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3. Paragraph 7 shall be amended in its entirety as follows: 7. City shall assist Employee with the purchase of a primary residence of Employee's choosing as hereinafter provided. 7.1 Home Purchasinq Provisions. The following provisions apply to the purchase of a primary residence by Employee. 7.1.1 Time to Purchase Home. Employee shall purchase his primary residence no later than December 31,2003. 7.1.2 The Loan. City shall provide a loan to Employee as much as Four Hundred Thousand Dollars ($400,000.00) for the purchase of a primary residence (hereafter referred to as the "Loan Amount"). The Loan Amount shall be evidenced by a promissory note where Employee is the maker and shall be secured by a deed of trust on the real property purchased by Employee. The term of the loan shall be for thirty (30) years. The loan shall not be assignable or assumable. 7.1.3 Principal and Interest. Principal and interest shall be payable each month. Interest on the promissory note shall be 5% per annum. As a further incentive to Employee, interest of 3.75% per annum shall be deferred (non-compounded), and paid, together with any outstanding principal balance, on the earlier of: (1) The sale of the property securing the promissory note (excepting the provisions of Paragraph 7.10 which provides that should Employee continue his employment with City such loan shall not be called); (2) Within twelve (12) months of the termination for any reason (including, but not limited to, retirement, election by City or by Employee, death or disability) of Employee's employment; (3) Within six (6) months after the property secured by the deed of trust ceases to be Employee's principal residence; or (4) Thirty (30) years after recordation of the deed of trust. 7.1.4 Maintenance of Residence. Employee must maintain the new residence as his principal residence and in good condition as long as the loan remains unpaid. 7.1.5 Insurance. Employee must obtain and maintain all appropriate insurance subject to the reasonable approval of City, including, but not limited to, property and casualty insurance covering the full replacement value of the residence. 7.1.6 Costs of Loan. Employee will pay all costs (e.g., title insurance, fire insurance, appraisal fees, escrow costs, termite inspection reports, contractor inspection reports, etc.), which a borrower of funds for F:Atty/Agr/Amend3.Yamamoto 040403 2