Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
16-0408_SAN JUAN HILLS GOLF CLUB, LP_Settlement Agreement
SETTLEMENT AGREEMENT ADDENDUM This Addendum to the Settlement Agreement dated April 8, 2016 by and between the City of San Juan Capistrano and the San Juan Hills Golf Club, LP ("Partial Settlement Agreement") and attached hereto as Exhibit 1 ("Addendum") is made by the City of San Juan Capistrano (the "City"), and the San Juan Basin Authority ("SJBA") on the one hand, and San Juan Hills Golf Club, LP ("San Juan Hills"), on the other hand. The City, the SJBA and San Juan Hills are collectively referred to herein as "Parties." All terms defined in the Partial Settlement Agreement shall have the same meaning herein. RECITALS A. As of April 8, 2016, the City and San Juan Hills entered into the Partial Settlement Agreement. The underlying litigation at issue in the Partial Settlement Agreement is referred to as "the Action." The SJBA is not a party to the Partial Settlement Agreement, is not bound by the Partial Settlement Agreement, and has no obligations under the Partial Settlement Agreement. B. The Partial Settlement Agreement left open San Juan Hills' claim for damages in the litigation between the Parties,referred to as the"Remaining Claim" in the Partial Settlement Agreement. C. The purpose of this Addendum is to resolve the Remaining Claim left open in the Partial Settlement Agreement and to provide for the dismissal of the Action with prejudice as to the City and with prejudice as to the SJBA. D. This Addendum does not alter or modify the Partial Settlement Agreement in any way, other than as expressly provided for herein. This Addendum is not intended to serve as res judicata,collateral estoppel or retraxit. Page 1 of 5 040185\0002\14935651.2 8/2/16 AGREEMENT 1. The City, by itself and through the California Joint Powers Insurance Authority, shall collectively pay San Juan Hills Two Million, Forty Thousand Dollars and Zero Cents ($2,040,000.00)on or before October 1,2016 ("Payment"). 2. San Juan Hills shall purchase from the City and the City shall sell, transfer and deed to San Juan Hills for the sum of $140,000 all of its right, title and interest in and to the parcel shown on attached Exhibit 2 (the "Parcel") "as is", the sale of which is governed by California Government Code section 38501, et seq. City shall retain no interests in the Parcel except for utility easements and such similar easements and rights of entry, if any, for existing facilities located upon the Parcel and any and all other facilities reasonably related to or required by the City's obligations to deliver Substitute Water to San Juan Hills pursuant to the Partial Settlement Agreement. San Juan Hills shall be solely responsible for payment of all recording fees and documentary transfer taxes. If San Juan Hills desires to obtain title insurance, San Juan Hills shall be solely responsible for obtaining such insurance and paying any premiums, fees and/or costs in connection therewith. San Juan Hills intends to incorporate the Parcel into its golf course, which may include relocating an existing green and/or lake on or adjacent to the Parcel. City will cooperate in good faith with San Juan Hills in this regard. The SJH Lands shall include the Parcel. 3. Upon receipt of the Payment, San Juan Hills shall dismiss the Action against the City with prejudice and the SJBA with prejudice. 4. Pursuant to this Addendum, San Juan Hills releases the City and the SJBA from all damages arising from the City's and/or the SJBA's extraction of water as alleged in the Action, any other extraction of water from the San Juan Basin and any use of the San Juan Basin through the date of this Addendum and waives the provisions of California Civil Code section 1542 as to these matters. 5. This Addendum is intended to fully and finally resolve the Action against the City and SJBA. This Addendum to the Partial Settlement Agreement is not intended to alter or Page 2 of 5 040185\0002\14935651.2 8/2/16 extinguish any Party's property, water or contractual rights, and nothing in the Addendum or the dismissals contemplated by this Addendum shall be considered an adjudication on the merits or retraxit of any such rights. 6. Provided the City fully complies with the Partial Settlement Agreement, San Juan Hills covenants that it will not initiate or maintain any lawsuit against the City or the SJBA based on the Golf Club's inability to extract groundwater through its wells, or the City's or the SJBA's operation of groundwater wells. The foregoing covenant will not operate as a bar or limitation on any lawsuit based on the intentional or negligent introduction of extraneous or potentially toxic matters into the San Juan Basin, including without limitation storm water surge or sewer water discharge (whether treated or not), or other material degradation of basin water quality by the City or SJBA. However, the City's current activities, including, but not limited to, surface application of recycled water within the boundary of the City service area and storm water discharges (which result in incidental recharge of the San Juan Basin, but which are not undertaken for the primary purpose of artificially recharging the San Juan Basin), will not be deemed an exception to the covenant not to sue set forth in this section. The foregoing covenant not to sue is void ab initio if any public entity files a condemnation action against San Juan Hills and this covenant shall not be considered in determining valuation of San Juan Hills or its water rights. The covenant not to sue will survive and be reinstated in the event that any proceeding in eminent domain does not result in a final judgment in favor of the condemning party that would have the effect of taking all of San Juan Hills' water rights. As to the SJBA only, this covenant shall not operate as a bar or limitation on any claim against the SJBA where the City has no obligation to indemnify the SJBA pursuant to the indemnity agreements attached as Exhibit 3. 7. As between the City and SJBA only,the City and SJBA agree that any agreement on the part of the City to indemnify the SJBA is unenforceable with respect to any action alleged by a third party arising from the acts of the City that are not taken under or with respect to the rights and obligations arising from the agreements attached hereto as Exhibit 3. Page 3 of 5 040185\0002\14935651.2 8/2/16 8. Dispute Resolution Mechanism. The Parties shall resolve any dispute, controversy or claim arising out of or relating to this Addendum or the Partial Settlement Agreement, or the breach, termination or invalidity either the Addendum or Partial Settlement Agreement (each, a"Dispute"), under the provisions of this Section prior to initiating litigation. The procedures set forth in this Section shall be the exclusive mechanism for resolving any Dispute that may arise from tune to time between one or more of the Parties in respect to the subject matter hereof. Prior to initiation of any legal action in the courts, the initiating party must first send a notice and demand to engage in mediation to the non-disputing parting. Notice shall be sent to the City Manager on behalf of the City, the Executive of the SJBA, and the Executive of San Juan Hills. The Disputing Parties shall cooperate with one another in selecting a neutral mediator and in scheduling the mediation proceedings. If the Disputing Parties are unable to agree upon a single mediator within three (3) business days following the date of the Mediation Demand, each Disputing Party shall appoint a mediator who in turn shall, together, select and appoint a separate neutral mediator to oversee the mediation proceedings. The Parties agree to participate in at least eight (8) hours of mediation, unless otherwise agreed to by the Parties, in accordance with mutually agreed mediation procedures, or if none, in accordance with mediation procedures provided by the mediator. The Parties agree that the mediator's fees and expenses and the costs incidental to the mediation shall be shared equally between the Disputing Parties. The Parties further agree that all offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the Disputing Parties, their agents, employees, experts and attorneys, and by the mediator and any employees of the mediator, are confidential, privileged and inadmissible for any purpose, including impeachment, in any litigation, arbitration or other proceeding involving the Parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation. If the Disputing Parties cannot resolve for any reason, including,but not limited to,the failure of any Disputing Party to agree to enter into mediation or Page 4 of 5 040185\0002\14935651.2 8/2/16 agree to any settlement proposed by the mediator, any Dispute within forty five (45) days after the mediation demand, any Disputing Party may commence an action in respect to the Dispute. 9. Each Party shall bear their own attorneys' fees and costs incurred herein. Dated: August _L,2016 City of n Juan Capistrano San Juan Hills Golf Club,LP By: By: Its: Aru o Its: San Juan Basin Authority By: Its: ATTEST: ' i Maria Mbrri�, T Clerk Page 5 of 5 040185\0002\14935651.2 8/2/16 agree to any settlement proposed by the mediator, any Dispute within forty five (45) days after the mediation demand, any Disputing Party may commence an action in respect to the Dispute. 9. Each Party shall bear their own attorneys' fees and costs incurred herein. Dated: August ,2016 City of San Juan Capistrano San Juan IZHh If Club,LP By: BY: Its: Its: San Juan Basin Authority By: Its: Page 5 of 5 040185\0002\14935651.2 8/2/16 agree to any settlement proposed by the mediator, any Dispute within forty five (45) days after the mediation demand,any Disputing Party may commence an action in respect to the Dispute. 9. Each Party shall bear their own attorneys' fees and costs incurred herein. Dated: August q , 2016 City of San Juan Capistrano San Juan Hills Golf Club,LP By: _ By: Its: Its: San Juan Basin Authority B� V Its: Act 11%hr<�� Page 5 of 5 040185\0002\14935651.2 8/2/16 EXHIBIT 1 SETTLEMENT AGREEMENT , I This Settlement Agreement (the Agreement ) is made as of 1 1 , 2016, between the City of San Juan Capistrano(the"City"), on the one hand, and San Juan Hills Golf Club, LP ("San Juan Hills"), on the other hand. The City and San Juan Hills are collectively referred to herein as the"Parties." RECITALS A. San Juan Hills owns certain real property in San Juan Capistrano which is more particularly described in Exhibit A(the "SJH Lands"), Upon and within the SJH Lands, and other lands in which San Juan Hills holds a legal interest, San Juan Hills owns and operates an 18-hole golf course and driving range called the San Juan Hills Golf Club ("Golf Club"), B. The City, a general law city duly created and existing under the Constitution and laws of the State of California, owns and operates a municipal water utility which provides to its customers water supply services, both potable and non- potable. The City owns certain real property in San Juan Capistrano which is more particularly described in Exhibit B (the "City Property") and which is adjacent to the SJH Lands. Certain irrigation distribution facilities owned and operated by San Juan Hills, including but not limited to a pipeline connecting San Juan Hills' existing groundwater wells and the San Juan Hill irrigation system ("SJH Pipeline"), are located upon the City Property. The SJH Pipeline, and other water supply infrastructure described in this Agreement, Is depicted on Exhibit C. C. Each Party alleges it has various water rights in and to a common source of supply known as the San Juan Basin ("Basin"). D. On or about March 15, 1997, the San Juan Basin Authority (SJBA) and San Juan Golf, Inc., a California corporation, entered into a Water Use and Protest Dismissal Agreement("1997 Protest Dismissal Agreement"). San Juan Hills is the successor-in-interest to San Juan Golf, Inc. E. On or about August 28, 2014, San Juan Hills filed a complaint against the City and the SJBA ("Complaint"). F. On or about October 2, 2014, the City filed a cross-complaint against San Juan Hills ("City's Cross-Complaint"), G. The Complaint and Cross-Complaint are referred to as the "Action." The Action is, as of the execution of this Agreement, pending in the Orange County Superior Court and has been assigned case number 30-2014-00742347-CU-CO-CXC. - 1 - H. The City's City Council has determined that this Agreement fulfills the public purpose of avoiding higher costs and legal uncertainties associated with continued litigation of the Action. