $ 19,073,290 $ 1,236,451 205,234 15,167 2,541,813 801,197 997,151 2,099 360,178 237,056 39,171 23,620,784 1,888,023 148,750 58,561,631 15,160,840 41,995,681 6,179,224 100,706,062 21,340,064 124,326,846 23,228,087 1,320,029 369,893 261,058 69,176 7,729,000 2,185,000 243,292 2,431 12,601 5,147,779 366,282 779,098 200,000 48,804 50,000 10,550 15,552,211 3,242,782 7,715,000 2,655,000 6,475,661 150,000 582,773 14,773,434 2,805,000 30,325,645 6,047,782 92,063,214 15,579,033 1,937,987 1,601,272 94,001,201 $ 17,180,305 See notes to the financial statements -12- TOWN OF SOUTNOLD GOVERNMENT-WIDE FINANCIAL STATEMENT STATEMENT OF ACTIVITIES Year ended December 31, 2006 PRIMARY GOVERNMENT General government support $ 6,843,661 $ 229,099 $ 90,473 Transportation 7.298,698 9,484 28,838 $ 302,337 Net Expenses (Revenues) and Chanqe in Net Assets $ 6,524,096 10,746,666 33,314 6,958,039 939,347 504,788 (7,898,660) 553,713 Total Pdmary Govemment $ 33,141,012 ~$ 9,931,396 $ 713 597 $ COMPONENT UNITS General government support $ 130,910 Transportation 2,751,284 $ 2.o13,785 $ Tolal Component Units $ 4,530,190 $ 4,834,716 $ 18,361.303 2,046,723 $ 0 $ 810,646 GENERAL REVENUES Change in Ne Assets Net Assets at Beginning of Year Net Assets a[ End of Year 86,977 (73.147) 837,563 440,136 250,382 $ 1,672,821 102,986 1,124 846,016 463,671 42,684 26,965,429 2,148,8~ 8,604,126 475,983 85,397,075 16,704,392 __$ 94,001,201 $ 17,180,305 See notes to financial statements TOWN OF SOUTHOLD BALANCE SHEET GOVERNMENTAL FUNDS December 31, 2006 ASSETS Cash and Investments Accounts Receivable Due from Other Funds Due from Trust Funds State and Federal Aid Receivable Due from Other Governments Supply Inventory Prepaids Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Retained Percentages Bond Anticipation Notes Payable Due to Other Funds Due to Trust Funds Due to Other Governments Deferred Revenue Total Liabilities FUND BALANCE Fund Balances - Reserved: Encumbrances Supply Inventory Prepaids insurance Claims Fund Balance - Unreserved: Designated - Ensuing Year's Budget Undesignated Total Fund Equity Total Liabilities and Fund Equity MAJOR GOVERNMENTAL FUNDS Non-Major Capital Governmental General Hi9hway Projects Funds Totals $ 8,339,472 $ 1,574,794 $ 7,806,802 $ 1,352,222 $ 19,073,290 22,346 60 182,828 205,234 190,208 461,241 234,970 475,547 1,361,966 110,153 276,337 325,950 88,757 801,197 2,075,955 465,858 2,541,813 2,099 2,099 426,200 57,894 53,559 537,653 $ 11,166,433 $ 2,370,266 $ 8,833,640 $ 2,152,913 $ 24,523,252 $ 701,018 $ 101,474 $ 189,921 $ 320,656 $ 1,313,069 6,960 6,960 7,729,000 7,729,000 1,205,516 49,290 106,987 173 1,361,966 12,601 12,601 243,292 243,292 3,619,307 900,180 628,292 5,147,779 5,781,734 1,050,944 8,032,868 949,121 15,814,667 13,284 129,285 142,569 2,099 2,099 426,200 25,599 451,799 513,329 513,329 16,900 16,900 2,185,000 486,500 470,228 3,141,728 2,244,787 686,637 800,772 707,965 4,440,161 5,384,699 1,319,322 800,772 1,203,792 8,708,585 $ 11,166,433 $ 2,370,266 $ 8,833,640 $ 2,152,913 $ 24,523,252 See notes to the financial statements. -14- TOWN OF SOUTHOLD RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS December 31, 2006 Total Fund Balances ~ Governmental Funds 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 Capital assets - depreciable Accumulated depreciation 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 Due to Employees Retirement System Compensated absences Estimated liability for landfill closure and postolosure care costs Prepaid items included in the Statement of Net Assets Deferred charges, included in the Statement of Net Assets Interest payable 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. Net Assets of Governmental Activities 58,561,631 102,536,180 (60,540,499) (8,494,098) (48,804) (6,475,661) (593,323) 8,708,585 100,557,312 (15,611,886) 459,498 148,750 (261,058) 94,001,201 See notes to financial statements. -15- TOWN OF SOUTBOLD STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the year ended December 31, 2006 MAJOR GOVERNMENTAL FUNDS REVENUES Real Property Taxes $14,872,736 Other Real Property Tax Items 85,808 Non-Properly Tax Items 616,670 Departmental Income 477,849 Intergovernmental Charges 316,049 Use of Money and Properly 684,166 Licenses and Permits 258,794 Fines and Forfeitures 171,763 Sale of Property and Compensation for Loss 95,057 Miscellaneous Local Sources 146,260 State Aid 2,725,177 Federal Aid 228,491 Capital General Highway Projec~ $4,095,347 12,689 140,578 9,484 7,521 276.337 $ 5,824,319 456,713 151,000 3,980,074 325,950 Non-Major Governmental Funds Totals $2,741,362 $ 21,709,445 4,489 102,986 229,346 846,016 2,275,935 2,753,784 1,809 6,142,177 95,272 1,376,729 163,780 432,058 171,763 135,662 238,240 6,652 303,912 127,276 7,108,866 41,163 595,604 Total Revenues 20,678,820 4,541,956 10,738,056 5,822,748 41,781,580 EXPENDITURES Current General Government Support Public Safety Public Health Transportation Economic Assistance and Opportunity Home and Community Services Culture and Recreation Employee Benefits Capital Outlay Principal and Interest Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses) BANs Redeemed From Appropriations Transfers In Transfers Out Total Qther Financing Sources (Uses) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses Fund Balances at Beginning of Year 5,177,745 103,654 5,281,399 7,371,280 869,154 8,240,434 32,988 7,104 40,092 452,050 3,028,076 3,480,126 949,740 949,740 384,983 3,363,781 3,748,764 530,270 530,270 5,811,868 515,106 470,377 6,797,351 13,324,188 13,324,188 1,313,234 283,652 84,531 822,590 2,504,007 22,024,158 3,826,834 13,408,719 5,636,660 44,896,371 (1,345,338) 715,122 (2,670,663) 186,088 (3,114.791) 1,228,735 1,228,735 2,253,944 159,218 2,413,162 (1,531,369) (452,648) (429,145) (2,413,162) 722,575 (452,648) 1,387,953 (429,145) 1,228,735 (622,783) 262,474 (1,282,710) (243,057) (1,886,056) 6.007,462 1,056,848 2,083,482 1,446,849 10,594,641 Fund Balances at End of Year $ 5,384,699 $1,319,322 $ 800,772 $1,203,792 $ 8,708,585 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 31,2006 Net Change in Fund Balance Governmental funds repod 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: Capitat outlay Depreciation expense Loss on dispositions 15,722,766 (3,987,397) (1,472,136) 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 The issuance of long-term 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. .Repayment of bond principal Due to Employees Retirement System Compensated absences Claims and judgments payable Estimated liability for landfill closure and postdosure care costs Accrued interest payable Change in Net Assets of Governmental Activities $ (1,886,056) 10,263,233 (61,786) (21,250) 755,000 45,189 (695,835) 220,000 19,072 (33,441) $ 8,604,126 See notes to financial statements. -17- TOWN OF SOUTHOLD STATEMENT OF FIDUCIARY NET ASSETS December 31, 2006 ASSETS Cash and investments Other receivables Due from other funds Fishers Island Town Ferry District Totals $ 9,262,983 $ 56,490 $ 9,319,473 59,504 59,504 12,601 12,601 Total Assets $ 9,275,584 $ 115,994 $ 9,391,578 L1mABILIT)ES Due to other funds $ 8,152,880 $ 115,994 $ 8,268,874 Other liabilities 307 307 Deposits held 1,122,397 1,122,397 Total Liabilities $ 9,27_ 5,584 $ 115,994 $ 9,391,578__ See notes to financial statements. -18- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2006 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 appoints 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 services, 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 conformit}, with accounting principles generally accepted in the United States of America (GAAP) as applied to g~/ernmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the government's accounting policies are described below. 1. REPORTING ENTITY The financial repot'ling entity consists of: (a) the primary government, which is the Town 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 pdmary government are such that exclusion would cause the reporting entity's financial :statements to be misleading or incomplete as set fodh in GASB Statement No. 14. The decision to include a potential component unit in the Town of Southold reporting entity is based on several criteria set forth in GASB 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 Southold's reporting entity. Certain special districts of the Town of Southold provide sanitation, ferry, and park services to residents and businesses within the districts. These special districts are orgaaized under New York State 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 special districts are collected by the Town Receiver of Taxes. As a result of this fiscal dependency, the Town is financially accountable for these special districts. Accordingly, these special districts have been determined to be component units of the Town and are presente~l discretely in a separate column in the combined financial statements to emphasize that they are legally separate from the primaw government. 