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Escrow or at such other institution as agreed upon by the City, Developer and Lender. 3.07. Use of Proceeds The proceeds of the City Loan shall be used for materials, supplies, labor and services that are an integral part of the Project. Funds shall be disbursed only for the purposes and in the amounts approved by City and Lender. 3.08. Disbursals All disbursals for construction costs shall be made first from equity deposits, if any, then from Lender Loan proceeds, and lastly from City Loan proceeds, unless otherwise approved in writing by the City Manager. 3.09. Progress Payments Upon written request of Developer, the City will request disbursement of funds from the construction escrow account for fully completed work items. Such requests by the City for payments for individual work items shall be made after inspection and acceptance of the work by the City and City approval of Developer's requisitions and invoices and satisfactory proof that the property, Developer and City are properly protected from liens or claims of liens for labor and materials. All funds disbursed to Developer shall be received by Developer in trust and Developer agrees that the same shall be used only for the payment of these items contemplated by the particular disbursement. City shall not be required to request disbursement of any amount which, in City's opinion, will reduce that portion of the undisbursed funds designated for the cost of completion of the rehabilitation below that needed to pay for the labor and materials necessary to complete the work. 3..10. Records Developer and City shall maintain records which accurately and fully show the date, amount, purpose, and payee of all expenditures from the City Loan. Page 6 of 10 Pages EXHIBIT I