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals, which are hereby incorporated by reference herein as if set out in full, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows. 1. STATEMENT OF INTENT AND PURPOSE 1.1 It is the intention of the Parties that this Agreement shall resolve the equitable relief sought by the Complaint and all issues raised in the Cross-Complaint, San Juan Hills may continue to pursue its claim for monetary damages on its claims for negligence and trespass/conversion only (°Remaining Claim") which the City disputes, and the City may continue to pursue City's remaining Affirmative Defenses set forth in its Answer with respect to the Remaining Claim. By agreeing to litigate the Remaining Claim, the City does not waive any defenses including the elements of causation in connection with the Remaining Claim. 1.2 The Parties further intend for this Agreement to result in the provision of a substitute and/or additional supply of water for the irrigation of the Golf Club, in lieu of San Juan Hills' production of such supply from the Basin pursuant to its water rights. Nothing in this Agreement is intended to pertain to the City's delivery of water to San Juan Hills as a retail customer of the City, separate and apart from this Agreement. 2. WATER RIGHTS AND LIMITED AGENCY 2.1 San Juan Hills alleges that it owns and holds certain water rights which are appurtenant to, pursuant to and based on its ownership of the SJH Lands and its use of water on such lands, as referenced and evidenced, in part, in Permit 21141 issued by the State Water Resources Control Board, the 1997 Protest Dismissal Agreement, and other documents, deeds and writings (collectively, "SJH Water Rights"). 2.2 As necessary and solely for the purpose of supplying Substitute Water to San Juan Hills, San Juan Hills designates the City as San Juan Hills' agent for purposes of extracting water from the Basin for the benefit of San Juan Hills for the Term of this Agreement. This designation shall not waive, transfer, sever, diminish, lessen, modify or surrender the SJH Water Rights. Instead, any water provided to San Juan Hills by the City pursuant to this Agreement, whether extracted from the Basin or otherwise, shall be deemed to constitute water attributable to the exercise of the SJH Water Rights, to the extent of such rights, and not the rights of the City. 2.3 Notwithstanding San Juan Hills' designation of the City as San Juan Hill's agent as stated above, San Juan Hills shall have sole and exclusive responsibility for - 2 - the maintenance, protection and defense of the SJH Water Rights, including, but not limited to, reporting San Juan Hill's use of Basin water to any agency or regulatory authority, as may be required by law, and appearing in any administrative or judicial proceeding regarding the SJH Water Rights, including but not limited to any adjudication of SJH Water Rights. Any and all costs associated with San Juan Hills' maintenance, protection and defense of the SJH Water Rights arising from causes or claims other than those contemplated by this Agreement, including attorneys'fees, will be San Juan Hills' cost. The City will indemnify San Juan Hills for any damages arising out of the City's wrongful or negligent conduct. San Juan Hills will indemnify the City for any damages arising out of San Juan Hills' wrongful of negligent conduct. 2.4 Nothing in this Agreement constitutes an agreement by the City as to the existence, validity, extent or quantity of the SJH Water Rights. 2.5 Both Parties agree and acknowledge that nothing in this Agreement is intended to surrender, alter, waive, transfer, sever, diminish or lessen any Party's water rights, or water right claims, in any manner or to any degree. 3. PROVISION OF WATER SUPPLY BY CITY 3.1 Substitute Supply 3.1.1 As of the Effective Date, the City shall provide a substitute, in lieu and/or additional water supply to San Juan Hills for golf course irrigation and other proper riparian purposes ("Substitute Water"), to the extent of SJH Water Rights, as further provided herein. San Juan Hills retains the right to pump and extract water from the Basin pursuant to its SJH Water Rights for golf course irrigation and other proper riparian purposes up to the full extent of its SJH Water Rights. San Juan Hills agrees to reduce the amount of groundwater it pumps and extracts from the Basin each year by an amount equal to the quantity of Substitute Water received from the City in the same calendar year. Nothing in this paragraph is a waiver of any rights to damages if the City is unable to provide a Substitute Supply of water to San Juan Hills pursuant to this Agreement. 3.1.2 The City reserves the right to deliver Substitute Water to San Juan Hills using any water supply source, or combination of water supply sources, the City deems appropriate, in its sole and absolute discretion, subject to terms and conditions of this Agreement, including but not limited to the water quality and price provisions set forth herein. 3.1.3 Any and all water which San Juan Hills refrains from pumping based on the receipt of Substitute Water from the City in lieu of pumping shall be attributed to its SJH Water Rights, to the extent of such rights, and San Juan Hills may store or extract such water from the Basin at any time for golf course irrigation or other proper riparian purposes, as may be permitted by law. -3- 3.2 City Facilities and Point of Delivery 3.2.1 The City shall deliver all Substitute Water to one or more connection points between the City's water delivery system and the SJH Pipeline that will permit San Juan Hills to receive the Substitute Water("POD"). All references to POD in this Agreement shall include any and all PODs. Initially, the City anticipates that the POD will be the existing connection between the City's domestic water system and the San Juan Hills irrigation system ("Domestic POD"), which the City will relocate at its own expense to a nearby location on property owned by the City, and which is more particularly identified on Exhibit C. The City reserves the right to change the POD from time to time in its sole and absolute discretion and at its own expense. In the event the City elects to use a POD that is not the Domestic POD, the City shall provide San Juan Hills notice of the alternative POD, at least thirty (30) days prior to use of the alternative POD. Further, the City may maintain more than one POD as may be necessary to provide alternative methods of delivery of the Substitute Water to San Juan Hills. All Substitute Water delivered to San Juan Hills shall be metered by the City at the POD. The City shall connect to the POD and any future POD at the City's own expense. 3.2.2 San Juan Hills shall not modify or relocate the SJH Pipeline without obtaining the City's prior written consent, which consent shall not be unreasonably withheld or delayed. In the event San Juan Hills' modification or relocation of the SJH Pipeline adversely impacts the City's ability to perform its obligations pursuant to this Agreement, the Parties shall meet and confer to determine an alternative method of delivering Substitute Water to San Juan Hills. If San Juan Hills determines to modify or relocate the SJH Pipeline, San Juan Hills shall be responsible for any and all costs, including attorneys' fees, associated with designing, permitting and constructing an alternative method of delivering Substitute Water, including but not limited to relocating the POD to permit connection to the SJH Pipeline. 3.2.3 San Juan Hills shall identify one or more on-site supervisors responsible for day-to-day communications with the City to permit the City's delivery of Substitute Water to the POD. All non-emergency communications pursuant to this Agreement shall be made by electronic mail. 3.2.4 The City shall have no responsibility or liability for the delivery, distribution or use of Substitute Water after it is delivered to the POD, so long as the Substitute Water meets the water quality requirements of this Agreement, which shall be measured at the POD. The POD connecting the San Juan Hills irrigation system to the City Facilities is intended to be the point of separation between the City's responsibility for the City Facilities and that infrastructure for which San Juan Hills is responsible. 3.3 Quantity of Supply. Pursuant to the terms of the Agreement, San Juan Hills may request, and the City shall deliver Substitute Water, up to 350 acre feet per year, to the POD for use by San Juan Hills for proper riparian purposes. The City agrees that it will be able to deliver Substitute Water up to a maximum rate of 600 gallons per minute, and 650,000 gallons per day (e.g., peak demand). -4- 3.4 Quality of Supply. Substitute Water delivered to the POD will be of sufficient quality (as indicated in Exhibit D). All monitoring and measurement of the quality of water will be taken by the City at the POD. The City will monitor total dissolved solids ("TDS") at the POD on a weekly basis. City will make monthly water quality data at the POD available to San Juan Hills upon reasonable request. 3.5 Failure to Supply, If the City is unable to provide Substitute Water to San Juan Hills pursuant to this Agreement, the City will compensate San Juan Hills for any and all consequential damages, expenses and costs, including, but not limited to, any damages, expenses and costs associated with pumping costs, water treatment costs, substitute water costs, and administrative and personnel costs. 3.6 Annual Report. At the request of the City, San Juan Hills shall provide the City with an accounting of the quantity of water produced by San Juan Hills from the Basin by month in the immediately preceding calendar year. The City shall annually provide San Juan Hills with an accounting of all Substitute Water delivered to the POD in the immediately preceding calendar year. 3.7 Except as set forth herein, this Agreement does not surrender, alter or reduce San Juan Hills' right and ability to directly or indirectly, develop, construct, operate or manage any groundwater well, or otherwise divert, use, produce, and/or extract water from the Basin for any proper riparian use or purpose. 