2. BASIS OF PRESENTATION The Town's basic financial statements include both government-wide (reporting the Town as a whole) and fund financial statements (reporting the Town's major funds). Government-wide Financial Statements The government-wide financial statements reports information on the Town as a whole, except fiduciary activities, with separate columns for the primary governmental activities as well 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 assets are reported in three parts--investments in capital assels, net of related debt; restricted net assets; and unrestricted net assets. TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2006 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 program revenues and operating and capitaJ grants, to produce the net cost of each program. Program revenues include la) charges for services and lb) 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 column reflects capital- specific grants. The net costs (by function) are normally covered by general revenue (property, taxes, intergovernmental revenues, interest income, etc). As a general rule the effect of interfund activity has been eliminated in general purpose financial staterflents. 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 accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balances, revenues, and expenditures, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. The various funds are presented by type in the fund financial statements. Accordingly, the Town maintains the following fund types: Governmental Funds - Governmental funds are those through which most governmental functions 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 governmental funds: General Fund - is the principal operating fund of the Town. This fund is used to account for all financial resources except those required to be accounted for in other funds. Hiqhway Funds - To account for the maintenance and operation of highways. Capital Proiects Fund - used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by special assessment funds and trust funds). - 20 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2006 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. BASIS OF PRESENTATION (continued) Fund Financial Statements (continued) Additionally, the Town repods the following non-major funds: Special Revenue Funds - are used to account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Special Revenue Funds include the following: General Fund Part Town - To provide general services outside the Village of Greenport. Special Grant Fund - Segregate and account for projects funded by Community Development revenue. Special 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 capacity. Agency Fund - is for money (and/or properly) received and held in the capacity of trustee, custodian or agent. Discretely Presented Component Units Certain special districts that have separately elected boards provide transportation, park, mosquito control, and sanitation services to residents and businesses within 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 Mattituck Park Oistrict, 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. Box 311 Cutchogue, NY 11935 Southotd Pa~ O(str(ct P.O. Box 959 Southold, NY 11971 Fishers Island Ferry District P.O. Box 1179 SouthoJd, NY 11971 Fishers Island Garbage & Refuse District Fishers Island, NY 06390 Orient-East Marion Park District P.O. Box 12 Orient, NY 11957 Maftftuck Pa~ Oistn'ct P.O. Box 1413 Mattituck, NY 11952 -21 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2006 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3. BASIS OF ACCOUNTINGIMEASUREMENT 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 government-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 (measurable and available to finance current operations). "Measurable" means the amount of the transaction can be determined and "available" means collectible 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 susceptible to accrual include 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 susceptible 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 grants, 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. Appropdafions for all governmental funds except the capital projects fund lapse at year-end. However, encumbrances reserved against fund balances are re-appropriated in the ensuing year. Encumbrances are reported as reservations of fund balances since they do not constitute expenditures or liabilities. Expenditures for such commitments are recorded in the period in which the liability is incurred. 4. ASSETS, LIABILITIES AND FUND EQUITY RECE~ABLES 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 specific 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. - 22 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2006 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 outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Depreciation on att assets is provided on the straight- tine 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 including roads, curbs, sidewalks, bridges, street !ighting 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 REVENUE/UNEARNED INCOME Deferred revenues/uneamed income are those where asset recognition criteria have been met, but which revenue recognition criteria have not been met. Such amounts include collections in advance, unearned income and amounts that have been deemed to be "measurable" but not "available" to finance current expenses pursuant to generally accepted accounting principles. PREPAIDS Prepaids record payments to venders that benefit future recording periods and are reported on the cons.umption basis. Prepaids in the General and Special Revenue Funds represent nsurance premiums paid for coverage that ,Mil benefit the subsequent period and for retirement benefits that will benefit a future period. LONG-TERM OBLIGATIONS The liabilities for long-term obligations consisting of general obligation bonds, compensated absences, due to employee retirement system, judgments, claims and liability for landfill closure and post closure costs are recognized in the government-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 $OUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2006 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 Districts. 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 property taxes are also levied on December 1, and are also payable in two installments. School property taxes are due in two installments, 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 Inteffund transactions have been eliminated from the government-wide financial statements. In the funds statements inteffund transactions include: a) Interfund Revenues Interfund revenues, quasi-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, genera~ 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~government-wide 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 expenditures and a liability in the funds statement in the respective fund that will pay it. EQUITY CLASSIFICATIONS In the Government-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 31,2006 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 6. EQUITY CLASSIFICATIONS (continued) b) c) Restricted net assets--Consists of net assets with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. Unrestricted net assets--All other net assets that do not meet the definition of "restricted" 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. Amounts reserved for encumbrances, inventory, insurance claims and debt service represent portions of fund equity, which are required to be segregated in accordance with state law or GAAP. Designations of fund balances in governmental funds indicate the utilization of these resources in the subsequent year's budget or tentative plans for future use. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY 1. BUDGETARY DATA Budgets 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 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 adopts the budget. c) The Town Board must approve ali 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 individual statements of revenues, expenditures and changes .in fund balances - budget and actual, are presented in a separate budget report. - 25 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2006 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (continued) 2. FUND BALANCES DESIGNATION OF FUND BALANCE Portions of the unreserved balances at December 31, 2006 were designated for the subsequent year's operating budgets as fellows: Fund Fund Balance Unreserved and Designated Total for Subsequent Fund Balance Fund Balance Year's Unreserved Unreserved Budget Undesignated Non-Major Funds: Town Outside Village Special Grant East West Fire Protection District Southold Wastewater District Fishers Island Sewer District Solid Waste Management District $ 908,193 $ 484,599 $ 423,594 5,000 5,000 19,648 6,228 13,420 223,779 223,779 40,948 40,948 6,224 6,224 Total $ 1,203,792 $ 495,827 $ 707,965 DETAILED NOTES ON ALL FUNDS CASH ANDINVESTMENTS 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 investments are governed by a formal investment 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 investments include obligations of the U.S. Treasury, U.S. Agencies and investments made by the Cooperative Liquid Asset Security System (CLASS). CLASS is a cooperative investment plan consisting of U.S. Treasury Obligations and repurchase agreements relating to treasury obligations. Investments 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, Article 3A and 5-G. Collateral is required for demand deposits and time deposits accounts at 105% of all deposits not covered by federal deposit insurance. Obligations that may be pledged as collateral include obligations of the United States and its agencies and obligations of the State and its municipalities and school districts. The Town's collateral agreements are based on the Town's available balance. - 26 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2006 DETAILED NOTES ON ALL FUNDS (continued) 1. CASH AND INVESTMENTS (continued) Custodial Credit Risk - Deposits/Investments - Custodial credit risk for deposits exists when, in the event of the failure of a depository financial institution, a government may be unable to recover deposits, or recover collateral securities that are in possession of an outside agency. Custodial credit risk for investments exists when, in the event of the failure of the counterparty, a government will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. Governmental Accounting Standards Board Statement No. 40 directs that deposits be disclosed as exposed to custodial credit dsk if they are not covered by depository insurance, and the deposits are either: · Uncollateralized · Collateralized with securities held by the pledging financial institution, or · Collateralized with securities held by the pledging financial institution's trust department or agent but not in the Town's name At December 31, 2006 the Town's cash book balance was approximately $29,624,000. This amount is inclusive of Fiduciary fund deposits of approximately $9,300,000 but exclusive of petty cash of approximately $2,200. The available bank balance was approximately $32,500,000. Of the bank balance, $1,100,000 was covered by Federal deposit insurance, and approximately $40,706,000 was covered by collateral held by the Town's agent, a third-party financial institution, in the Town's name. 2. INTERFUND RECEIVABLES AND PAYABLES tnterfund receivables and payables for the primary government at December 31, 2006 were as follows: General Fund - Town wide Highway Fund Capital Projects Fund Part Town Special Grant East-West Fire Disbrict Southold Wastewater District Fishers Island Sewer District Solid Waste Management Distdct Amount Amount Receivable Payable $ 190,208 $ 1,171,758 461,241 49,290 234,970 140,745 115,236 5,000 56,488 2,146 173 9,806 286,871 $ 1.36~1.966 $ 1.361.98(~ Interfund receivable and payable balances for the primary government at December 31, 2006 are expected to be paid currently. - 27 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2006 DETAILED NOTES ON ALL FUNDS (continued) 3. CAPITAL ASSETS Primary government Capital assets not being depreciated Land Construction in progress Total capital assets not being depreciated Depreciable capital assets Buildings Improvements other than buildings Machinery and equipment Infrastructure Total depreciable capital assets Less accumulated depreciation Buildings Improvements other than buildings Machinery and equipment infrastructure Total accumuleted depreciation $ 56,721,087 Total net depreciable capital assets Total net capital assets Balance Balance 1/1/06 Additions Deletions 12/31/06 $ 47,772,278 $ 10,569,239 $ -0- $ 58,341,517 1,608,081 18,264 1,406,231 220,114 49,380,359 10,587,503 1,406,231 58,561,631 4,574,513 3,732,710 8,307,223 13,498,954 119,205 13,618,159 9,522,815 627,218 233,890 9,916,143 70,038,525 656,130 70,694,655 97,634,807 5,135,263 233,890 102,536,180 2,068,530 137,736 2,206,266 3,542,084 390,004 3,932,088 6,041,374 724,481 167,985 6,597,870 45,069,099 2,735,176 47,804,275 $ 3,987,397 $ 167,985 60,540,499 41,995,681 $100,557,312 Depreciation expense was charged to governmental functions as follows: General government support Public safety Transpodation Economic assistance and opportunity Culture and recreation Home and ccm m unity services $ 249,268 169,011 2,949,839 37,610 62,609 519,060 $ 3,987,397 - 28 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2006 DETAILED NOTES ON ALL FUNDS (continued) 3. CAPITAL ASSETS (continued) Discretely presented component units Capital assets not being depreciated Land Construction in progress Total capital assets not being depreciated Depreciable capital assets Buildings Improvements other than buildings Machinery and equipment Infl'estructure Total depreciable capital assets Less accumulated depreciation Buildings Improvements other than buildings Machinery and equipment Infraskucture Total accumulated depreciation Total net depreciable capital assets Total net capital assets Balance Balance 1/1/06 Additions Deletions 12/31/06 $ 2,213,759 $ 2,213,759 13,174,567 $ 324,711 $ 552,197 12,947,081 15,388,326 324,711 552,197 15,160,840 3,540,111 26,774 3,566,885 2,575,589 645,143 3~220,732 3,200,728 120,171 3,320,899 2,138,386 6,894 2,145,280 11,454,814 798,982 12,253,796 1,289,733 83,842 1,373,575 1,061,574 117,672 1,179,246 2,132,657 151,754 2,284,41t 1,155,866 81,474 1,237,340 $ 5,639,830 $ 434,742 6,074,572 6,179,224 $ 21,340,064 4. INDEBTEDNESS SHORTTERM DEBT Bond Anticipation Notes (BANs) - Bond anticipation notes (BANs) are used as a temporary means of financing capital expenditures in the capital projects fund. State law requires that BANs issued for capital purposes be converted to 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 pedod 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 3.66% to 3.76% and are due at various dates through 2007. 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. - 29 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2006 DETAILED NOTES ON ALL FUNDS (continued) 4. INDEBTEDNESS (continued) SHORT TERM DEBT (continued) These notes are summarized as follows: Description Amount Various Purposes $ 6,619,000 Various Purposes 1,110,000 New London Wharf 1,625.000 Fishers Island Garbage 560,000 Total ~=,===~,~=~ J~ Interest Rate 3.66% 3.73% 3,70% 3.76% Of the $9,914,000 in bond anticipation notes, $7,729,000 relates to the primary government and the remaining $2,185,000 relates to the component units. LONG TERM DEBT Summary of changes in long-term debt transactions for the year ended December 31, 2006 is as follows: Non-current Balance Balance liabililJes due Non-current 1t1/06 Increases Reduc~ons 12/31/06 within one year liabilities Prirna~J Government: General obliga§on bonds $ 9,249,098 Due to Employees Retirement System 93,993 Compensated absences 5,779,826 Claims and judgments 220,000 Estimated liability for landfill closure and post-closure care costs 612,395 695,835 $ 755.000 $ 8,494,098 $ 779,098 $ 7,715,000 45,t89 48,804 48.804 -0- 6,475,661 6,475,66t 220,000 -0- -0- 19,072 593,323 10,550 582,773 Component Units: General obligafJon bond s 3,050,0~0 195,000 2,855,000 200,000 2,655,000l Claims and judgments -0- 200,000 200,000 50,000 150,000 '~ 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 borne by the present and future taxpayers receiving the benefit of the capital assets. These long-term liabilities, which are backed by the full faith and credit of the Town, bear interest at various rates from 3.14% to 6.375% and have maturity dates in 2009 through 2021. Future principal and interest payments to matudty for both the primary government and the componentunits am as follows: Year Endinq Principal Interest 2007 $ 979,098 $ 376.466 2008 995,000 345,307 2009 1,025,000 312,347 2010 1,000,000 277,956 2011 1,025,000 242,981 2012-2016 4,100,000 765,577 2017-2021 2,225,000 167,650 Totals ~ ~ - 30 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2006 DETAILED NOTES ON ALL FUNDS (continued) 4. INDEBTEDNESS (continued) LONG TERM DEBT (continued) Other long-term liabilities for claims and judgments, compensated absences, retirement system and the estimated liability for landfill cJosure and post closure costs are to be paid by the fund that gave rise to the liability. PRIOR YEAR DEFEASANCE OF DEBT In prior years, the Town defeased certain bonds by placing the proceeds of new bonds in an irrevocable trust with an escrow agent to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and liability for the defeased bonds are not including in the Town's financial statements. At December 31, 2006, $1,950,000 of these.bonds outstanding are considered defeased. 