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1.5 Compliance with Program Requirements. Borrower agrees that at all times its acts regarding the Project and the use of the HOME Funds shall be in conformity with all provisions of the HOME Program including the statues, rules and regulations and such policies and procedures of HUD and the State of California pertaining to the HOME Program, including without limitation, those described in Article IV of this Agreement. Borrower acknowledges that it is familiar with such applicable provisions and has been professionally advised to the extent necessary for the purpose of enabling Borrower to fully comply with such provisions. I.6 Use of Funds. Borrower shall use the HOME Funds only for costs eligible under the HOME Program Regulations incurred for the construction of the Project. Such costs shall only be for work approved by the City at the time of project set-up under the HOME Program or later approved in writing by the City if a modification of the scope of work is necessary. Any expenditure that is not authorized by this Agreement or that is found to be ineligible under the HOME Program Regulations,as determined by the City,shall be disallowed. Borrower agrees that it will not use the HOME Funds in violation of Section 4.3 below. 1.7 Performance and Payment Bonds. In accordance with the HOME Program Regulations and the Standard Agreement,the Borrower and/or the construction firm undertaking the actual general contracting duties shall provide security to assure completion of the Project by furnishing the City and any construction lenders with Performance and Payment Bonds issued by a reputable insurance company licensed to do business in California, each in a penal sum of not less than one hundred percent(100%) of the scheduled cost of construction of the Project. The bonds shall name the City as an obligee. In lieu of such performance and payment bonds,subject to City's approval of the form and substance thereof, Borrower may submit evidence satisfactory to the City of the contractor's ability to commence and complete construction of the Project in the form of an irrevocable letter of credit, pledge of cash deposit, certificate of deposit, or other marketable securities held by a broker or other financial institution,with signature authority of the City required for any withdrawal, or a completion guaranty in a form and from a guarantor acceptable to City. Such evidence must be submitted to City in approvable form in sufficient time to allow for City's review and approval prior to the scheduled construction start date. 1.8 Scope of Project. Borrower agrees to complete the development of the Project in accordance with the scope of work approved by the City and described in Exhibit E attached hereto. The scope of work shall be completed in accordance with the time frame established in the notice to proceed that will be issued for the Project. 1.9 Regulatory Agreement. The Borrower shall execute, and pledges to operate the development in compliance with, a Regulatory Agreement substantially in the form attached as Exhibit A which shall restrict the Project for occupancy by Very Low- Income Households at affordable rents(as more particularly described in the Regulatory Agreement)for twenty(20)years. The Regulatory Agreement shall be recorded in the Official Records of Alameda County. 1.10 Disbursement of Funds. The City shall disburse HOME Funds to reimburse the Borrower for Project construction costs as provided in Section 1.6 subject to satisfaction of the conditions set forth in this Section 1.10 and in Section 1.10.1. Not more than once per month, Borrower shall submit to the City a written requisition for payment accompanied by invoices, evidence of completion, and such additional documentation as City may reasonably require. The 2220130.1 Page 5