4. PRICE AND PAYMENT FOR SUBSTITUTE WATER 4.1 San Juan Hills shall pay the City $150 (in 2016 $), per acre-foot, for the total quantity of Substitute Water delivered by the City to the POD monthly ("Price of Substitute Water"). To account for fluctuations in energy costs, the Price of Substitute Water shall be adjusted annually, on the first day of every year, based on the average cost per k/w of electricity during the prior year. Except as provided in Section 3.2.2, this Section 4, and Section 5.1, the entire cost to supply Substitute Water to San Juan Hills will be paid by the City. Such costs include, without limitation, all fixed and variable costs and expenses pertaining to the design, construction, operation, maintenance, repair, replacement and permitting of all City Facilities, one or more PODs. 4.2 The City shall invoice San Juan Hills on a monthly basis for all Substitute Water metered at the POD calculated only on the Price for Substitute Water. San Juan Hills shall be responsible for payment of all City invoices for Substitute Water delivered to the POD. San Juan Hill's payment is due and payable within 30 days after receipt, 4.3 If San Juan Hills fails to make payment for Substitute Water delivered to the POD for sixty one (61) days or more from the date of San Juan Hills' receipt of the City's invoice for such delivery, the City reserves the right to charge interest in accordance with the City's regular billing practices for water customers on the amount San Juan Hills remains in arrears, in addition to such other remedies and courses of action available to the City at law, including but not limited to the City's termination of - 5- the delivery of Substitute Water until such time as San Juan Hills makes payment for all Substitute Water delivered to it. 5. CONSERVATION OF WATER AND USE OF RECYCLED WATER 5.1 If the City chooses to use recycled water to satisfy its obligations pursuant to this Agreement, in whole or in part, subject to the water quality requirements in Section 3.4, San Juan Hills shall cooperate in good faith to permit the City's construction of any or all facilities and infrastructure as may be required or deemed necessary by the City to accomplish the City's delivery of recycled water to the Golf Club, including without limitation replacement of putting green complexes if reasonably required for adequate drainage and dissipation of TDS and other contaminants. Construction of such facilities and introduction of such infrastructure must be accomplished in a manner least intrusive and disruptive to the business of San Juan Hills, as determined by San Juan Hills. Except as provided in Section 3.2.2, Section 4 and this Section 5.1, all costs associated with the delivery of recycled water to San Juan Hills will be the City's cost. In the event the City elects to use recycled water pursuant to this Agreement, San Juan Hills shall identify one or more on-site supervisors knowledgeable in the use of recycled water. The costs of the on-site supervisor shall be borne by San Juan Hills. 5.2 Annually, on or before May 1, San Juan Hills and the City shall meet and confer to review the Annual Report and discuss whether San Juan Hills' use of Substitute Water may be reduced with implementation of one or more conservation measures, including but not limited to: measures designed to improve the efficacy and efficiency of the percolation and drainage of Substitute Water supplied to the Golf Club, provision of annual cash incentive to lessen consumption, replacement of turf, and installation of water saving irrigation systems. The Parties shall cooperate fully and in good faith to investigate and permit the implementation of such conservation measures. If the parties agree to implement conservation measures, any and all costs associated with implementing such conservation measures shall be borne by the City. 6. ACCESS 6.1 In the event the City needs easements or access to San Juan Hills' property to investigate or implement a recycled water strategy contemplated by this Agreement, San Juan Hills will reasonably cooperate with the City to effectuate investigation and implementation of a recycled water strategy, so long as the investigation or implementation does not materially impact the San Juan Hills golf course operations. This investigation and implementation may include, but is not limited to: site surveys; cross connection testing; disconnection of any discovered cross connections; installation of piping and conveyance infrastructure required for conveyance and distribution of recycled water(e.g., purple pipe); modification of the existing system to control overspray and to prevent run-off into the creek; construction of barriers to prevent overspray of water from landing on San Juan Hills' facilities with which the public may have physical contact(e.g., drinking fountains); posting signs advising that recycled water is being used at the Golf Club; annual cross connection -6- tests; site visits to investigate run-off or overspray issues; and such other actions as deemed reasonably necessary by the City, all of which will be at the City's cost. 6.2 The Parties acknowledge the City's delivery of Substitute Water to San Juan Hills may, from time to time, require the City's use of and access to certain SJH Lands or other real property in which San Juan Hills holds a legal interest. In the event use and access to such real property is required, San Juan Hills shall reasonably cooperate in good faith to grant any and all licenses, easements and/or access as necessary or convenient to permit the City's delivery of Substitute Water to San Juan Hills, including, but not limited to, the right to construct, operate, maintain, repair and relocate City Facilities over, under, or through such real property, and the right to access such real property for the purpose of constructing, operating, maintaining, repairing and relocating the City Facilities. However, under no circumstances will San Juan Hills be obligated to grant a license, an easement and/or access that materially adversely impacts San Juan Hills' use and enjoyment of the SJH Lands or such other real property upon which the Golf Club is located. The City shall take all reasonable measures to not interfere with San Juan Hills'golf course operation. 7. INTERRUPTIONS OF SERVICE 7.1 Force Majeure Interruptions. In the event of a Force Majeure (as defined herein) prohibits or prevents the City's delivery of Substitute Water to San Juan Hills for any length of time, such delivery may be suspended without liability on the part of the City. The City shall make reasonable best efforts to reinstate such deliveries or to provide an alternative source of Substitute Water to San Juan Hills as soon as possible. "Force Majeure" means an act of God, governmental (not including the City) restriction, shortage, failure or inability to secure materials or labor, strike, lockout, regulation, order, action or inaction of any governmental entity not including the City, war, civil disturbance, fire, unavoidable casualties, actions of third parties or any other cause beyond the reasonable control of the City. B. REPRESENTATIONS AND WARRANTIES 8.1 San Juan Hills represents and warrants as follows, each of which is true and correct as of the Effective Date. B.1.1 San Juan Hills is the sole owner of the SJH Lands. 8.1.2 San Juan Hills is the sole owner of the SJH Water Rights, subject to a lien in favor of its lender. 8.2 The City represents and warrants as follows, each of which is true and correct as of the Effective Date. 8.2.1 The City may lawfully enter into this Agreement and take on the obligations set forth herein. - 7 - 8.2.2 San Juan Hills Lands are subject to the City's Open Space Recreational zoning and land use designation. San Juan Hills Golf Club as it is presently operated does not violate any ordinance or zoning law relating to its land use. The various zoning ordinances pertaining to permitted uses specified in the City's Open Space Recreational zoning designation and implementing the City General Plan as set forth in the City Municipal Code are not in conflict with the City's General Plan. 9. COMPLIANCE WITH LAW 9.1 Substitute Water delivered to San Juan Hills may be used solely upon and only for the reasonable and beneficial uses of the Golf Club and other proper riparian purposes. 9.2 A Party's failure to perform its obligations under this Agreement will not be deemed a breach of this Agreement by such Party if such performance would violate any law. However, if the City is subsequently precluded by law from supply water to San Juan Hills as provided in this Agreement, the City will remain liable to San Juan Hills for any and all consequential damages, including, but not limited, damages arising from and related to the cost of obtaining additional or substitute water supplies. 9.3 The City shall be solely responsible for complying with the requirements of the California Environmental Quality Act(CEQA), if necessary, in connection with this Agreement or the implementation and performance of this Agreement, including any costs associated with compliance with CEQA. 10. PARTIAL RESOLUTION OF ACTION 10.1 Within ten (10) days of the Effective Date, the City shall dismiss its Cross- Complaint. The City will dismiss Cross-Complaint's First, Second, Third, Fourth, Fifth, and Sixth causes of action with prejudice. The City will dismiss the remainder of the causes of action contained within the Cross-Complaint without prejudice. All City invoices for the delivery of water to the Domestic POD for the period prior to the Effective Date are withdrawn and forever canceled. 10.2 Within ten (10) days of the Effective Date, San Juan Hills shall file a stipulation to strike the request for equitable relief(injunction) in the Complaint and any language directly related thereto. 10.3 For purposes of resolving the Remaining Claim the City agrees not to assert that the City has water rights senior in priority to the rights of San Juan Hills as a defense to the Remaining Claim and San Juan Hills shall not be required to prove either the validity or priority of the SJH Water Rights. The Parties acknowledge and agree that the City's agreement pursuant to this Section 10.3 is made solely and exclusively for purpose of expediting resolution of the Remaining Claim, shall not constitute or be construed as a waiver of the City's claimed water rights in any other context or venue, shall have no precedent, and shall not constitute an admission against interest. -8- 11. TERM AND TERMINATION 11.1 This Agreement shall be effective on the date it is executed by the Parties (the"Effective Date). This Agreement shall continue in perpetuity unless earlier terminated in writing, by San Juan Hills (the "Term"). In the event that San Juan Hills terminates this Agreement, this Agreement is null and void without further action of the Parties. 12. GENERAL PROVISIONS 12.1 Notices. All notices, consents, requests, demands, approvals, authorizations and other necessary communications required by or concerning this Agreement shall be in writing and shall be deemed to have been duly given if and when: (a) personally served; or(b)three (3) business days after being sent by means of United States registered or certified mail, return receipt requested, postage prepaid, to the other Party at the address set forth below: City: City Manager City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 San Juan Hills: San Juan Hills Golf Club, LP Attn: President 32120 San Juan Creek Road San Juan Capistrano, CA 92675 With a copy to: Gerald A. Klein, P.C. Klein &Wilson 4770 Von Karman Newport Beach, CA 92660 12.2 Recitals and Exhibits. The recitals and all exhibits, attachments and other documents referenced in this Agreement are fully incorporated herein by this reference. 