5. RETIREMENT SYSTEM Plan Description The Town of Southold participates in the New York State and Local Employees' Retirement System (ERS) and Local Police and Fire Retirement 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 Retirement 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 annual report containing financial statements and required supplemental information for the Employees' Retirement System may be obtained by writing to the New York State Retirement System, Governor Smith State Building, Albany, NY 12244. Fundinq Policy The System is noncontributory except for employees who joined the New York State 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 f'rrteen 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 payrotl of members, which shall be used in corn puting the contributions 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 equal to the actuarially required amounts and also include additional contributions to fund various early retirement incentives made available to the Town employees. The credits and miscellanecus adjustments represent mod~ication made by the ERS for pdor year's contributions. The required contributions, for the Primary government, for the current year and two preceding ERS PFRS years were: 2006 $ 1,096,547 $ 741,445 2005 $ 1,068,200 $ 1,016.937 2004 $ 992,023 $ 679,079 The Town's contribution to the system was 100% of the contributions required each year. - 31 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2006 DETAILED NOTES ON ALL FUNDS (continued) 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 etigible for these benefits if they reach normal retirement age while working for the Town. 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 accordance 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 2006 year, $3,261,660 was paid on behalf of 93 retirees and 223 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. Estimated vacation, sick leave and compensatory absences accumulated by governmental fund type employees have been recorded in the statements of net assets. Payment of vacation time and sick leave is dependent upon many factors; therefore, timir~g 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 compensatory absences when such payments become due. As of December 3I, 2006, the value of the accumulated vacation time and sick leave was $6,475,661 for the primary government. 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, 2006 is $16'I,976. 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 2006 the Town self-insured for bodily injury anti 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 2006 claims cannot presently be determined, the Town's third party administrator has estimated unsettled claims at December 31, 2006 to be $83,863. 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 financial position. Since 2005, there have been no significant reductions in insurance coverage as compared to the prior year; in addition there were no settlements on excess of insurance coverage over the last three years. The Town is also self-insured for unemployment benefits paid. - 32 - TOWN OF $OUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2006 COMMITMENTS AND CONTINGENCIES (continued) Landfill Closure and Post-Closure Care Costs State 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 York 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 final 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 cedain maintenance and monitoring functions at the site for up to thirty years. Accordingly, as of December 31, 2006 the Town has recorded a liability of $593,323 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 State Environmental Facilities Corporation. Costs associated with post closure care will be covered by charges to future landfill users and future tax revenue. Lease Commitments and Leased Assets The Town leases property and equipment under operating Peases. Total rental expenditures on such leases for the year ended December 31,2006 were approximately $191,773. Future obligations over the primary terms of the Town's leases as of December 31,2006 are as follows: 2007 $ 109,824 2008 109,028 2009 107,348o 2010 86,909 2011 andthereafler 563,901 Total $ 977.010 CONDENSED FINANCIAL STATEMENTS FOR THE DISCRETELY PRESENTED COMPONENT UNITS The following represents condensed financial statements for the discretely presented component units as of and for the year ended December 31, 2006: Condensed Statement of Net Assets: Due from Capital Assets Other Current Pdmary Net of Current Long-Term Assels Government Depreclation Liabilities Liabilities Fishers Island Ferry District $ 489,288 Fishers Island Refuse and Garbage 607,760 Cutchcgue-New Suffolk Park District 108,649 Southold Park District 43.842 Orient-East Marion Park District 5,496 Maftituck Park District 255,998 Oder~t Mosquilo District 16,812 182,783 $ 15,672,853 $ 2,367,007 $ 2,700,000 59,613 3,146,256 621,736 16,414 123,200 16,414 35,659 696,598 37,930 3,475 432,985 14,602 52,925 1,242,272 166,858 105,000 9,309 25,900 18,235 $ 1.527,845 $ 360,178 $ 21,340.064 $ 3,242,782 $ 2,805,000 Net Assets $ 11,277,917 231,849 738,169 427,354 1,279,337 33,786 * 33 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2006 CONDENSED FINANCIAL STATEMENTS FOR THE DISCRETELY PRESENTED COMPONENT UNITS (continued) Condensed Statement of Activities: Program aer, erar Revenue Net Assets Net Expense Pnopedy Expenses Revenue (Revenue) Tax Other Change 111/06 12/31/66 Fishers Island Fen}, Dist~c/ $ 3,061,265 Fishecs island Re,use and Garbage 538,458 Cutchogue-New Suffolk Park Oisldct 160,014 Southold Park Distdcl 287,960 Orient-East Marion Park District 27,063 Maffituck Park Distdd 368,453 $ 2,013,785 $ 1,047,480 $ 400,000 $ 8,54,443 $ (206,963} $ 11,070,954 $ 11,277,917 32,938 505,520 563,500 70,888 (128,868) 3,083,025 3,191,593 160,014 141,000 917 18.097 249,946 231,849 287,960 315,000 43,691 (70,731} 667,438 738,169 27,063 27,617 76 (630) 426,724 427,354 368,453 426,110 37,511 (95,168) 1J84,169 1,279,337 85,977 76,285 2,412 8,28g 4,530,190 $ 2,046,723 $ 2,483,467$ 1,949,512 $ 1,009,938 $ {475,983) $ 16,704,322 $ 17,180.305 SUBSEQUENT EVENTS On April 15, 2007, the Town issued Serial Bonds for public improvements in the amount of $14,650,000. These public improvements bonds are allocated as follows: $9,987,900 for open space preservation, $1,200,000 for land acquisition, $3,000,000 for a solid waste management transfer station, $315,000 for a settlement with New York State and $147,100 for equipment. The interest rate on these bonds range from 4% during the initial year to 4.25% for the final 20 years. The bonds final maturity date is 2030. NEW PRONOUNCEMENTS The Governmental Accounting Standards Board (GASB) approved new accounting standards applicable to "other post-employment benefits" (OPEB's) and "termination benefits", which are non- pension benefits provided after a person leaves employment, including retiree health care. Until now, these benefits have generally been administered by municipalities on a pay-as-you-go basis and have not been reported as a liability on financial statements. GASB 45 and 47 requ[res munic(palifies which adhere to GAAP (General(y Accepted Accounfing Principles) to account for OPEB and termination liabilities on an accrual basis much like they already account for pension liabilities, generally adopting the actuarial methodologies used for pensions, with adjustments for the different characteristics of OPEB and termination benefits and the fact that most municipalities have not set aside any funds against this liability, Under GASB 45 and 47, based on actuarial valuation, an annual required contribution ("ARC") will be determined for each municipality and then be periodically updated depending on the number of members within the plan. The Town, as well as its component units are