12.3 Further Documents. The Parties shall execute such further documents as may be reasonably necessary to carry out and fulfill the intent and purpose of this Agreement. 12.4 Covenants Running with the Land. The benefits and obligations contained herein will be equitable servitudes and covenants running with the land pursuant to applicable law. -9 - 12,5 Continuing Jurisdiction. The Court in which the Action is pending shall maintain jurisdiction over the Parties to enforce the provisions of this Agreement pursuant to California Code of Civil Procedure section 664.6. 12.6 No Prior Agreements. This Agreement represents the entire understanding among the Parties concerning its subject matter, There are no other covenants, conditions, understandings among the Parties except as stated herein. 12.7 Amendment. No provision of this Agreement may be waived, canceled, altered, revoked or otherwise modified unless made in a writing signed by both Parties. 12.8 Choice of Law and Venue. This Agreement shall be construed in accordance with California law, and any permitted action, arbitration or other proceeding concerning this Agreement must be initiated and maintained solely in Orange County Superior Court, California. 12,9 Interpretation. This Agreement is deemed to be prepared by all Parties and the language in all parts of this Agreement is construed simply according to its fair meaning and not strictly for or against any particular Party. All Parties hereto acknowledge that they have been represented by independent counsel of their own choice throughout all of the negotiations that preceded the execution of this Agreement. This Agreement is and will be construed fairly as to all Parties and not in favor of or against any of the Parties, regardless of which Party actually prepared this Agreement, and the Parties agree that California Civil Code section 1654 will not apply in the event an uncertainty with respect to this Agreement is asserted or identified. Whenever the context requires, all words used in the singular are construed to have been used in the plural, and vice versa, and each gender includes any other gender. The captions of the sections of this Agreement are for convenience only and will not affect the construction or interpretation of any of the provisions herein. Unless the context otherwise requires, references herein: (a) to Sections and Exhibits mean the Sections of, and the Exhibits attached to, this Agreement; (b)to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement; and (c) to a statute means such statute as amended from time to time and includes any successor legislation thereto. 12.10 Severability, If any term, provision or covenant of this Agreement is determined to be illegal, invalid, void or against public policy, such term, provision or covenant shall be modified or changed by the Parties to the extent possible to carry out the intentions and purposes stated in this Agreement. The remaining provisions shall remain in full force and effect and shall not be affected, impaired or invalidated thereby, 12.11 Waiver. The failure of any Party at any time or times to enforce or require performance of any provision hereof shall in no way operate as a waiver or affect the right of such Party at a later time to enforce the same. No waiver by any Party of any condition or the breach of any term, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall - 10 - be deemed to be or construed as a further or continuing waiver of any such condition or breach, or a waiver of any other condition or of any other breach of any term, covenant, representation or warranty contained in this Agreement. 12.12 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original, and all of which together when executed shall constitute one and the same instrument. This Agreement shall not be effective until the execution and delivery between each of the Parties of at least one set of counterparts. The Parties authorize each other to detach and combine original signature pages and consolidate them into a single identical original. Any of such completely executed counterparts shall be sufficient proof of this Agreement. 12.13 Authority. Each Party and each person signing on behalf of a Party represents this Agreement has been duly authorized by such Party and that the person signing this Agreement has been duly authorized and empowered to enter into this Agreement on behalf of the party signing it. Each signatory shall also indemnify the other Parties to this Agreement, and hold them harmless, from any and all damages, costs, attorneys' fees, and other expenses, if the signatory is not so authorized. 12.14 Binding Effect. This Agreement shall inure to the benefit of, and shall be binding upon the Parties hereto including the Parties' successors and assigns, past and present parents, subsidiaries, 'affiliates, predecessors, successors, assigns, officers, directors, employees, agents, representatives, and each of them. 12.15 Attorneys' Fees. In the event of any litigation between the Parties related to the interpretation or enforcement of this Agreement, the prevailing party in that litigation shall be entitled to recover reasonable attorneys'fees and costs from the other. 12.16 Party Representation. The Parties have been represented in the negotiations for preparation of this Agreement by legal counsel of their own choosing, have been fully advised by such counsel of their rights and duties hereunder, have read this Agreement in its entirety, have had this Agreement and each of its parts fully explained to them by their counsel, and are fully aware of its contents and its legal effect. The Parties have relied only on the representations contained in and expressly set forth in this Agreement in entering this Agreement. - 11 - IN WITNESS WHEREOF,the Parties have executed this Agreement as of the date first above written. CITY OF SAN JUAN CAPISTRANO DATED: By: Pam Patterson, Mayor ATTEST: By: City Clerk APPRO�PO AS O FORM: t r By: ,especial Counsel f San Juan Hills Golf Club, LP By: San Juan Hills Golf Club, Inc, Its: General Partner DATED: By: Roberto Brutocao, President Exhibit A: Legal Description of SJH Lands Exhibit B: Legal Description of City Property Exhibit C: Map of City and San Juan Hills Infrastructure Exhibit D: Water Quality Thresholds for Golf Club 12 IN WITNESS WHEREOF,the Parties have executed this Agreement as of the date first above written. CITY OF SAN JUAN CAPISTRANO DATED: By: Pam Patterson, Mayor ATTEST: By: City Clerk APPROVED AS TO FORM: By: Special Counsel San Juan Hills Golf Club, LP By: San Juan Hills Golf Club, Inc. Its: General Partner DATED: 6-0 0o By: Roberto Brutocao, President Exhibit A: Legal Description of SJH Lands Exhibit B: Legal Description of City Property Exhibit C: Map of City and San Juan Hills Infrastructure Exhibit D: Water Quality Thresholds for Golf Club - 12 - IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. CITY gP AN JUAN CAPI TRANO DATED: Z?-/,-.;)c-� �, By: :�f Pam Patterson, Mayor ATTEST: By: A.4 Cit Clerk APPROVED AS TO FORM: By: Special Counsel San Juan Hills Golf Club, LP By: San Juan Hills Golf Club, Inc. Its: General Partner DATED: By: Roberto Brutocao, President Exhibit A: Legal Description of SJH Lands Exhibit B: Legal Description of City Property Exhibit C: Map of City and San Juan Hills Infrastructure Exhibit D: Water Quality Thresholds for Golf Club - 12 - Exhibit A Legal Description of SJH Lands [13 pages attached] EXHIBIT A ALL THAT CERTAIN LAND SITUATED M THE STATE OF CALIFORNIA,COUNTY OF ORANGE,CITY OF SAN JUAN CAPISTRANO, AND IS DESCRIBED AS FOLLOWS: PARCEL I: THOSE PORTIONS OF SECTIONS 6 AND 7,TOWNSHIP 8 SOUTH,RANGE 7 WEST OF THE SAN BERNARDINO MERIDIAN, ACCORDING TO THE OFFICIAL PLAT OF SAID LAND FILED IN THE DISTRICT LAND OFFICE, APRIL 12, 1875,AND THAT PORTION OF LOT 42,IN TOWNSHIP 8 SOUTH,RANGE 7 WEST,IN THE RANCHO BOCA DE LA PLAYA IN SAID CITY AND COUNTY,AS PER MAP RECORDED 1N BOOK 4,PAGES 118 AND 119 OF PATENTS IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHWESTERLY CORNER OF LOT 1, TRACT NO, 10319, AS SHOWN ON MAP RECORDED IN BOOK 504,PAGES 1 THROUGH 7,INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF THE COUNTY OF ORANGE, STATE OF CALIFORNIA, SAID POINT ALSO BEING THE SOUTHERLY CORNER OF PARCEL 1,AS SHOWN ON MAP RECORDED IN BOOK 3, PAGE 11 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY OF ORANGE; THENCE ALONG THE SOUTHWESTERLY LINE OF SAID TRACT 10319, THE FOLLOWING SEVEN(7)COURSES AND DISTANCES: 1) SOUTH 30'41'43"EAST 192.09 FEET; 2) SOUTH 22'50'59"EAST 127.60 FEET; 3) SOUTH 360 55'52"EAST 291.24 FEET; 4) SOUTH 380 28'29"EAST 314.23 FEET; 5) SOUTH 38"58'26"EAST 519.53 FEET; 6) SOUTH 100 54'22" WEST 63.39 FEET; 7) SOUTH 340 05'38"EAST 269.07 FEET; TO THE NORTHWESTERLY LINE OF LA NOVIA AVENUE 42 FEET WIDE AS SHOWN ON SAID MAP OF SAID TRACT 10319,SAID POINT BEING A POINT ON A NON-TANGENT CURVE,WITH A RADIAL LINE BEARING NORTH 380 53' 36" WEST, OF THE NORTHWESTERLY LINE OF TRACT 12735, AS SHOWN ON MAP RECORDED IN BOOK 565,PAGES 49 AND 50 INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY OF ORANGE; THENCE ALONG THE NORTHWESTERLY, NORTHEASTERLY AND NORTHERLY LINES OF SAID TRACT 12735,THE FOLLOWING NINE(9)COURSES, DISTANCES,AND CURVES: 1) SOUTHWESTERLY ALONG A NON-TANGENT CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 458.00 FEET,THROUGH A CENTRAL ANGLE OF 11° 16'04",AND AN ARC DISTANCE OF 90.07 FEET; 2) SOUTH 620 22'28"WEST 50.50 FEET; 3) NORTH 230 06'13"WEST 107.00 FEET; 4) THENCE ALONG A CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 55.00 FEET, THROUGH A CENTRAL ANGLE OF 95°08'47",AN ARC DISTANCE OF 91.33 FEET; 5) SOUTH 610 45'00"WEST 46.00 FEET; 6) ALONG A CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 240.00 FEET,THROUGH A CENTRAL ANGLE OF 4°50'00",AN ARC DISTANCE OF 20.25 FEET; 7) ALONG A CURVE CONCAVE NORTHERLY HAVING A RADIUS OF 50.00 FEET, THROUGH A CENTRAL ANGLE OF 530 00'00",AN ARC DISTANCE OF 46.25 FEET; 8) NORTH 70°05'00"WEST 87.00 FEET; PAcat 9) ALONG A CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 400.00 FEET,THROUGH A CENTRAL ANGLE OF 50 19'25",AN ARC DISTANCE OF 37.17 FEET; TO AN ANGLE POINT ON THE NORTHERLY BOUNDARY OF TRACT 12736, AS SHOWN PER MAP RECORDED IN BOOK 565, PAGES 39 THROUGH 41 INCLUSIVE OF MISCELLANEOUS MAPS 1N THE OFFICE OF THE SAID ORANGE COUNTY RECORDER;THENCE ALONG THE NORTHERLY BOUNDARY OF SAID TRACT 12736 THE FOLLOWING SEVEN(7)COURSES,DISTANCES,AND CURVES: 1) CONTINUING ALONG A CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 400.00 FEET,THROUGH A CENTRAL ANGLE OF H-45'35",AN ARC DISTANCE OF 82,09 FEET; 2) NORTH 870 10'00"WEST,205.00 FEET; 3) ALONG A CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 140.00 FEET,THROUGH A CENTRAL ANGLE OF 540 15'00",AN ARC DISTANCE OF 132.56 FEET; 4) ALONG A REVERSE CURVE CONCAVE NORTHERLY HAVING A RADIUS OF 300.00 FEET, THROUGH A CENTRAL ANGLE OF 9°30'00",AN ARC DISTANCE OF 49.74 FEET; 5) SOUTH 48°05'00"WEST, 157,00 FEET; 6) SOUTH 45° 10'00"WEST,56.00 FEET, 7) ALONG A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 600.00 FEET, THROUGH A CENTRAL ANGLE OF 200 26' 13",AN ARC DISTANCE OF 214,02 FEET; TO THE NORTHERLY MOST CORNER OF TRACT 12737, AS SHOWN ON A MAP RECORDED IN BOOK 570, PAGES 3 THROUGH 5, INCLUSIVE,MISCELLANEOUS MAPS, IN THE OFFICE OF SAID ORANGE COUNTY RECORDER; THENCE ALONG THE NORTHWESTERLY LINE OF SAID TRACT NO. 12737 THE FOLLOWING TWELVE(12)COURSES,DISTANCE,AND CURVES: 1) CONTINUING ALONG A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 600.00 FEET,THROUGH A CENTRAL ANGLE OF 3° 18'45",AN ARC LENGTH OF 34.69 FEET; 2) ALONG A REVERSE CURVE,CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 360,00 FEET,THROUGH A CENTRAL ANGLE OF 22°25'00",AN ARC LENGTH OF 140.85 FEET; 3) SOUTH 469 30'00"WEST,25,00 FEET; 4) ALONG A CURVE SOUTHEASTERLY HAVING A RADIUS OF 240.00 FEET, THROUGH A CENTRAL ANGLE OF 140 40'00",AN ARC LENGTH OF 61.44 FEET; 5) SOUTH 310 50'00"WEST,37.07 FEET; 6) ALONG A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 240.00 FEET, THROUGH A CENTRAL ANGLE OF 27° 10'00",AN ARC LENGTH OF 113.80 FEET; 7) SOUTH 590 00'00"WEST,140.00 FEET; 8) ALONG A CURVE CONCAVE NORTHWESTERLY, HAVING A RADIUS OF 480.OD FEET, THROUGH A CENTRAL ANGLE OF 9°00'00",AN ARC LENGTH OF 75.40 FEET; 9) SOUTH 680 00'00" WEST,95.00 FEET; 10) SOUTH 64°00'00"WEST,55.00 FEET; 11) ALONG A CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 80.00 FEET, THROUGH A CENTRAL ANGLE OF 310 30'00",AN ARC LENGTH OF 43.98 FEET; 12) ALONG A REVERSE CURVE, CONCAVE NORTHWESTERLY HAVING A RADIUS OF 200.00 FEET,THROUGH A CENTRAL ANGLE OF 21°4743",AN ARC LENGTH OF 76.08 FEET; TO THE NORTHERLY MOST CORNER OF TRACT 12825, AS SHOWN ON A MAP IN BOOK 587, PAGES 28 THROUGH 30 INCLUSIVE, MISCELLANEOUS MAPS, IN THE OFFICE OF SAID ORANGE COUNTY RECORDER;THENCE ALONG THE NORTHWESTERLY LINE OF SAID TRACT NO. 12825 THE FOLLOWING EIGHTEEN(18)COURSES,DISTANCES AND CURVES: I) CONTINUING ALONG A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 200.00 FEET,THROUGH A CENTRAL ANGLE OF 210 47'17",AN ARC LENGTH OF 76.05 FEET; PAGE 2 2) ALONG A REVERSE CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 160.00 FEET THROUGH A CENTRAL ANGLE OF 27°20'00",AN ARC LENGTH OF 76.33 FEET; 3) ALONG A CURVE CONCAVE NORTHWESTERLY, HAVING A RADIUS OF 140.00 FEET, THROUGH A CENTRAL ANGLE OF 17"10'00",AN ARC LENGTH OF 41.95 FEET, 4) SOUTH 650 55'00"WEST,60.00 FEET; 5) ALONG A CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 55.00 FEET, THROUGH A CENTRAL ANGLE OF 30°45'00",AN ARC LENGTH OF 29.52 FEET; 6) ALONG A REVERSE CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 70.00 FEET,THROUGH A CENTRAL ANGLE OF 25°30'56".AN ARC LENGTH OF 31.17 FEET; 7) ALONG A REVERSE CURVE, CONCAVE SOUTHEASTERLY,HAVING A RADIUS OF 300.00 FEET,THROUGH A CENTRAL ANGLE OF 14°30'56",AN ARC LENGTH OF 76.00 FEET; 8) SOUTH 460 10'00"WEST,129.75 FEET; 9) ALONG A CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 100,00 FEET, A CENTRAL ANGLE OF 60 10'00",AN ARC LENGTH OF 10,76 FEET; 10) SOUTH 400 00'00"WEST,97.00 FEET; 11) SOUTH 29°30'00"WEST,45.00 FEET; 12) ALONG A CURVE CONCAVE NORTHWESTERLY, HAVING A RADIUS OF 75.00 FEET, THROUGH A CENTRAL ANGLE OF 16"50'00",AN ARC LENGTH OF 22.03 FEET; 13) SOUTH 460 20'00"WEST,76.00 FEET; 14) ALONG A CURVE SOUTHEASTERLY, HAVING A RADIUS OF 100,00 FEET, THROUGH A CENTRAL ANGLE OF 139 00'00",AN ARC LENGTH OF 22.69 FEET; 15) SOUTH 33°20'00"WEST,76.00 FEET; 16) SOUTH 270 40'00"WEST,132.50 FEET; 17) ALONG A CURVE CONCAVE NORTHWESTERLY, HAVING A RADIUS OF 70,00 FEET, THROUGH A CENTRAL ANGLE OF 48"50'00",AN ARC LENGTH OF 59.66 FEET; 18) ALONG A REVERSE CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 100.00 FEET,THROUGH A CENTRAL ANGLE OF 250 21'37",AN ARC LENGTH OF 44.26 FEET; TO THE MOST NORTHERLY CORNER OF TRACT 12831,AS SHOWN ON A MAP RECORDED IN BOOK 592, PAGES 32 THROUGH 34 INCLUSIVE MISCELLANEOUS MAPS, IN THE OFFICE OF THE OFFICE OF SAID ORANGE COUNTY RECORDER;THENCE ALONG THE NORTHWESTERLY AND WESTERLY LINE OF SAID TRACTNO. 12831 THEFOLLOWING SIX(6)COURSES,DISTANCES,AND CURVES: 1) CONTINUING ALONG A CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 100.00 FEET,THROUGH A CENTRAL ANGLE OF 15°48'23",AN ARC LENGTH OF 27.59 FEET; 2) SOUTH 35'20'00"WEST,70.00 FEET; 3) ALONG A CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 150.00 FEET, THROUGH A CENTRAL ANGLE OF 220 55'00",AN ARC LENGTH OF 60,00 FEET; 4) SOUTH 120 25'00"WEST,74.50 FEET; 5) ALONG A CURVE CONCAVE EASTERLY, HAVING A RADIUS OF 200.00 FEET, THROUGH A CENTRAL ANGLE OF 60 25'00",AN ARC LENGTH OF 22.40 FEET; 6) SOUTH 60 00'00'WEST,105.00 FEET; TO THE NORTHERLY MOST CORNER OF TRACT 12423,AS SHOWN ON A MAP RECORDED IN BOOK 599, PAGES 1 THROUGH 5 INCLUSIVE, MISCELLANEOUS MAPS, 1N THE OFFICE OF SAID ORANGE COUNTY RECORDER; THENCE ALONG THE NORTHERLY AND WESTERLY LINE OF SAID TRACT NO. 12423, THE FOLLOWING EIGHTEEN(I8)COURSES,DISTANCES,AND CURVES: 1) SOUTH 31°00'00"WEST 82.09 FEET; 2) NORTH 809 31'13"WEST 120.00 FEET; 3) NORTH 660 49'02"WEST 83,86 FEET; 4) SOUTH 79°04'03"WEST 17.15 FEET; PAGE 3 5) SOUTH 480 53'51"WEST 136.01 FEET; 6) SOUTH 140 50'52"WEST 120.00 FEET; 7) SOUTH 240 45'25"EAST 88,00 FEET; 8) SOUTH 64°47'43"EAST 68.00 FEET; 9) SOUTH 74°50'54"EAST 159.00 FEET; 10) SOUTH 60°16'32"EAST 156,00 FEET; 11) SOUTH 12° 18'46"EAST 87.00 FEET; 12) SOUTH 29°43'50"EAST 152.00 FEET; 13) SOUTH 030 32'40"EAST 273.00 FEET; 14) SOUTH 36°10'54"EAST 105.00 FEET; 15) SOUTH 02°36'34"EAST 171.96 FEET; 16) SOUTH 10°30'00"EAST 78.00 FEET TO A POINT ON THE NORTHERLY LINE OF LA NOVTA AVENUE, 60.100 FEET WIDE; 17) FOLLOWING SAID NORTHERLY CINE OF LA NOVTA AVENUE ALONG A NON-TANGENT CURVE CONCAVE NORTHERLY,WITH A RADIAL LINE BEARING NORTH 22°53'37" WEST, HAVING A RADIUS OF 670.00 FEET,THROUGH A CENTRAL ANGLE OF 17°44' 17",AN ARC LENGTH OF 207.42 FEET, 18) SOUTH 10°51'47"WEST 25,49 FEET; TO AN ANGLE POINT ON THE SOUTHERLY LINE OF THE LAND DESCRIBED IN PARCEL 6 OF A DEED TO CRODDY CORPORATION,A CALIFORNIA CORPORATION,RECORDED APRIL 15, 1963,IN BOOK 6507,PAGE 279 OF OFFICIAL RECORDS; SAID POINT BEING ALSO AN ANGLE POINT IN THE WESTERLY LINE OF PARCEL 4,TRUSTEES DEED UPON SALE TO GLENDALE FEDERAL SAVINGS AND LOAN ASSOCIATION,A UNITED STATES CORPORATION, RECORDED IN BOOK 9756, PAGE 217, OFFICIAL RECORDS; THENCE ALONG SAID SOUTHERLY AND WESTERLY LINE THE FOLLOWING TWO(2)COURSES AND DISTANCES: 1) NORTH 650 34'19"WEST 990.76 FEET; 2) NORTH 430 05'3 V WEST 1323.41 FEET; TO AN ANGLE POINT IN THE SOUTHERLY LINE OF THE LAND DESCRIBED IN PARCEL 2 OF A DEED TO THE STATE OF CALIFORNIA, RECORDED JUNE 4, I959, IN BOOK 4742,PAGE 299 OF OFFICIAL RECORDS, SAID POINT BEING THE BEGINNING OF A NON-TANGENT CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 150.00 FEET, A RADIAL LINE THROUGH SAID POINT BEARING NORTH 12° 58, 47" EAST; THENCE NORTHEASTERLY ALONG SAID SOUTHERLY BOUNDARY LINE AND ALONG SAID NON-TANGENT CURVE THROUGH A CENTRAL ANGLE OF 1310 22'35"AN ARC DISTANCE OF 343.94 FEET; THENCE CONTINUING ALONG SAID BOUNDARY LINE NORTH 280 23'48" WEST, 132.29 FEET TO A POINT ON THE SOUTHEASTERLY LINE OF SAN JUAN CREEK ROAD, 30 FEET WIDE FROM CENTERLINE, SAID POINT BEING THE BEGINNING OF A NON-TANGENT CURVE CONCAVE NORTHERLY,HAVING A RADIUS OF 430.00 FEET, A RADIAL LINE THROUGH SAID POINT BEARING NORTH 25° 26' 57" WEST; THENCE NORTHEASTERLY FOLLOWING SAID SOUTHEASTERLY LINE OF SAN JUAN CREEK ROAD ALONG SAID NON-TANGENT CURVE THROUGH A CENTRAL ANGLE OF 14°21' 14",AN ARC LENGTH OF 107.73 FEET; THENCE CONTINUING ALONG SAID SOUTHEASTERLY LINE OF SAN JUAN CREEK ROAD NORTH 500 1 P 48"EAST, 146,05 FEET TO A POINT ON THE SOUTHWESTERLY MOST LINE OF TRACT NO,5513,AS SHOWN ON A MAP RECORDED IN BOOK 197,PAGES 42 THROUGH 44,INCLUSIVE,MISCELLANEOUS MAPS,IN THE OFFICE OF SAID ORANGE COUNTY RECORDER;THENCE ALONG THE SOUTHEASTERLY AND GENERAL EASTERLY LINES OF SAID TRACT NO. 5513 THE FOLLOWING SEVEN (7) COURSES, DISTANCES, AND CURVE: 1) SOUTH 39"48'12"EAST 22.00 FEET; 2) SOUTH 550 06'10"EAST 484.65 FEET; 3) SOUTH 710 31'20"EAST 640.52 FEET; 4) NORTH 80 14'20"EAST 491.80 FEET, PACE 5) ALONG A CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 87.50 FEET, THROUGH A CENTRAL ANGLE OF 35°34'20",AN ARC LENGTH OF 54.32 FEET; 6) NORTH 43°48'40"EAST 943.35 FEET; 7) NORTH 310 12' 41" WEST 574.08 FEET TO A POINT ON THE SOUTHEASTERLY LINE OF SAN JUAN CREEK ROAD,45 FEET WIDE FROM CENTERLFNE; SAID POINT BEING THE BEGINNING OF A NON-TANGENT CURVE CONCAVE NORTHWESTERLY, HAVING A RADIUS OF 1245,00 FEET, A RADIAL LINE FROM SAID POINT BEARING NORTH 44° 21' 29" WEST; THENCE NORTHEASTERLY FOLLOWING SAID SOUTHEASTERLY LINE OF SAN JUAN CREEK ROAD ALONG SAID NON-TANGENT CURVE THROUGH A CENTRAL ANGLE OF 10 50' I V, AN ARC LENGTH OF 39.90 FEET;THENCE CONTINUING ALONG SAID SOUTHEASTERLY LINE OF SAN JUAN CREEK ROAD THE FOLLOWING THREE(3)COURSES,DISTANCES,AND CURVE: 1) NORTH 430 48'20"EAST 306.93 FEET; 2) SOUTH 500 21'09"EAST 7.02 FEET; 3) NORTH 43°48'20"EAST 578.23 FEET TO THE BOUNDARY OF TRACT NO.9181,AS SHOWN ON A MAP RECORDED IN BOOK 379,PAGES 37 TO 45 INCLUSIVE IN THE OFFICE OF SAID ORANGE COUNTY RECORDER; THENCE ALONG THE SOUTHWESTERLY LINE OF SAID TRACT NO.9181. 1) ALONG A CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 32.00 FEET, THROUGH A CENTRAL ANGLE OF 94°56'21"AN ARC LENGTH OF 53.02 FEET, 2) NORTH 480 44'41"EAST 6.00 FEET,AND 3) SOUTH 410 15' 19"EAST 123.77 FEET TO THE NORTHERLY MOST CORNER OF TRACT NO. 9034,AS SHOWN ON A MAP RECORDED IN BOOK 424,PAGES 1 l TO 16 INCLUSIVE IN THE OFFICE OF SAID ORANGE COUNTY RECORDER; THENCE ALONG THE NORTHWESTERLY, SOUTHWESTERLY AND SOUTHEASTERLY LINES OF SAID TRACT NO.9034 THE FOLLOWING SIX(6)COURSES AND DISTANCES: 1) SOUTH 45"06' l9"WEST 186.74 FEET; 2) SOUTH 90 02'33"EAST 610.44 FEET; 3) SOUTH 260 52'58"EAST 81.53 FEET; 4) SOUTH 370 45'00"EAST 69.04 FEET; 5) NORTH 600 55'02"EAST 369.00 FEET; 6) NORTH 650 02'57"EAST 179.56 FEET; TO THE SOUTHERLY MOST CORNER OF TRACT NO.9182,AS SHOWN ON A MAP RECORDED:M BOOK 405, PAGES 1 TO 9, INCLUSIVE,IN THE OFFICE OF SAID ORANGE COUNTY RECORDER;THENCE ALONG THE SOUTHEASTERLY AND NORTHEASTERLY LINE OF SAID TRACT NO.9182 THE FOLLOWING ELEVEN (11) COURSES DISTANCES AND CURVE: 1) NORTH 650 02'57"EAST 277.65 FEET; 2) NORTH 510 45'30"EAST225 A0 FEET; 3) NORTH 690 20'40"EAST 269.30 FEET; 4) NORTH 560 53'20"EAST 54.90 FEET; 5) NORTH 270 16' 10"EAST 163.70 FEET; 6) NORTH 29°23'00"EAST 236.40 FEET; 7) NORTH 420 10'00"WEST 357.50 FEET; 8) NORTH 290 07'40"WEST 150.00 FEET; 9) NORTH 19° 38' 10" WEST 106.90 FEET TO A POINT ON THE NORTHEASTERLY LINE OF AVENIDA LARGA, 60 FEET IN WIDTH, AND CONTINUING ALONG SAID NORTHEASTERLY LINE OF SAID AVENIDA LARGA AND SAID TRACT NO.9182. PAGE 10) ALONG A CURVE CONCAVE SOUTHWESTERLY, HAVING A RADIUS OF 272.00 FEET, THROUGH A CENTRAL ANGLE OF 8`11'51",AN ARC LENGTH OF 38.92 FEET; 11) NORTH 27"50'31"WEST 291.10 FEET TO A POINT ON THE NORTHEASTERLY LINE OF SAID TRACT NO, 9181, SAID POINT BEING ALSO ON THE NORTHEASTERLY LINE OF SAID AVENIDA LARGA,60 FEET IN WIDTH; THENCE CONTINUING ALONG SAID NORTHEASTERLY LINE OF SAID AVENIDA LARGA AND THE NORTHEASTERLY LINE OF SAID TRACT 9381 THE FOLLOWING COURSE,DISTANCE AND CURVE: 1) NORTH 270 50'31"WEST 9.32 FEET 2) ALONG A CURVE CONCAVE SOUTHWESTERLY, HAVING A RADIUS OF 272.00 FEET, THROUGH A CENTRAL ANGLE OF 11"59' 15",AN ARC LENGTH OF 56.91 FEET. TO A POINT ON THE SOUTHEASTERLY LINE OF SAN JUAN CREEK ROAD, THE FOLLOWING TWO (2) COURSES,DISTANCES,AND CURVE: 1) NORTH 500 10' 14" EAST, 6.00 FEET, TO THE BEGINNING OF A NON-TANGENT CURVE, CONCAVE