required to implement GASB 45 and 47 for the year ended December 31,2007. ~ 34 - 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, 2006 Original Final Budget Budget REVENUES Real Property Taxes $14,872,736 Other Real Properly Tax Items 68,500 Non-Property Tax Items 616,000 Departmental Income 342,100 Intergovernmental Charges 386,616 Use of Money and Properly 460,000 Licenses and Permits 223,100 Fines and Forfeitures 112,000 Sale of Property and Compensation for Loss 74,050 Miscellaneous Local Sources 47,420 State Aid 2,434,897 Federal Aid Total Revenues 19,637,419 EXPENDITURES General Government Support 6,116,403 Public Safety 7,297,533 Public HeaLth 33,300 Transportation 442,710 Economic Assistance and Opportunity 1,030,920 Culture and Recreation 395,314 Home and Community Services 362,224 Employee Benefits 6,257,400 Debt Service - Principal and Interest 1,559,500 Total Expenditures Deficiency of Revenues Over Expenditures Vadance with Final Budget Actual Positive/(Negative) Other Financing Sources (~Jses) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance at Beginning of Year Fund Balance at End of Year $14,872,736 $14,872,736 68,500 85,808 $ 17,308 616,000 616,670 670 585,100 4Z7,849 (107,251) 297,379 316,049 18,670 460,000 684,166 224,166 223,691 258,794 35,103 112,000 171,763 59,763 77,505 95,057 17,552 109,669 146,260 36,591 2,561,687 2,725,177 163,490 238,737 228,491 (10,246) 20,223,004 20,678,820 455,816 6,175,733 5,177,745 997,988 7,392,386 7,371,280 21,106 33,300 32,988 312 472,173 452,050 20,123 1,022,324 949,740 72,584 396,830 384,983 11,847 660,814 530,270 130,544 6,690,613 5,81t,868 878,745 1,434,500 1,313,234 121,266 23,495,304 24,278,673 22,024,158 2,254,515 (3,857,885) (4,055,669) (1,345,338) 2,710,331 6,038,180 6,308,189 2,253,944 (4,054,245) (2,180,295) (2,252,520). (1,531,369) 721,151 3,857,885 4,055,669 722,575 (3,333,094) -0- $ -0- (622,763) $ (622,763) 6,007,462 $ 5,384,699 See notes to the financial statements. -35- TOWN OF SOUTHOLD HIGHWAY FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL Year ended December 31, 2006 REVENUES Variance with Original Final Final Budget Budget Budget Actual Positive/(Negative) Real Property Taxes $ 4,095,347 Other Real Property Tax items 8,500 Use of Money and Property 72,100 Licenses and Permits 6,500 Sale of Property and Compensation for Loss State Aid Total Revenues $ 4,095,347 $ 4,095,347 8,500 12,689 $ 4,189 72,100 140,578 68,478 6,500 9,484 2,984 7,521 7,521 231,332 306,719 276,337 (30,382) 4,413,779 4,489,166 4,541,956 52,790 EXPENDITURES Transportation 3,485,358 3,551,971 Employee Benefits 543,162 543,162 Debt Service - Principal and Interest 294,785 294,785 Total Expenditures Excess (Deficiency) of Revenues Over Expenditures 3,028,076 523,895 515,106 28,056 283,652 11,133 4,323,305 4,389,918 3,826,834 563,084 90,474 99,248 715,122 615,874 Other Financing Uses Operating Transfers In 355,900 355,900 Transfers Out (446,374) (455,148) Total Other Financing Uses (90,474) (99,248) Net Change in Fund Balance Fund Balance at Beginning of Year Fund Balance at End of Year (355,900) (452,648) 2,500 (452,648) _ (353,400) $ -0- $ -0- 262,474 $ 262,474 1,056,848 $ 1,319,322 See notes to the financial statements. -36- OTHER SUPPLEMENTARY INFORMATION TOWN OF SOUTHOLD COMBINING BALANCE SHEET NON-MAJORGOVERNMENTALFUNDS December31,2006 ASSETS Cash and investments $ 821,446 Accounts receivabte, net of allowance 58,401 Due from other funds 115,236 Due from other governments Prepaid expenditures Total Assets East-West Fire Southold Fishers Solid Waste General Fund Special Protection Wastewater Island Sewer Management Part Town Grant District District Distdct District $ 86,470 $ $ 5,000 56,488 25,599 $1,020,682 $ 14,150 $ 142,958 LIABILITIEs AND FUND EQUITY LIABILITIES Accounts payable $ 21,800 $ 9,150 $ 12,656 Due to Other funds Deferred revenue 90,689 110,654 Total Liabilities 112,489 9,150 123,310 FUND EQUITY Fund balance - reserved: Prepair~ expenses 25,599 Fund balance - unreserved: Designated - ensuing year's budget 459.000 5,000 6,228 Undesignated 423,594 13.420 Total Fund Equity 908,193 5,000 19.648 Total Liabilities and Fund Equity $1,020,682 $ 14,150 $ 142,958 Totals 225,862 $ 29,959 $ 188,485 $ 1,352,222 1,259 123,168 182,828 2,146 9,806 286.871 475,547 79,607 68,757 27,960 53,559 $ 228,008 $ 41,024 $ 706,091 $ 2,152,913 $ 76 $ 276,974 $ 320,656 173 173 4,056 422,893 628,292 4,229 76 699,867 949.121 223,779 40,948 6,224 223,779 40,948 6,224 25,599 47O,228 707,965 1,203,792 $ 228,008 $ 41.024 $ 706,091 $ 2,152,913 -37- TOWN OF SOUTHOLD COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES * NON-MAJOR GOVERNMENTAL FUNDS Year ended December 31, 2006 REVENUES Real properly taxes Other real properly tax items Non property tax items Departmental income Intergovernmental charges Use of money and property Licenses and permits Sale of property and compensation for loss Miscellaneous local sources State aid Federal aid EXPENDITURES General government support Public safety Public health Home and community services Employee benefits Debt ser~ice - pnncipal and interest Total Revenues Total Expenditures Excess {Deficiency) of Revenues Over Expenditures Other Financing Uses: Operating transfers out Total Other Financing Uses Net Change in Fund Balance Fund Balances at Beginning of Year Fund Batances at End of Year East-West Fire Southold Fishers Solid Waste General Fund Special Protection Wastewater Island Sewer Management Part Town Grant District District District Distdct $ 492,996 $ 458,043 $ 22,790 $ 1,767,533 1,523 604 30 $ 2 2.330 229,346 656,644 17,060 29,117 1,573,114 1,809 47,074 5,594 9,677 1,689 31,238 7,232 156.548 6,738 128,924 7 $ 5,000 1.645 47,671 79,607 41.163 1.489,231 46,163 464,241 49.557 30,808 103,654 409,449 459,705 7,104 523,926 41,163 22,406 214.993 2,435 1,259,126 41,163 459,705 2,435 22,406 230,105 (209,971) (209,971) 20,134 888,059 $ 908,19~3 5,000 4,536 47,122 8,402 $ 2,741,362 4,489 229,346 2,275.935 95,272 163,780 135.662 6,652 127,278 41.163 3,742,748 5,822,748. 103,654 869,154 7,104 2,776,286 3,363,781 255,384 470.377 820,155 822,590 3,851,825 5,636,660 {109,077) 186,088 (219,174) (429,145) (219,174) (429,145/ 5,000 4,536 47,122 8.402 (328.251) (243,057) 15.112 176,657 32,546 334,475 1,446,849 5,000 $ 19,64~8 $ 223,779 $ 40,94,8 $ 6,224 $ 1,203,792 -38- DISCRETELY PRESENTED COMPONENT UNITS TOWN OF SOUTNOLD DISCRETELY PRESENTED COMPONENT UNITS COMBINING STATEMENT OF NET ASSETS December 31, 2006 ASSETS Current Assets: Cash and investments Accounts receivable, cai of allowance Due from primary 9overnment State and federal receivables Prepaid charges Total Current Assets Non-Current Assets: Non-deprecJable capital assets Degreciable o~3pital assets, net of deprecladon Total Net Assets Fishers Island Cutchogue- Southold Orient-East MaiEtuck Orient · Fishers Refuse and New Suffolk Park Mar~on Park Park Mosquito island Ferry Garbage Distdct Park Distdct DistScl District Distdct District District _ (Unaudited) (Unaudited) ~(Unaudited! (Unaudited) (UnauditedI (Unaudited) Totals 215,455 $ 591,364 $ 108,649 $ 43,842 $ 5,496 $ 254,833 $ 16,812 $ 1,236,451 11,646 3,371 150 15,167 182,783 59,613 16,414 35,659 3,475 52,925 9,309 360,178 237,056 237,056 25,131 13,025 1,015 39,171 672,071 667,373 125,063 __ 79,501~ _ 8,971 308,923 26,121 1,888,023 10,874,636 2,607,599 101,198 588,847 432,985 555,575 15,160,840 4,798,217 __ 538,65~77 ___ 22,002 107,751_ 686,697 25,900 6,179,224_ 16,344,92~4 3,813,629 248,263 776,099 . 