EASTERLY, HAVING A RADIUS OF 32.00 FEET, A RADIAL LINE FROM SAID POINT BEARING NORTH 50°10'14"EAST; 2) ALONG SAID NON-TANGENT CURVE THROUGH A CENTRAL ANGLE OF 89° 37' 49", AN ARC LENGTH OF 50.06 FEET;TO A LINE PARALLEL WITH AND 52.00 FEET SOUTHERLY OF THE CENTERLINE OF SAN JUAN CREEK ROAD;THENCE NORTH 49" 48' 03" EAST, 163.84 FEET TO THE CORNER OF PARCEL 1,AS SHOWN ON A MAP RECORDED IN BOOK 3,PAGE 11, IN THE OFFICE OF SAID COUNTY RECORDER;THENCE ALONG THE SOUTHWESTERLY LINE OF SAID PARCEL 1, SOUTH 400 1 P 57" EAST, 150.00 FEET TO THE POINT OF BEGINNING, PARCEL 2: THOSE PORTIONS OF SECTIONS 6 AND 7,TOWNSHIP 8 SOUTH,RANGE 7 WEST OF THE SAN BERNARDINO MERIDIAN,ACCORDING TO THE OFFICIAL PLAT OF SAID LAND FILED IN THE DISTRICT LAND OFFICE, APRIL 12,1875,AND THAT PORTION OF LOT 42 IN TOWNSHIP 8 SOUTH,RANGE 7 WEST,IN THE RANCHO BOCA DE LA PLAYA, 1N SAID CITY AND COUNTY,AS PER MAP RECORDED IN BOOK 4, PAGES 118 AND 119 OF PATENTS, IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY,CALIFORNIA, DESCRIBED AS FOLLOWS; BEGINNING AT A POINT ON THE CENTERLINE OF SAN JUAN CREEK ROAD, 52.00 FEET IN WIDTH FROM CENTERLINE,WHICH BEARS NORTH 5D° 11'48"EAST 346,57 FEET FROM THE SOUTHERLY TERMINUS OF THAT CERTAIN COURSE SHOWN AS NORTH 50° 11'48"EAST 1949,64 FEET ON A MAP FILED 1N BOOK 68, PAGE 45 OF RECORD OF SURVEYS ON FILE IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY,CALIFORNIA;THENCE ALONG SAID CENTERLINE NORTH 50° 11'48"EAST 575,03 FEET;THENCE DEPARTING SAID CENTERLINE NORTH 390 48' 12" WEST 52.OD FEET TO THE EASTERLY CORNER OF PARCEL 2 OF PARCEL MAP 83-863,AS SHOWN ON A MAP RECORDED IN BOOK 188, PAGE 12 OF PARCEL MAPS, IN THE OFFICE OF SAID ORANGE COUNTY RECORDER SAID POINT BEING THE TRUE POINT OF BEGINNING; THENCE ALONG THE NORTHEASTERLY LINE OF PARCELS I AND 2 OF SAID PARCEL MAP 83-863 NORTH 390 48' 12" WEST 345.07 FEET, SAID LINE BEING ALSO THE NORTHEASTERLY LINE OF A PARCEL OF LAND DESCRIBED IN EXCEPTION 3 OF PARCEL 4 AS DESCRIBED IN A DOCUMENT RECORDED IN BOOK 9756, PAGES 217 TO 227 INCLUSIVE, IN THE OFFICE OF SAID ORANGE COUNTY RECORDER, TO THE NORTHERLY CORNER OF SAID PARCEL 1, SAID POINT BEING ALSO ON THE SOUTHEASTERLY LINE OF SAN JUAN CREEK CHANNEL,250.00 FEET WIDE,AS SHOWN ON SAID RECORD `- OF SURVEYS; THENCE ALONG SAID SOUTHEASTERLY LINE THE FOLLOWING COURSE, DISTANCE AND CURVE: PAGE 1) NORTH 460 17'14"EAST 1660.63 FEET; 2) ALONG A CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 11,375 FEET, THROUGH A CENTRAL ANGLE OF 90 04'16"AND ARC LENGTH OF 1800.69 FEET. THENCE DEPARTING SAID SOUTHEASTERLY LINE SOUTH 700 11'57" EAST 45.85 FEET;THENCE SOUTH 400 11'57"EAST 186.57 FEET;THENCESOUTH 35'45' 13"EAST 64.70 FEET;THENCE SOUTH 400 11'57"EAST 22.00 FEET TO A POINT ON THE NORTHWESTERLY LINE OF SAN JUAN CREEK ROAD, 30.00 FEET WIDE FROM CENTERLINE; THENCE ALONG SAID NORTHWESTERLY LINE OF SAN JUAN CREEK ROAD THE FOLLOWING SIX(6)COURSES,DISTANCES AND CURVES: 1) SOUTH 490 48'03"WEST 1065.38 FEET; 2) ALONG A CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 1230.00 FEET, THROUGH A CENTRAL ANGLE OF 50 59'43"AN ARC LENGTH OF 128.70 FEET; 3) SOUTH 430 48'20"WEST 1130.75 FEET; 4) ALONG A CURVE CONCAVE NORTHWESTERLY, HAVING A RADIUS OF 1170.00 FEET, THROUGH A CENTRAL ANGLE OF 6°23'28",AN ARC LENGTH OF 130.51 FEET; 5) SOUTH 500 11'48"WEST 1028.07 FEET; 6) NORTH 390 48'12"WEST 22.00 FEET TO THE POINT OF BEGINNING. EXCEPTING FROM PARCELS 1 AND 2 ALL OIL, GAS AND OTHER HYDROCARBONS, GEOTHERMAL RESOURCES, AND ALL OTHER MINERALS, WHETHER SIMILAR TO THOSE SPECIFIED HEREIN OR NOT, BELOW FIVE HUNDRED (500) FEET FROM THE SURFACE THAT MAY BE PRODUCED FROM THE GRANTEE'S PROPERTY, AND THE RIGHT TO PRODUCE THE SAME FROM OR WITH RESPECT TO THE GRANTEE'S PROPERTY BUT EXCLUDING ANY RIGHTS OF SURFACE ENTRY, AS RESERVED IN DEED RECORDED MARCH 30,1990 AS I.NSTRUMENTNO.90-168042 OF OFFICIAL RECORDS. PARCEL 3; LOTS A, C,E AND F OF TRACT NO. 13865,AS SHOWN ON A MAP FILED IN BOOK 679, PAGES 34 TO 41 INCLUSIVE OF MISCELLANEOUS MAPS,RECORDS OF ORANGE COUNTY,CALIFORNIA. EXCEPTING THEREFROM AN UNDIVIDED ONE-HALF INTEREST IN ALL THE OIL, GAS AND OTHER HYDROCARBON SUBSTANCES IN, UPON OR UNDER SAID LAND, TOGETHER WITH THE INCOME ACCRUING THEREFROM,AS RESERVED BY HOWARD L.KRUM AND FAY WILSON KRUM, IN THE DEED RECORDED JUNE 8, 1956 IN BOOK 3538, PAGE 550 OF OFFICIAL RECORDS, AND RE-RECORDED JULY 20, I956 IN BOOK 3584,PAGE 339 OF OFFICIAL RECORDS. NOTE; ANY INTEREST OF CLARENCE C.REED IN THE OIL AND MINERAL RIGHTS AS DISCLOSED BY THE ABOVE-MENTIONED DEEDS. PARCEL 4: EASEMENTS FOR ACCESS, INGRESS AND EGRESS AS SET FORTH IN THAT CERTAIN GRANT DEED RECORDED MARCH 30, 1990 AS INSTRUMENT NO, 90-168042 AND AS AMENDED BY THAT CERTAIN DOCUMENT ENTITLED "MODIFICATION AND GRANT OF EASEMENTS" RECORDED MAY 29, 1992 AS INSTRUMENT NO.92-360658,BOTH OF OFFICIAL RECORDS,DESCRIBED AS FOLLOWS; PARCEL 4A: THOSE PORTIONS OF SECTION 6 AND 7,TOWNSHIP 8 SOUTH,RANGE 7 WEST OF THE SAN BERNARDINO, MERIDIAN, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT OF SAID LAND FILED IN THE DISTRICT LAND OFFICE, APRIL 12, 1875,AND THAT PORTION OF LOT 42,1N TOWNSHIP 8 SOUTH,RANGE 7 WEST,IN THE RANCHO BOCA DE LA PLAYA IN SAID CITY AND COUNTY,AS PER MAP RECORDED IN BOOK 4,PAGES 118 AND 119 OF PAGE 7 PATENT, 1N THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT ON THE CENTER LINE OF SAN JUAN CREEK ROAD,60.00 FEET IN WIDTH WHICH BEARS NORTH 500 1 P 48" EAST 346.57 FEET FROM THE SOUTHERLY TERMINUS OF THAT CERTAIN COURSE SHOWN AS NORTH 50° 11'48" EAST 1949.64 FEET ON A MAP FILED IN BOOK 68, PAGE 45 OF RECORD OF SURVEYS ON FILE IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA;THENCE ALONG SAID CENTER LINENORTH 50°11'48"EAST 575.03 FEET;THENCE LEAVING SAID CENTER LINE NORTH 390 48' 12" WEST 397.07 FEET, ALONG THE NORTHEASTERLY LINE OF A PARCEL OF LAND DESCRIBED IN EXCEPTION 3 OF PARCEL 4 AS DESCRIBED 1N A DOCUMENT RECORDED IN BOOK 9756, PAGES 217 TO 227, INCLUSIVE, IN THE OFFICE OF SAID ORANGE COUNTY RECORDER, SAID LINE BEING ALSO THE NORTHEASTERLY LINE OF PARCELS 2 AND 1,PARCEL MAP 83- 863,AS SHOWN ON A MAP RECORDED IN BOOK 188 PAGE 12, PARCEL MAPS, IN THE OFFICE OF SAID ORANGE COUNTY RECORDER, TO THE SOUTHEASTERLY LINE OF SAN JUAN CREEK CHANNEL 250.00 FEET IN WIDTH AS SHOWN ON SAID RECORD OF SURVEYS SAID POINT BEING THE TRUE POINT OF BEGINNING; THENCE ALONG SAID SOUTHEASTERLY LINE SOUTH 460 17' 14" WEST 792.45 FEET TO A POINT ON THE SOUTHEASTERLY LINE OF LAND DESCRIBED IN PARCEL 2 OF A DEED TO THE STATE OF CALIFORNIA,RECORDED JUNE 4, 1959, IN BOOK 4742, PAGE 299,OF OFFICIAL RECORDS,THENCE ALONG SAID SOUTHEASTERLY LINE NORTH 29°00'37" EAST 341.43 FEET TO THE POINT OF TANGENCY OF THIS COURSE WITH A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 5630.00 FEET; THENCE NORTHEASTERLY ALONG SAID CURVE THROUGH AN ANGLE OF 10 33'37"AN ARC DISTANCE OF 153.31 FEET;THENCE NORTH 36°42'16"EAST 153.45 FEET;THENCE NORTH 24149'23"EAST 176.77 FEET;THENCE SOUTH 40° 41' 47" EAST 54.36 FEET TO THE SOUTHEASTERLY LINE OF LOT 31 IN TRACT NO. 103, AS SHOWN ON A MAP RECORDED IN BOOK 11, PAGES 29 TO 33, INCLUSIVE OF MISCELLANEOUS MAPS RECORDS OF ORANGE COUNTY,CALIFORNIA;THENCE NORTH 400 10'58"EAST 612.70 FEET ALONG SAID SOUTHEASTERLY LINE OF LOT 31 TO THE NORTHWESTERLY LINE OF THAT SAID SAN JUAN CREEK CHANNEL 250 FEET IN WIDTH, THENCE ALONG SAID NORTHWESTERLY LINE NORTH 46° 17' 14" EAST 1059.13 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 11,625.00 FEET,THENCE ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 0°47'42"AN ARC DISTANCE OF 161.31 FEET,(A RADIAL LINE THROUGH SAID POINT BEARS NORTH 42°55'D4" WEST) TO THE BOUNDARY LINE OF THE SAN JUAN CAPISTRANO TOWNSITE,AS SHOWN ON A MAP RECORDED IN BOOK 3,PAGE 120, MISCELLANEOUS RECORDS OF LOS ANGELES COUNTY,CALIFORNIA;SAID POINT ALSO BEING ON THE WESTERLY LINE OF THE LAND DESCRIBED 1N A DEED TO PAUL S. GOYA AND WIFE,RECORDED JANUARY 18, 1961,1N BOOK 5593,PAGE 537,OF OFFICIAL RECORDS;THENCE SOUTH 0° 11'58" WEST ALONG SAID WESTERLY LINE OF THE LAND OF GOYA, 176.52 FEET, MORE OR LESS,TO A POINT ON THE CENTER LINE OF THAT SAID SAN JUAN CREEK CHANNEL 250 FEET IN WIDTH, SAID CENTER LINE BEING A CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 11,500.00 FEET, A RADIAL LINE THROUGH SAID POINT BEARS NORTH 430 30113"WEST,THENCE NORTHEASTERLY ALONG SAID CENTER LINE AND SAID CURVE THROUGH A CENTRAL ANGLE OF 8°54' 11"AN ARC DISTANCE OF 1786.96 FEET TO AN ANGLE POINT THEREIN; THENCE 55123'58" EAST ALONG SAID CENTER LINE 370.92 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 3819.83 FEET; THENCE NORTHEASTERLY ALONG SAID CURVE AND ALONG SAID CENTER LINE THROUGH A CENTRAL ANGLE OF 40 38'29"AN ARC DISTANCE OF 309.43 FEET TO THE MOST EASTERLY CORNER OF SAID LAND OF PAUL S. GOYA; THENCE NORTH 281 39' 43" WEST ALONG THE NORTHEASTERLY LINE OF SAID LAND OF GOYA; 127.24 FEET TO THE NORTHWESTERLY LINE OF SAID SAN JUAN CREEK CHANNEL: THENCE CONTINUING NORTHEASTERLY ALONG SAID NORTHWESTERLY LINE OF SAID SAN JUAN CREEK CHANNEL,SAID NORTHWESTERLYLINE BEING AS A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 3,694.83 FEET, THROUGH A CENTRAL ANGLE OF 2°54'02", AN ARC DISTANCE OF 187.75 FEET, MORE OR LESS, TO THE SOUTHWESTERLY LINE OF LA NOVIA AVENUE 104 FEET WIDE AS PRESENTLY EXISTS, SAID SOUTHWESTERLY LINE OF LA NOV1A AVENUE BEING A CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 7063.37 FEET,A RADIAL LINE TO SAID POINT BEARS NORTH 42°30' 58"WEST;THENCE, SOUTHERLY ALONG THE SAID SOUTHWESTERLY LINE OF LA NOV IA A VENUE,THROUGH A CENTRAL ANGLE OF 20 0732",AN ARC DISTANCE OF 264.12 FEET,MORE PAGE 6 OR LESS; TO THE SOUTHEASTERLY LINE OF SAID SAN JUAN CREEK CHANNEL, SAID SOUTHEASTERLY LINE BEING A CURVE WITH A RADIUS OF 3944.83 FEET, A RADIAL LINE TO SAID POINT BEARS NORTH 66°34'42"EAST;THENCE ALONG SAID AFOREMENTIONED SOUTHEASTERLY LINE OF SAN JUAN CREEK CHANNEL THROUGH A CENTRAL ANGLE OF 00 57'31",AN ARC DISTANCE OF 66.00 FEET,MORE OR LESS; THENCE SOUTH 400 22'46"EAST,42.00 FEET;THENCE NORTH 64°23'24" EAST 50.51 FEET,MORE OR LESS, TO THE SAID SOUTHWESTERLY LINE OF LA NOVIA AVENUE BEING A CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 7063.37 FEET,A RADIAL LINE TO SAID POINT BEARS NORTH 67- 02' 56" EAST, THENCE SOUTHERLY ALONG SAID SOUTHWESTERLY LINE OF LA NOVIA AVENUE, THROUGH A CENTRAL ANGLE 10 23'47", AN ARC DISTANCE OF 172.19 FEET, MORE OR LESS, A RADIAL LINE TO SAID POINT BEARS NORTH 680 26'43"EAST;THENCE SOUTH 14° 07'24" WEST 29.16 FEET, MORE OR LESS;THENCE SOUTH 40° 11'57" EAST,22.00 FEET TO A POINT ON THE NORTHWESTERLY LINE OF SAN JUAN CREEK ROAD;AS PRESENTLY EXISTS,30 FEET WIDE FROM CENTER LINE;THENCE SOUTH 49° 48' 03" WEST ALONG THE SAID NORTHWESTERLY LINE, 728.86 FEET; THENCE NORTH 401 11' 57" WEST 22.00 FEET;THENCE NORTH 35°45' 13" WEST 67,70 FEET;THENCE NORTH 401 11' 57" WEST, 186.57 FEET; THENCE NORTH 700 11' 57" WEST 45.85 FEET TO A POINT ON THE SOUTHEASTERLY LINE OF SAID SAN JUAN CREEK CHANNEL SAID LINE BEING A CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 11,375.00 FEET;THENCE ALONG THE SAID SOUTHEASTERLY LINE OF SAID SAN JUAN CREEK CHANNEL THROUGH A CENTRAL ANGLE OF 9°04'16",AN ARC DISTANCE OF 1800.69 FEET,MORE OR LESS,THENCE SOUTH 460 17'14"WEST,1660.63 FEET TO THE TRUE POINT OF BEGINNING. PARCEL 4B: THOSE PORTIONS OF SECTION 6,TOWNSHIP 8 SOUTH, RANGE 7 WEST, OF THE SAN BERNARDINO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT OF SAID LAND FILED IN THE DISTRICT LAND OFFICE APRIL 12, 1875,AND THAT PORTION OF LOT 40 IN TOWNSHIP 8 SOUTH, RANGE 7 WEST, IN THE