441,956~ -- 1,551,195 52,021 23,228,087 343,215 3,743 11,127 11,808 369,893 67,959 1,217 69,176 2,271 160 2,431 130,833 57,993 16,414 35,659 3,475 183,673 18,235 366,282 1,625,000 560,000 2,185,000 150,000 5O,O0O 5O,OOO 200,000 50,000 2,367,007 6~2J,736 __ 16,414 37,930 14,602 166,858 18,235 3,242,782 2,550,000 150,000 105,000 2,555,000 5,067,007 621,~36~ 16,414 37,930_ 14,602 271,858 18,235 6,047,782 11,347,853 2,503,025 640,883 1,087,272 15,579,033 _ (69,93_6} 688,868~ 231,849 97,286 427,354 192,065 33,786 1,601,272 $ 11,277,917 $ 3,191,893 $ 23~,849 $ 738,189 $ 427,354 $ 1,279,337 ~$ 33,786 $ 17,180,305 -39 TOWN OF SOUTHOLD DISCRETELY PRESENTED COMPONENT UNITS COMBINING STATEMENT OF ACTIVITIES Year ended December 31, 2006 REVENUES Program revenues Real property taxes Other real property tax items Interest and earnings Federal Aid Other EXPENSES General government support Public hea I',h Transpodation Culture and recreation Home and community sen/ices Interest Total Revenues Fishers Island Cutchogue- Fishers Refuse and New Suffolk Island Ferry Garbage Distnct Park District District (Unaudited) (Unaudited) Southold Orient-East Mattltuck Orient Park Marion Park Park Mosquito District District District District _ (Unaudited) (Unaudited) (Unaudited) (Unaudited) $ 2,013,785 $ 32,938 400,000 563,500 $ 141,000 527 21,506 70,888 917 810,646 21,764 3,268,228 667,326 141,917 358,691 130,910 2,751,284 160,014 287,960 18,602 454,472 160.469 83,986 Total Expenses 3,061,265 538,458 160,014 287,960 Totals $ 2,046,723 $ 315,000 $ 27,617 $ 426,110 $ 76,285 1,949,512 35 562 1,124 41,591 41 18,879 1,662 155,484 810,646 2,100 18,070 750 42,684 27,693 463,621 78,697 5,006,173~ 27,063 362,526 5,927 27,063 368,453 86,977 86,977 2,751,284 837,563 473,074 250,382_ 86,977 4,530,190 Changes in Net Assets 206,963 Net Assets at Beginning of Year 11.070,954 Net Assets at End of Year $11,277,917 128,868 (18,097) 70,731 630 95,168 (8,280) 475,983 3,063,025 249,946 667,438 426,724 1,184,169 42,066 16,704,322 $ 3,191,893 $ 231,849 $ 738,169 $ 427,354 $ 1,279,337 $ 33,786 $17,t80,305 -40- APPENDIX C BOND INSURANCE BOND I~SURANCE Other than with respect to information concerning Financial Security Assurance Inc. ("Financial Security") contained herein under the caption "Bond Insurance" and specimen "Municipal Bond Insurance Policy", none of the information in this Official Statement has been supplied or verified by Financial Security and Financial Security makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the Bonds; or (iii) the tax exempt status of the interest on the Bonds. Bond Insurance Policy Concurrently with the issuance of the Bonds maturing in the years 2019 through 2030, inclusive (the "Insured Bonds"), Financial Security Assurance Inc. ("Financial Security") will issue its Municipal Bond Insurance Policy for the Insured Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Insured Bonds when due as set forth in the form of the Policy included as an'appendix to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Financial Security Assurance Inc. Financial Security is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. ("Holdings"). Holdings is an indirect subsidiary ofDexia, S.A., a publicly held Belgian corporation, and of Dexia Credit Local, a direct wholly-owned subsidiary of Dexia, S.A. Dexia, S.A., through its bank subsidiaries, is primarily engaged in the business of public finance, banking and asset management in France, Belgium and other European countries. No shareholder of Holdings or Financial Security is liable for the obligations of Financial Security. At March 31, 2008, Financial Security's consolidated policyholders' surplus and contingency reserves were approximately $3,012,872,486 and its total net unearned premium reserve was approximately $2,419,501,630 in accordance with statutory accounting principles. At March 31,2008, Financial Security's consolidated shareholder's equity was approximately $3,053,752,711 and its total net unearned premium reserve was approximately $1,882,057,335 in accordance with generally accepted accounting principles. The consolidated financial statements of Financial Security included in, or as exhibits to, the annual and quarterly reports filed after December 31, 2007 by Holdings with the Securities and Exchange Commission are hereby incorporated by reference into this Official Statement. All financial statements of Financial Security included in, or as exhibits to, documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this Official Statement and before the termination of the offering of the Insured Bonds shall be deemed incorporated by reference into this Official Statement. Copies of materials incorporated by reference will be provided upon request to Financial Security Assurance Inc.: 31 West 52~d Street, New York, New York 10019, Attention: Communications Department (telephone (212) 826-0100). The Policy does not protect investors against changes in market value of the Insured Bonds, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings or other causes. Financial Security makes no representation regarding the Insured Bonds or the advisability of investing in the Insured Bonds. Financial Security makes no representation regarding the Official Statement, nor has it participated iu the preparation thereof, except that Financial Security has provided to the Issuer the information presented under this caption for inclusion in the Official Statement. I !NANCIAL SECURITY ASSURANCE. AND MUNICIPAL INSURANCE t x. securing;tl)e Bqpds) - for. the B~nds ~S'e~urib], dire~:tl~, to each Owne · i~ n~or~ ~rh~nt i~bY~to);, that. portior~ , f(~r ;pa~rn.e~t I~t~all..be .. ' ; 'On: the'Jafe~-:df tfi~,day Non principal mason c election ?a ~rm i ~ t fie p.ayq~e_.nt pf, inter Upon {:lis ~cl~ ,a,ny app~rtena~nt;cpupor~ to ~he ~o~'d ?d ~,~b~ ral!Y ~m~ntS ~n~e~ the Bo~d, P~nt~Sy F nanbla S~curi~y ~o ~e ~lt, t~ e~ent thereof, discha~e- the th? foUowjng ~e~shall have means an ~ day other ~an '(~)'~ o~th~ Insurers I~qf exe~ve erd~ te,remaih C[0~e~; :"Due ~o[.Raymenf Bond ma~d~ date ~ereof pr tke ~nd re~emptioh ~n~d0e~ ~,~ dE~ by r~'~ ~ea~ ~ rede~pt)qn (offi~th~ . :i~ ¢~sp , Bond =the.~'failu/e gf~he to ~he Paying Agent for Bond. "Nonpay~&nt" s6all ~e, ~ t~; t, es~ect ,of a ~ Bond. Ahy I~a*,jrnent~- of principal or ~ nt~reSf that ~is, Due for Payment · . -- Page2of2 · ' ' Policy No. _ m_~?,e:t~a~ C~w~er by. o~i: on 'behalf of the Issuer which has~ bee~ ~'ecovel tl~e Ur~ited~Stat~s'Bankruptc~' Code by'a' trustee in bankruptcy ~n - order,~of.a ~ourt qn~king'~he clalm,~ [b)~ the becam~ '-' Nd;* ~. ~nqlude the Is, s~er orany pe. rs,on "'s'e~urf~ tO~tl~e ~nds~. ' ~ end ,. s ~f th s P6 cy: .... ot be ,motile. ed, a, lte.red or.. n or ame~d~n~themto. ~cePt bein g ~ed~ fqr..paymept, ~- ' THIS POLICY IS NOT" SPE~FIEDIN ~TICLE 76 ~ F NA~CI~ CE~U~ ~ ASSURANCE INC., DISCLOSURE, NO DEFAULT AND TAX CERTIFICATE OF FINANCIAL SECURITY ASSURANCE INC. The undersigned hereby certifies on behalf of Financial Secudty Assurance Inc. 'F' ' I S *" ( nanc4a ecunty), n connecton wth he ssuance by Financ~a Security of its Policy No. 210455-N (the "Policy") in respect of the $5,300,000 in aggregate principal amount of Town of Southold, Suffolk County, New York Public Improvement Serial Bonds - 2008 maturing May 15 in the years 2019 through 2030, inclusive (the "Bonds") that: (i) The information contained in Appendix C set forth under the caption "BOND INSURANCE - Financial Secudty Assurance Inc." in the officJal statement dated May 13, 2008, relating to the Bonds is true and correct, except as set forth in (ii) below. (ii) At March 31, 2008, Financial Security's consolidated policyholders' surplus and contingency reserves were approximately $3,012,872,486 and its total net unearned premium reserve was approximately $2,419,501,630 in accordance with statutory accounting principles. At March 31, 2008, Financial Security's consolidated shareholder's equity was approximately $3,053,752,711 and its total net unearned premium reserve was approximatety $1,882,057,335 in accordance with generally accepted accounting principles. (iii) Financial Security is not currently in default nor has Financial Security ever been in default under any policy or obligation guaranteeing the payment of prtncipal of or interest on an obligation, (iv) the Policy is an unconditional and recourse obligation of Financial Security (enforceable by or on behalf of the holders of the Bonds) to pay the scheduled principal of and interest on the Bonds in the event of Nonpayment by the Issuer (as set forth in the Policy), (v) the insurance premium of $50,500.00 (the "Premium") is a charge for the transfer of credit risk and was determined in arm's length negotiations and is required to be paid th Financial Security as a condition to the issuance of the Policy, (vi) no portion of such Premium represents an indirect payment of costs of issuance, including rating agency fees, other than fees paid by Financial Secudty to maintain its ratings, which, together with all other overhead expenses of Financial Security, are taken into account in the formulation of its rate structure, or for the provision of additional services by us, nor the direct or indirect payment for a cost, dsk or other element that is not cusfemadly borne by insurers of tax-exempt bonds (in transactions in which the guarantor has no involvement other than as a guarantor), (vii) Financial Secudty is not providing any services in connection with the Bonds other than providing the Policy, and except for the Premium, Financial Security will not use any portion of the Bond proceeds; provided, however, that Financial Securtiy or its affiliates may independently provide a guaranteed investment contract for the investment of all or a portion of the proceeds of the Bonds, (viii) except for payments under