RANCHO BOCA DE LA PLAYA IN SAID COUNTY,AS SHOWN ON A MAP RECORDED IN BOOK 4,PAGES 118 AND 119 OF PATENTS IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA, AND LOTS E, F AND G OF TRACT NO. 7654 IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA,ACCORDING TO THE MAP FILED IN BOOK 441, PAGES 6 THROUGH 12, INCLUSIVE OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID ORANGE COUNTY,DESCRIBED AS A WHOLE AS FOLLOWS: BEGINNING AT THE MOST NORTHERLY CORNER OD SAID LOT G OF TRACT NO.7654,THENCE SOUTH 10- 55'20" 0°55'20" EAST ALONG THE NORTHEASTERLY LINES OF LOTS E,F AND G,717.86 FEET,MORE OR LESS TO NORTHWESTERLY LINE OF SAN JUAN CREEK ROAD;THENCE ALONG THE NORTHWESTERLY LINE OF SAN JUAN CREEK ROAD SOUTH 530 43' 03".WEST, 218.11 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE EASTERLY HAVING A RADIUS OF 1,230.00 FEET; THENCE ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 3° 55'00",AN ARC DISTANCE OF 84.08 FEET;THENCE SOUTH 49148'03" WEST, 7.54 FEET;THENCE NORTH 531 54'03" WEST, 136.47 FEET TO A POINT ON THE NORTHEASTERLY LINE OF LA NOVIA AVENUE, 104 FEET WIDE, SAID LINE ALS6 BEING A CURVE CONCAVE SOUTHWESTERLY]-HAVING A RADIUS OF 7,167.37 FEET A RADIAL LINE TO SAID POINT BEARS NORTH 67- 22'43" 7°22'43" EAST; THENCE ALONG THE NORTHEASTERLY LINE OF SAID LA NOVIA AVENUE THROUGH A CENTRAL ANGLE OF 00 35' 10",AN ARC DISTANCE OF 73.32 FEET; THENCE NORTH 30°4725" EAST 74.11 FEET;THENCE NORTH 43° 39'27" WEST,38.00 FEET,TO A POINT ON THE SOUTHEASTERLY LINE OF SAN JUAN CREEK CHANNEL 250 FEET WIDE,SAID SOUTHEASTERLYLINE BEING A CURVE HAVING A RADIUS OF 3944,83 FEET; THENCE ALONG SAID SOUTHEASTERLY LINE THROUGH A CENTRAL ANGLE OF 0°43' 34",AN ARC DISTANCE OF 51.00 FEET,TO THE SAID NORTHEASTERLY LINE OF SAID LA NOVIA AVENUE, 104 FEET WIDE SAID NORTHEASTERLY LINE BEING A CURVE HAVING A RADIUS OF 7167.37 FEET; THENCE ALONG THE SAID NORTHEASTERLY LINE OF SAID LA NOVIA AVENUE,THROUGH A CENTRAL ANGLE OF 2° 06' 27", AN ARC DISTANCE OF 264.10 FEET, TO THE INTERSECTION OF THE NORTHWESTERLY LINE OF THE SAID SAN JUAN CREEK CHANNEL;250 FEET WIDE, SAID LINE BEING A CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 3694.83 FEET ALONG SAID LINE;THROUGH A CENTRAL ANGLE OF 1°19'56",AN ARC DISTANCE OF 85.92 FEET,THENCE NORTH 45°32'18"WEST,37.00 PAGL 9 FEET;THENCE 75'18'22"WEST,54.28 FEET;THENCE NORTH 27'22'45"WEST 140.05 FEET,MORE OR LESS; TO A POINT ON THE SOUTHERLY LINE OF TRACT 7626, RECORDED IN BOOK 340, PAGES 32-34, INCLUSIVE, MISCELLANEOUS MAPS, IN THE OFFICE OF SAID ORANGE COUNTY RECORDER; THENCE ALONG SAID SOUTHERLY LINE OF TRACT 7626 NORTH 60' 13' 22" EAST, 299.71 FEET TO THE NORTHWESTERLY CORNER OF THE LAND DESCRIBED IN A DEED TO ORANGE COUNTY TRUST AND SAVINGS BANK, RECORDED APRIL 13, 1920, IN BOOK 359,PAGE 364,OF DEEDS,IN THE OFFICE OF SAID ORANGE COUNTY RECORDER, SAID POINT BEING AN ANGLE POINT IN THE NORTHERLY LME OF PARCEL 1 IN DEED TO THE CRODDY CORPORATION; THENCE NORTH 60' 5 P 05" EAST ALONG SAID NORTHERLY LINE, 189.09 FEET TO THE MOSTNORTHERLY CORNER OF SAID PARCEL I;ALSO BEING THE MOST WESTERLY CORNER OF LOT G OF SAID TRACT 7654;THENCE ALONG THE NORTHERLY LINE OF SAID LOT G,NORTH 60'55'40"EAST,46.72 FEET TO THE POINT OF BEGINNING. EXCEPTING THEREFROM THAT PORTION DESCRIBED IN EXEMPT10N NO. 1 TO PARCEL 4 IN TRUSTEES DEED UPON SALE AS RECORDED IN BOOK 9756, PAGE 217,IN THE OFFICE OF SAID ORANGE COUNTY RECORDER,AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT A POINT IN THE CENTER LINE OF GANADO DRIVE, 50.00 FEET WIDE, AS DESCRIBED IN THE DEED TO COUNTY OF ORANGE, RECORDED JUNE 24, 1936, IN BOOK 329, PAGE 253, OF OFFICIAL RECORDS, SAID POINT BEING DISTANT SOUTH 68'25'30"EAST 79.48 FEET FROM THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN SAID DEED AS"RUNNING SOUTH 68'25'30"EAST 715.52 FEET",THENCE FROM SAID POINT OF BEGINNING SOUTH 21134'30"WEST 52.60 FEET TO A POINT, SAID POINT BEING STATION"F';THENCE SOUTH 21'34'30"WEST 22.40 FEET;THENCE SOUTH 68'25'30" EAST 50.00 FEET;THENCE NORTH 21'34'30" EAST 75.00 FEET TO A POINT IN THE CENTER LINE OF THE i% ABOVE DESCRIBED GANADO DRIVE;THENCE NORTH 68'25'30"WEST ALONG SAID CENTER LINE,50.00 FEET TO THE POINT OF BEGINNING. PARCEL4C; THOSE PORTIONS OF SECTIONS 5 AND 6,TOWNSHIP 8 SOUTH,RANGE 7 WEST OF THE SAN BERNARDINO BASE AND MERIDIAN IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT OF SAID LAND FILED 1N THE DISTRICT LAND OFFICE APRIL 12, 1875, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF A CERTAIN COURSE IN THE BOUNDARY OF PARCEL 2 OF LAND CONVEYED TO CLARENCE C. REED AND MARGARET U. REED, HUSBAND AND WIFE, IN A DEED RECORDED JUNE 8, 1956,AS DOCUMENT NO.79155,IN BOOK 3538,PAGE 550,OFFICIAL RECORDS OF SAID ORANGE COUNTY,DESCRIBED AS NORTH 16'39'30"WEST 504.70 FEET,AND A CERTAIN COURSE IN THE SOUTHERLY RIGHT OF WAY LINE OF THE 250 FEET WIDE SAN JUAN CREEK CHANNEL EASEMENT AS ACCEPTED BY THE BOARD OF SUPERVISORS OF THE ORANGE COUNTY FLOOD CONTROL DISTRICT, RECORDED JANUARY 21, 1938, IN BOOK 924, PAGE 178 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY; WHICH CERTAIN COURSE IS 125.00 FEET SOUTHERLY OF AND CONCENTRIC WITH THE CHANNEL CENTER LINE COURSE DESCRIBED IN SAID CHANNEL EASEMENT ACCEPTANCE AS "AS CURVE TANGENT, CONCAVE TO THE NORTHWEST AND HAVING A RADIUS OF 5,729.65 FEET, WHICH SAID POINT"(TILE WESTERLY END OF SAID CURVE)"BEARS SOUTH 64'57-20"WEST 475.87 FEET FROM A POINT IN THE PROPERTY LINE BETWEEN THE LANDS OF DOUGLAS L. MARS14BURN AND PIERRE LACOUAGUE, DISTANT NORTH 14° 40' 50" WEST, 2071.4 FEET FROM AN IRON PIPE MARKING THE RE- ENTRANT ANGLE POINT IN SAID PROPERTY LINE;THENCE CONTINUING FROM SAID POINT ALONG SAID CURVE TANGENT THROUGH A CENTRAL ANGLE OF 13' 31'30" AN ARC DISTANCE OF 1352.52 FEET"; THENCE FROM SAID POINT OF BEGINNING,ALONG THE COURSE FIRST ABOVE MENTIONED,NOR71 T 16' 39' 30" WEST 312.07 FEET, MORE OR LESS, TO AN ANGLE POINT IN SAID PARCEL 2 BOUNDARY LINE DESCRIBED IN SAID REED DEED AS "A POINT ON THE NORTHERLY LINE OF LAND DESCRIBED 1N DEED TO ORANGE COUNTY TRUST AND SAVINGS BANK,RECORDED APRIL 13, 1920,IN BOOK 358,PAGE 364 OF DEEDS,DIST ANT WESTERLY 400.00 FEET FROM THE MOST NORTHERLY CORNER OF SAID LAND OF D.L. PAGE10 MARSHBURN", THENCE CONTINUING ALONG SAID REED DEED BOUNDARY LINE THE FOLLOWING COURSES AND DISTANCES;SOUTH 63'15'00"WEST 2661.57 FEET;SOUTH 42'52'00"WEST 495.25 FEET TO THE NORTHERLY CORNER OF LAND DESCRIBED IN A DEED TO LOUIS ROMOFF AND WIFE, RECORDED JUNE 12, 1943, IN BOOK 1189, PAGE 508 OF OFFICIAL RECORDS;THENCE SOUTH 55° 03'00" EAST 128.06 FEET(142.88 FEET SHOWN ON RECORD DEED),MORE OR LESS,TO A POINT ON THE SOUTHERLY RIGHT OF WAY LINE OF SAID 250 FOOT WIDE SAN JUAN CREEK CHANNEL EASEMENT WHICH POINT IS ON A LINE 125.00 FEET SOUTHERLY AND CONCENTRIC WITH THE CHANNEL CENTER LINE DESCRIBED IN SAID CHANNEL EASEMENT ACCEPTANCE AS("A CURVE TANGENT,CONCAVE TO THE SOUTHEAST AND HAVING A RADIUS OF 2864.93 FEET; THENCE ALONG SAID CURVE TANGENT THROUGH A CENTRAL ANGLE OF 24'34'50",AN ARC DISTANCE OF 1229.08 FEET")A RADIAL TO SAID POINT BEARS NORTH 37' 45'58"WEST, (NORTH 37'26'23"WEST SHOWN ON RECORD DEED),THENCE LEAVING SAID REED DEED BOUNDARY LINE, ALONG SAID SOUTHERLY CHANNEL RIGHT OF WAY CURVE, CONCAVE SOUTHEASTERLY AND HAVING A RADIUS OF 2739.93 FEET,THROUGH A CENTRAL ANGLE OF 12°43'18" (12' 23'43" SHOWN ON RECORD DEED)A DISTANCE OF 608.37 FEET(714.51 FEET SHOWN ON RECORD DEED);THENCE TANGENT ALONG SAID SOUTHERLY RIGHT OF WAY LINE OF SAN JUAN CREEK,NORTH' 64'57'20" EAST 2341,64 FEET TO THE BEGINNING OF A TANGENT CURVE,CONCAVE NORTHERLY AND HAVING A RADIUS OF 5854.65 FEET, DESCRIBED ABOVE AS PASSING THROUGH THE PONT OF BEGINNING;THENCE ALONG SAID CURVE,THROUGH A CENTRAL ANGLE OF 0"38'00" A DISTANCE OF 64.72 FEET TO THE POINT OF BEGINNING, EXCEPTING THEREFROM THAT LAND DESCRIBED AS PARCEL l OF LAND CONVEYED TO SAN DIEGO GAS AND ELECTRIC COMPANY BY DEED RECORDED MARCH 4, 1964, IN BOOK 6948, PAGE 462, OF OFFICIAL RECORDS. ALSO EXCEPTING THEREFROM AN UNDIVIDED ONE-HALF INTEREST IN ALL THE OIL, GAS AND OTHER HYDROCARBON SUBSTANCES IN, UPON AND UNDER SAID LAND TOGETHER WITH THE INCOME ACCRUING THEREFROM,AS RESERVED BY HOWARD L.KRUM AND FAY WILSON KRUM,HUSBAND AND WIFE, BY DEED RECORDED JUNE 8, 1956 IN BOOK 3538, PAGE 550, OF OFFICIAL RECORDS, AND RE- RECORDED JUNE 20, 1956 IN BOOK 3584, PAGE 339, OF OFFICIAL RECORDS AND AS SET FORTH 1N A GRANT DEED RECORDED MAY I4,1979 AS INSTRUMENT NO,79-18269,OF OFFICIAL RECORDS. PARCEL 5: NON-EXCLUSIVE EASEMENTS SOLELY FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, AND INGRESS AND EGRESS BY GOLF COURSE RELATED VEHICLES OVER THOSE PORTIONS OF LOTS I AND 6 AND LETTERED LOT B OF TRACT NO, 13865 AS SHOWN ON A MAP RECORDED 1N BOOK 679,PAGES 34 THROUGH 41, INCLUSIVE, OF MISCELLANEOUS MAPS,RECORDS OF ORANGE COUNTY,CALIFORNIA, AS PER GRANT OF EASEMENTS RECORDED MAY 31, 1995 AS INSTRUMENT NO.95-0231759 OF OFFICIAL RECORDS,DESCRIBED AS FOLLOWS: PARCEL 5A: A STRIP OF LAND 10 FEET WIDE,THE NORTHWESTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF THE MOST WESTERLY CORNER OF SAID LOT 1 WITH THE SOUTHEASTERLY LINE OF NOVIA AVENUE, 84,00 FEET WIDE, AS SAID LA NOVIA AVENUE IS SHOWN THE MAP OF SAID TRACT NO. 13865; THENCE ALONG SAID SOUTHEASTERLY LINE AND ALONG THE NORTHWESTERLY LINE OF SAID LOT I NORTH 62°22'28"EAST 94.49 FEET. THE SOUTHEASTERLY LINE OF SAID STRIP SHALL BE PROLONGED OR SHORTENED SO AS TO SOUTHWESTERLY IN THE SOUTHWESTERLY LINE OF SAID LOT 1 AND TERMINATE NORTHEASTERLY IN THE SOUTHEASTERLY LINE OF SAID LOT 1. PAGE l l PARCEL 5B: A STRIP OF LAND 12,00 FEET WIDE,THE NORTHEASTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: BEGINNING AT THE EASTERLY TERMINUS OF THAT CERTAIN COURSE IN THE SOUTHERLY LINE OF SAID LOT 1, AS HAVING A BEARING AND DISTANCE OF "N 88°26'14" E 18.83"; THENCE ALONG THE NORTHEASTERLY LINE OF SAID LOT B THE FOLLOWING TWO(2)COURSES,SOUTH 33°2741"EAST 25,33 FEET AND SOUTHEASTERLY ALONG A TANGENT CURVE CONCAVE NORTHEASTERLY HAVING A RADIUS OF 148.00 FEET THROUGH A CENTRAL ANGLE OF 04°59'15"AND ARC DISTANCE OF 12.88 FEET. THE SOUTHWESTERLY LINE OF SAID STRIP IS TO BE PROLONGED OR SHORTENED SO AS TO TERMINATE NORTHWESTERLY IN THE NORTHERLY LINE OF SAID LOT B AND TO TERMINATE SOUTHEASTERLY IN THE SOUTHEASTERLY LME OF SAID LOT B. PARCEL 5C; A STRIP OF LAND 10.00 FEET WIDE LYING 5.00 FEET ON EACH SIDE OF THE FOLLOWING DESCRIBED CENTER LINE: BEGINNING AT THE NORTHERLY TERMINUS OF THAT CERTAIN COURSE IN THE BOUNDARY OF SAID LOT 6,AS HAVING A BEARING AND DISTANCE OF"N 18°53'39"E 48.15"',SAID POINT BEING ON A NON- TANGENT CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 576.00 FEET, A RADIAL LINE TO SAID POINT BEARS NORTH 441 01'02" EAST; THENCE SOUTHEASTERLY ALONG SAID CURVE AND ALONG THE SOUTHWESTERLY LINE OF SAID LOT 6 THROUGH A CENTRAL ANGLE OF 050 05'55"AN ARC DISTANCE OF 51.26 FEET TO THE TRUE POINT OF BEGINNING; THENCE NORTH 49° 06 57" EAST 46.88 FEET; THENCE NORTH 04° 16'25" EAST 8.40 FEET; THENCE NORTH 43° 17'23" EAST 116.41 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE WESTERLY HAVING OF A RADIUS OF 15.00 FEET:THENCE NORTHERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 720 10'2011 AN ARC DISTANCE OF 18.99 FEET;THENCE NORTH 28°5T 57"WEST 30.90 FEET TO A POINT ON THE NORTHERLY LINE OF SAID LOT 6. T14E SIDE LINES OF SAID STRIP ARE TO BE PROLONGED OR SHORTENED SO AS TO TERMINATE SOUTHWESTERLY IN THE SOUTHWESTERLY LINE OF SAID LOT 6 AND TO TERMINATE NORTHWESTERLY IN THE NORTHERLY LINE OF SAID LOT 6, EXCEPTING FROM PARCELS 5A, 5B AND 5C THE WATER RIGHTS