the Policy in the case of Nonpayment by the issuer, there is no obligation to pay any amount of principal or interest on the Bonds by Financial Security, (ix) Financial Security does not expect that a claim will be made on the Policy, (x) the Issuer is not entitled to a refund of the premium for the Policy in the event a Bond is retired before the final maturity date, and (xi) for Bonds which are secured by a debt service reserve, Financial Security would not have issued the Policy unless the authorizing or security agreement for the Bonds provided for a debt service reserve account or fund funded and maintained in an amount at least equal to, as of any particular date of computation, the reserve reqtirement as set forth in such agreement. Financial Security makes no representation as to the nature of the interest to be paid on the Bonds or the treatment of the Policy under Section 1.148-4(f) of the Income Tax Regulations. FINANCIAL SECURITY ASSURANCE INC. By: Authorized Officer Dated: May 29, 2008 FSA May29,2008 Municipal Bond Insurance Policy No. 210455-N with Respect to $5,300,000 in Aqqreqate Princioal Amount of Town of Southold, Suffolk County, New York Public Improvement Serial Bonds - 2008 matudna May 15 in the years 2019 throuqh 2030, inclusive Ladies and Gentlemen: I am Associate Genera~ Counsel of Financial Secudty Assurance Inc., a New York stock insurance company ("Financial Security"). You have requested my opinion in such capacity as to the matters set forth below in connection with the issuance by Financial Security of its above-referenced policy (the "Policy"). in that regard, and for purposes of this opinion, I have examined such corporate mcerds, documents and proceedings as I have deemed necessary and appropriate. Based upon the foregoing, I am of the opinion that: 1. Financial Security is a stock insurance company duly organized and validly existing under the laws of the State of New York and authorized to transact financial guaranty insurance business therein. 2. The Policy has been duly authorized, executed and delivered by Financial Security. 3. The Policy constitutes the valid and binding obligation of Financial Security, enforceable in accordance with its terms, subject, as to the enforcement of remedies, to bankruptcy, insolvency, reorganization, rehabilitation, moratorium and other similar laws affecting the enforceability of creditors' dghts generally applicable in the event of the bankruptcy or insolvency of Financial Security and to the application of general principles of equity, In addition, please be advised that I have reviewed the description of the Policy contained in Appendix C under the caption "BOND INSURANCE - Bond Insurance Policy" in the official statement relating to the above-referenced Bonds dated May 13, 2008 (the "Officia~ Statement"). There has not come to my attention any information which would cause me to believe that the description of the Policy referred to above, as of the date of the Official Statement or as of the date of this opinion, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Please be advised that I express no opinion with respect to any information contained in, referred to or omitted from under the caption "BOND iNSURANCE - Financial Secudty Assurance Inc." as set forth in Appendix C of the Official Statement, I am a member of the Bar of the State of New York, and do not express any opinion as to any law other than the laws of the State of New York. Very truly yours, Associate General Counsel Town of Southold, 53095 Main Road, Southold, NewYork 11971. Roosevelt & Cross, Inc, and Associates, as Representative of the Underwriters, 55 Broadway, 22nd Floor, New York, New York 10006. N,'~ ~rk- Dallas. San [¥ant isco. I,,mtlon - Ma&'id. Paris. Singapore: · Sydm!y NOTICE OF CLAIM AND CERTIFICATE Financial Security Assurance Inc. 31 West 52nd Street NewYork, NY 10019 The undersigned, a duly authorized officer of [FULL NAME OF TRUSTEE or PAYING AGENT] (the "Trustee/Paying Agent"), hereby certifies to Financial Security Assurance Inc. ("Financial Security"), with reference to Municipal Bond Insurance Policy No. 210455-N dated May 29, 2008 (the "Policy") issued by Financial Security in respect of the Town of Southold, Suffolk County, New York Public Improvement Serial Bonds - 2008 maturing May 15 in the years 2019 through 2030, inclusive (the "Bonds"), that: (i) The Trustee/Paying Agent is the Trustee/Paying Agent under the document authorizing the issuance of the Bonds (the "Indenture") for the Holders. (ii) The sum of all amounts on deposit (or scheduled to be on deposit) in the [RELEVANT ACCOUNTS] and available for distribution to the Holders pursuant to the Indenture will be $ (the "Shortfall") less than the aggregate amount of principal and interest Due for Payment on _("Scheduled Payments"). (iii) The Trustee/Paying Agent is making a claim under the Policy for the Shortfall to be applied to the payment of Scheduled Payments. (iv) The Trustee/Paying Agent agrees that, following receipt of funds from Financial Security, it shall (a) hold such amounts in trust and apply the same directly to the payment of Scheduled Payments on the Bonds when due; (b) not apply such funds for any other purpose; (c) not commingle such funds with other funds held by the Trustee/Paying Agent and (d) maintain an accurate record of such payments w~th respect to each Bond and the corresponding claim on the Policy and proceeds thereof, and, if the Bond is required to be [SURRENDERED/PRESENTED] for such payment, shall stamp on each such Bond the legend $"[insert appliceble amount] paid by Financial Secudty and the balance hereof has been canceled and reissued" and then shall deliver such Bond to Financial Security. (v) The Trustee/Paying Agent, on behalf of the Holders, hereby assigns to Financial Security the rights of the Holders with respect to the Bonds to the extent of any payments under the Policy, including, without limitation, any amounts due to the Holders in respect of securities law violations adsing from the offer and sale of the Bonds. The foregoing assignment is in addition to, and not in limitation of, dghts of subrogation otherwise available to Financial Secudty in respect of such payments. Payments to Financial Security in respect of the foregoing assignment shall in all cases be subject to and subordinate to the rights of the Holders to receive all Scheduled Payments in respect of the Bonds. The Trustee/Paying Agent shall take such action and deliver such instruments as may be reasonably requested or required by Financial Secudty to effectuate the purpose or provisions of this clause (v). (vi) The Trustee/Paying Agent, on its behalf and on behalf of the Holders, hereby appoints Financial Security as agent and attorney-in-fact for the Trustee/Paying Agent and each such Holder in any legal proceeding with respect to the Bonds. The Trustee/Paying Agent hereby agrees that, so long as Financial Secudty shall not be in default in its payment obligations under the Policy, Financial Security may at any time during the continuation of any proceeding by or against the Issuer under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding") direct all matters relating to such Insolvency Proceeding, including without limitation, (A) all matters relating to any claim in connection with an Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment made'with respect to the Bonds (a "Preference Claim"), (B) the direction of any appeal of any order relating to any Preference Claim at the expense of Financial Secudty but subject to reimbursement as provided in the Indenture and (C) the posting of any surety, supersedeas or performance bond pending any such appeal. In addition, the Trustee/Paying Agent hereby agrees that Financial Security shall be submgated to, and the Trustee/Paying Agent on its behalf and on behalf of each Holder, hereby delegates and assigns, to the fullest extent permitted by law, the rights of the Trustee/Paying Agent and each Holder in the conduct of any Insolvency Proceeding, including, without limitation, all dghts of any party to an adversary proceeding or action with respect to any court order issued in connection with any such Insolvency Proceeding. (vii) Payment should be made by wire transfer directed to [SPECIFY INSURANCE ACCOUNT]. Unless the context otherwise requires, capitalized terms used in this Notice of Claim and Certificate and not defined herein shall have the meanings provided in the Policy. IN WITNESS WHEREOF, the Trustee/Paying Agent has executed and delivered this Notice of Claim and Cer[ificate as of the day of , __. By Title For Financial Security or Fiscal Agent Use Only Wire transfer sent on Confirmation Number By -2- PROCEDURES FOR PREMIUM PAYMENT TO FINANCIAL SECURITY ASSURANCE INC. Financial Security's issuance of its municipal bond insurance policy at bond closing is contingent upon payment and receipt of the premium. NO POLICY MAY BE RELEASED UNTIL PAYMENT OF SUCH AMOUNT HAS BEEN CONFIRMED. Set forth below are the procedures to be followed for confirming the amount of the premium to be paid and for paying such amount: Confirmation of Amount to be Paid: Upon determination of the final debt service schedule, fax such schedule to Financial Security Attention: James Mann, Vice President Phone No.: (212) 339-3467 Fax No.: (212) 857-0448 Confirm with the individual in our underwriting department that you are in agreement with respect to par and premium on the transaction prior to the closing date. Payment Date: Date of Delivery of the insured bonds. Method of Payment: Wire transfer of Federal Funds. Wire Transfer Instructions: Bank: ABA#: Acct. Name: Account No.: Policy No.: The Bank of New York 021 000 018 FinancialSecurity Assurancelnc. 8900297263 210455-N CONFIRMATION OF PREMIUM WIRE NUMBER AT CLOSING Financial Security will accept as confirmation of the premium payment a wire transfer number and the name of the sending bank, to be communicated on the closing date to Lillie Santana, Assistant Vice President Documentation and Closing Supervisor, (212) 339-3537. rFINANCIAL SECURITY ASSURANCE® MUNICIPAL BOND INSURANCE POLICY ISSUER: Town of Southold, Sulfolk Couety New York BONDS: $5,300000 in aggregate principal amount of Public Improvement Sedal Bonds - 2008 maturing May 15 in the years 2019 through 2030, inclusive Policy No.: 210455-N Effective Date: May29, 2008 Premium: .$50,500.00 FINANCIAL SECURITY ASSURANCE iNC. ("Financial Security"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee) or paying agent (the "Paying Agent') (as set forth in the documanletion providing for the issuance of and securing the Bonds) for the Bands, for the benefit of the Owners or, at the election of Financial Security, directly to each Owner, subjecl only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shell become Due for Payment but shall be unpaid by reason ct Nonpayment by the issuer, On the later of the (Jay on which such principal and interest becomes Due for Payment or the Business Day next IolIowhrg the Business Day on which Financial Security shall have received Notice of Nonpayment, Financial Security will disburse to or for the benefit of each Owner of a Bond the face amouat of principal of and interest on the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the issuer, but only upon receipt by Financial Security, in a form reasonably satisfactory to it, of (a) evidence of the Owneds right to receive payment of the principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the OwneFs rights ;',~th respect to payment of such principal or interest that is Due for Payment shall thereupon vest in Financial Security, A Notice of Nonpayment will be deemed received On a given Business Day if it is received prior to 1:00 p.m, (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day, Ii' any Notice of Nonpayment received by Financial Secudty is incomplete it shall be deemed not to have been received by Financial Security for purposes of the preceding sentence and Financial Secudty shall promptly so advise the Trustee, Paying Agent or Owner. as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement in respect of a Bond, Financial Security shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or interest on the Bond and shall be fully subregated to the rights of the Owner, ieciuding the Owner's dght to receive payments under the Bond, to the extent of any payment by Financial Security hereunder. Payment by Financial Security to the Trustee or Paying Agent for the beneftl of the Owners shall, to the extent thereof, discharge the obligation of Financial Security under this Policy; Except to the extent expressly modified by an endorsement hereto, the tollo,,ving terms shall have the meanings specified for all purposes of this Policy. 'Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer's Fiscal Agent are authorized or required by taw or executive order to remain closed. "Due for Payment" meena (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking lurid redemption), acceleration or other advancement of maturity unless Financial Security shall elect, in its sole discretion, to pay such pdncipat due upon such acceleretian together with any accrued interest to the date of acceleration and (b) when referring lo interest on a Bond, payable on the stated date for payment of interest. "Nonpaymant" means, in respect of a Bond, the failure of the Issuer to have provided sulficienl funds to the Trustee or, if there is no Trustee, lo the Paying Agent for payment ie tull of all pdecipal and interest that is Due for Payment on such Bond, "Nonpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner purscant to the Page 2 el 2 Policy No. 210455-N United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealab~e order of a court having competent jurisdicllen. "Notice" means telephonic or telecepied notice, subsequently confirmed in a signed writing, or wdden not~ce by registered or certified mail, from an Owner, the Trustee or the Paying Agent to Financial Secudty which notice shall specify (a) the pemon or entity making the cJaim, (b) the Policy Number (c) the claimed amount and (d) the date such claimed amount became Due for Paymenl. "Owner" means, in respect et a Bond, Ihe pemon or ent;ly who, at the time o! Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner~ shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. Financial Security may appoi~ a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notice address o[ the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of ali notices required to be delivered to Financial Security pursuant to thia Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to Financial Secudty and shall not be deemed received until received by both and (b) all payments required to be mede by Financial Security under this Policy may be made directly by Financial Security or by the Insurer's Fiscal Agent On behalf of FinaeciaJ Security. The Insurer's Fiscal Agent is the agent of Financial Secudty only and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act o[ the Insurer's Fiscal Agent or any failure of Financial Secudty to deposit or cause to be deposited sufficient hinds to make payments duo under this Pelicy. To the fullest exlent permitted by applicable law, Financial Security agrees not to asse~l, and hereby waives, only tar the benefit of each Owner, all rights (whether by counterclaim, setoff or oihe~A, tse) and defenses (including, without limitation, the defense o(fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such dghts and delenses may be available ID Financial Security to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy sets forth in full Ihe undertaking et Financial Security, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy is aonrefundable [or any reason whatsoever, including paymenl, or provision being made for payment, o[ the Bonds prior to maturity and (b) this Policy may not be canceled or revoked. TH~S POLICY IS NOT COVERED BY THE PROPERTY, CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. In witness whereof, FINANCIAL SECURITY ASSURANCE INC has caused this Policy to be executed on its behalf by its Authorized Officer. A subsidiary of Financial Secudty Assurance Holdings Ltd. 31 West 52ed Street. New York, N,Y. 10019 Form 500NY (5t90) FINANCIAL SECURITY ASSURANCE INC. Authorized Officer (212) 826-0100 Moody's Investors Service' 7 World Trade Center at 250 Greenwich Street, New York, New York 10007 May 28, 2008 Financial Security Assurance, Inc 31 West 52nd Street New York, NY 10019 To Whom It May Concern: Moody's Investors Service has assigned the rating of Aaa to the $$,300,000.00, Town of Southold, Suffolk County, New York - Public Improvement Serial Bonds-2008 maturing May 15 in the years 2019 through 2030, inclusive, dated May 15, 2008 which sold on May 13, 2008, insured by Financial Security Assurance, Inc (Policy No. 210455-N). The rating is the highest of (i) the guarantor's financial strength rating, (ii) any published underlying rating on the security, or (iii) any published enhanced rating based on a state credit enhancement program. Should you have any questions regarding the above, please do not hesitate to contact Vincent Guadagno Jr. at (212) 553-2948. Sincerely yours, Joann Hempel Vice President / Senior Credit Officer JH/TM