INCLUDED WITHIN OR APPURTENANT TO THE LAND LYING WITHIN THE DISTINCTIVE BORDER LINE OF THIS TRACT AS DEDICATED TO THE CAPISTRANO VALLEY WATER DISTRICT ON THE MAP OF SAID TRACT. PARCEL 6: EASEMENTS FOR ACCESS, INGRESS AND EGRESS AS SET FORTH IN THAT CERTAIN QUITCLAIM DEED RECORDED JANUARY 10, 1985 AS INSTRUMENT N0, 85-009374; AND IN THAT CERTAIN CORPORATION GRANT DEED RECORDED JULY 19, 1991 AS INSTRUMENT NO. 91-379233; AND IN THAT CERTAIN QUITCLAIM DEED RECORDED OCTOBER 25, 1993 AS INSTRUMENT NO. 93-0725490, ALL OF OFFICIAL RECORDS,REFERENCE BEING MADE TO THE RECORD THEREOF FOR FULL PARTICULARS. PARCEL 7; A NON-EXCLUSIVE EASEMENT FOR INSTALLATION, OPERATION AND MAINTENANCE OF AN UNDERGROUND DRAINAGE SYSTEM OVER THAT PORTION OF TRACT 5514 AS SHOWN ON A MAP RECORDED 1N BOOK 202, PAGES 24 THROUGH 31,INCLUSIVE,OF MISCELLANEOUS MAPS,RECORDS OF ORANGE COUNTY,CALIFORNIA,AS SET FORTH IN THAT CERTAIN"EASEMENT AND AGREEMENT" PAGE11 RECORDED NOVEMBER 17,1979 IN BOOK 12929,PAGE 1803 OF OFFICIAL RECORDS,REFERENCE BEING MADE TO THE RECORD THEREOF FOR FULL PARTICULARS. PARCEL 8: THOSE PORTIONS OF SECTIONS 6 AND 7,TOWNSHIP 8 SOUTH,RANGE 7 WEST OF THE SAN BERNARDINO MERIDIAN,ACCORDING TO THE OFFICIAL PLAT OF SAID LAND FILED IN THE DISTRICT LAND OFFICE, APRIL 12,1875,AND THAT PORTION OF LOT 42 IN TOWNSHIP 8 SOUTH,RANGE 7 WEST,IN THE RANCHO BOCA DE LA PLAYA,IN SAID CITY AND COUNTY,AS PER MAP RECORDED IN BOOK 4,PAGES 118 AND 119 OF PATENTS,IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY,CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT ON THE CENTERLINE OF SAN JUAN CREEK ROAD,52.00 FEET IN WIDTH FROM CENTERLINE,WHICH BEARS NORTH 50-11'48"EAST 346.57 FEET FROM THE SOUTHERLY TERMINUS OF THAT CERTAIN COURSE SHOWN AS NORTH 50°11'48"EAST 1949,64 FEET ON A MAP FILED IN BOOK 68, PAGE 45 OF RECORD OF SURVEYS ON FILE IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY,CALIFORNIA;THENCE ALONG SAID CENTERLINE NORTH 50°11'48"EAST 575.03 FEET;THENCE DEPARTING SAID CENTERLINE NORTH 390 48'12"WEST 52.00 FEET TO THE EASTERLY CORNER OF PARCEL 2 OF PARCEL MAP 83-863,AS SHOWN ON A MAP RECORDED IN BOOK 188,PAGE 12 OF PARCEL MAPS,IN THE OFFICE OF SAID ORANGE COUNTY RECORDER SAID POINT BEING THE TRUE POINT OF BEGINNING;THENCE ALONG THE NORTHEASTERLY LINE OF PARCELS 1 AND 2 OF SAID PARCEL MAP 83-863 NORTH 39049'12"WEST 345.07 FEET,SAID LINE BEING ALSO THE NORTHEASTERLY LINE OF A PARCEL OF LAND DESCRIBED IN EXCEPTION 3 OF PARCEL 4 AS DESCRIBED IN A DOCUMENT RECORDED IN BOOK 9756,PAGES 217 TO 227 INCLUSIVE,IN THE OFFICE OF SAID ORANGE COUNTY RECORDER,TO THE NORTHERLY CORNER OF SAID PARCEL 1,SAID POINT BEING ALSO ON THE SOUTHEASTERLY LINE OF SAN JUAN CREEK CHANNEL,250.00 FEET WIDE,AS SHOWN ON SAID RECORD OF SURVEYS;THENCE ALONG SAID SOUTHEASTERLY LINE THE FOLLOWING COURSE,DISTANCE AND CURVE: 1) NORTH 460 17' 14"EAST 1660.63 FEET; 2) ALONG A CURVE CONCAVE SOUTHEASTERLY,HAVING A RADIUS OF 11,375 FEET,THROUGH A CENTRAL ANGLE OF 90 04' 16"AND ARC LENGTH OF 1800.69 FEET. THENCE DEPARTING SAID SOUTHEASTERLY LINE SOUTH 709 11'57"EAST 45.85 FEET;THENCE SOUTH 40- 11'57" 0°11'57"EAST 186.57 FEET;THENCE SOUTH 35'45'13"EAST 64.70 FEET;THENCE SOUTH 40"11'57"EAST 22.00 FEET TO A POINT ON THE NORTHWESTERLY LINE OF SAN JUAN CREEK ROAD,30.00 FEET WIDE FROM CENTERLINE,THENCE ALONG SAID NORTHWESTERLY LINE OF SAN JUAN CREEK ROAD THE FOLLOWING SIX(6)COURSES,DISTANCES AND CURVES: I) SOUTH 490 48'03"WEST 1065.38 FEET; 2) ALONG A CURVE CONCAVE SOUTHEASTERLY,HAVING A RADIUS OF 1230.00 FEET,THROUGH A CENTRAL ANGLE OF 50 59'43"AN ARC LENGTH OF 128.70 FEET; 3) SOUTH 43"48'20"WEST 1130.75 FEET; 4) ALONG A CURVE CONCAVE NORTHWESTERLY,HAVING A RADIUS OF 1170.00 FEET,THROUGH A CENTRAL ANGLE OF 60 23'28",AN ARC LENGTH OF 130.51 FEET; 5) SOUTH 500 11'48"WEST 1028.07 FEET; 6) NORTH 39°48' 12"WEST 22,00 FEET TO THE POINT OF BEGINNING. PAGE 13 Exhibit B Legal Description of City Property [2 pages attached] EXHIBIT B THE LAND SITUATED WITHIN THE CITY OF SAN JUAN CAPISTRANO AND AS DESCRIBED IN ENCLOSURE 1 AS FOLLOWS: APN 666-011-20 APN 666-011-21 APN 666-013-01 APN 666-013-02 APN 666-013-03 APN 666-013-04 APN 666-013-06 APN 666-042-01 APN 666-042-09 APN 666-042-10 APN 666-042-11 24, Ox, Of C" ;--Y J,J 66 -047 T_,. -� f� J •i/ t ri 606-013-02 666-04 C.Russell Cook Park " 666.0'13-, 666-042-11 1 - �• . .;. �`f•`� \1\�..,', .6G6=013.06 666-042}10 ' ;,. +s 6•`' it :1��' .' } ' �• � ++" '•`-y ,� 1`� ``} ire -��(� ly •� t �,l 6 -01 3 D3 \` ,l, ,• its 1 /,/. f + f 666-011-21 �!W r i�' : J d r•ti �'' /�,vj' ll/ •� 11 5 16T Exhibit C Maps of City and San Juan Hills Infrastructure [2 pages attached] Y•y �y -,,r •+roc � �.yrc�'�7�F�: �1 ,r 1 .�� t y L •� �e r ..a. if F` r •h,,���'���� A` •y�i.°T��� `�• _tea?��P a�� t�� �'� q '� _ � 'y��z� a ,�s6"S• 7'7r � �� !•... M •s.. 11't 7 ,5i;. f,- ✓i4- ,�'y:�6s. / h�;e .d �� ��,� a..+�',,� �� c . m "4? �` ' e!' 1. t y 30 • :' ,b i •� ���. �*�•°�� �•c•. �. .t `. !� � r�y'� iyG' �c j-, ��. ''' ` • 4T`�v v(� •f.'► at. �.y� f: e± '� 15::: •-f 4'' "�L?Y �•ti,.��+ -•J ; ?♦ .r�'�.'�'. .+ ,�,.�.-...rJL. Y '�'•. , a •� ; ' :` � _ t2' i! ' s f- K'` O I' ,,.► ', �_a:��v;� .► � g ?4. ars(t,� � ` ,.aW °1.�^�.. a i�*, }}f '.W�`� � �,�,,yy..•'T r'��f,-.'. J�+Y`. _��g�r -�, -�pLy,,� �L,, a¢ e"�, - �"� � ''tJL t• �� a � �I 1 '��.". 'fa_a "s^ ✓�`�`J+. •pw`�'r''AF4+�` j � "-L•'mt�v a1�.,,. �.• �'��l�t �'F'"..` r; w u*v�t ' Y'`� ".�'•, ��� '.+� �+ w'� ,�� °'iyS r"�4. J.r�+� i�"�,.,»,�T,�.�t""►P d y�r�} m♦ q� ' :• •--� .{ ,'� � ,�� �:,�',���,.��► .��►. >c '�'. y - ,,c�: '"'.�;• rqf' W •.•. �f=L37.v Sf_,�+ Yrr �'• ,. � ;�„_"'ts.� ,i � `� ��,� AM s. Q .'fa► « AL +s�.� •� y •da � 'fie ! o-• 1��?•,�.+'-.. `� •�.” "t]„•. .i ,Gi�.-�4� 7C.�: �.�} � }. �+.t . _ 'k• •Q. .�` y�a j{ ; �"� F•., •yam r � 1e' -y:.�►7 AW ' �.•!C .L«_�^< X2"11 t[0_�T•' .a"��. '�\ .2n i •r y TT0' �g `cry"'is�si �. � 'r f�4`r ��i /ic\ r� J '' f•-LjW• , J� 1 •\• '�� `� �1 -;� e -e �^i aim Wu OR 4''Y vY r. ��lS '�'`,1 � Cf�ref • � � ; •�. � ;a9�tf4 ;.`,•- '- ti 1 �.sc't�v -.�a ��"_�.. MSIHTLiiT:: a• + •+..�, ��' - =i"'•.-c��Y' �' ►. � �• ti � {�7��� 'r� 17y4`�ir�`'b•y�: ,,�,�`wr. �� � J �, �,�s�_�',, � ^� Y• W r Wit ° •- i �� C? • - w n � CITY PROPERTY SAN JUAN HILLS GOLF COURSE PROPERTY er :oma F;• r` + 00 000 KFC r N ` '�!*' �•iF�P �� 0.: e � �l 's!r•.yw �"fi ! r. 4,c i1 •s'� ♦.w. �•;-•'' +�'" - `r a'�.r}�S1G=_ - -- r,� �::,.�i a� 'i r•, � `14�'s/'� ����:.�t rat_�� F `1 will . L m1 me N VLLS^JY � os •oc � ' � 0 d v' q+ / y �, • � 'zN. � 7'. '2 EXHIBIT D Water Quality Thresholds for Golf Club The Parties acknowledge that the quality of any Substitute Water provided by the City which may originate as groundwater will be similar to the quality of groundwater historically produced from San Juan Hills'well. Both Parties also acknowledge that the City has access to multiple sources of Substitute Water in addition to groundwater, including, but not limited to imported, potable and reclaimed water. In order to support the viability and sustainability of the Golf Club's grasses, plants and trees, the City, in its discretion and at its sole cost, may employ measures to reduce deleterious effects caused by poor water quality. These measures may include, but are not limited to: delivery of additional quantities of Substitute Water, or other water supplies, for leaching, blending of groundwater with an alternative source of higher quality water, replacement of clayey expansive soils to improve drainage, installation of a pipe network to deliver high quality water to sensitive grasses, plants and trees, irrigating salt sensitive grasses, plants and trees, at night, or other methods consistent with standard irrigation and golf course maintenance practices. San Juan Hills will reasonably cooperate with the City to permit the implementation of such measures, so long as such implementation does not materially impact the Golf Club operations. The attached table identifies a range of values, for specific water quality constituents, required to support the Golf Club's least salt tolerant grasses, plants and trees, without employing measures identified herein. The Parties acknowledge that different grasses, plants and trees, species have different water quality requirements, and as such, agree that the quality of Substitute Water at the POD may exceed the values presented in the following table without deleterious effects to grasses, plants and trees. Because leaching and other measures may not always be effective in reducing exceedance of all constituents in the following table, the City will not deliver to the POD Substitute Water whose conductivity exceeds 3 deci Siemens per meter (dS/M). In the event the City elects to deliver reclaimed water pursuant to this Agreement, reclaimed water must satisfy all applicable State of California water quality standards regarding the use of reclaimed water for landscape irrigation, including, but not limited to, standards and requirements set forth in 22 California Code of Regulations §§ 60001-60355. Min /Max or Acceptable Range pH 6.0-8.0 TDS (Total Dissolved Salts) 500 to 1000 PPM ECw (Electrical Conductivity of Water) 0.78 to 1.56 dS/m Adj. SAR (Adjusted Sodium Adsorption Ratio) <5.0 Adj RNa Cations PPM meq/1 Calcium (Ca) 40 to 120.00 2.0 to 6.0 Magnesium (Mg) 12.2 to 50 1.0 to 4.1 Sodium (Na) <115 <5.0 Potassium (K) <80 <2.1 Anions PPM meq/1 Chloride (CI) <105 <3.0 Sulfate (SO4) <240 <5.0 Bicarbonate (HCO3) <240 <4.0 Carbonate (CO3) <15 0.5 Nutrients & Misc. Ions PPM Nitrate-Nitrogen (NO3—N) <15.00 Ammonium-Nitrogen (NH4—N) <10.0 Total Nitrogen (NO3-N +NH4-N) <15.0 Phosphorus (P) <2:0 Boron (B) <1.5 Iron (Fe) <0.3 Copper(Cu) <0.05 Manganese (Mn) <0.1 Zinc(Zn) <2.0 List of Abbreviations: PPM = Parts Per Million meq/1 = milliequivalents per liter dS/m = deciSiemens per meter Adj. SAR =Adjusted Sodium Adsorption Ratio EXHIBIT 2 PRELIMINARY REPORT Fidelity National Title Company Your Reference: Order No.: 997-23084148-CTI EXIMIT A LEGAL DESCRIPTION THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF SAN JUAN CAPISTRANO, IN THE COUNTY OF ORANGE,STATE OF CALIFORNIA,AND IS DESCRIBED AS FOLLOWS: PARCEL A: PARCEL 107 AS CONVEYED TO THE CITY OF SAN JUAN CAPISTRANO BY GRANT DEED RECORDED MARCH 1.2, 1973 AS INSTRUMENT NO. 8901, IN BOOK 10588. PAGE_ 810 OF OFFICIAL RECORDS, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: THAT PORTION OF THE SOUTHEAST QUARTER OF SECTION 6, TOWNSHIP 8 SOUTH,RANGE 7 WEST, SAN BERNARDINO BASE AND MERIDIAN,DESCRIBED AS FOLLOWS: THAT PORTION OF LANDS DESCRIBED IN A DEED TO MARINA VIEW HEIGHTS DEVELOPMENT CO.,INC.,A CORPORATION,RECORDED JUNE: 15, 1967 AS INSTRUMENT NO.9490.IN BOOK 8280,PAGE 221 OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID ORANGE COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF THE SOUTHWESTERLY LINE OF THAT CERTAIN 104.00 FOOT WIDE STRIP ABOVE ON A MAP ENTITLED"SURVEY OF PROPOSED PRECISE ALIGNMENT OF LA NOVIA AVENUE, SAN JUAN CAPISTRANO, CALIFORNIA", ADOPTED BY RESOLUTION NO. 70-8-17-3 BY THE CITY COUNCIL OF SAID CITY ON AUGUST 17, 1970, AND THE SOUTHERLY LINE OF THAT CERTAIN 250.00 FOOT WIDE STRIP OF LAND CONVEYED TO THE ORANGE COUNTY FLOOD CONTROL DISTRICT BY DEED RECORDED JANUARY 21, 1938 IN BOOK 924, PAGE 178 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY,A RADIAL THROUGH SAID INTERSECTION BEARS NORTH 66034'42" EAST FROM THE CENTER OF SAID LA NOVIA RIGHT OF WAY CURVE, AND A RADIAL THROUGH SAID INTERSECTION BEARS SOUTH 41°20'17" EAST FROM THE CENTER OF SAID FLOOD CONTROL DISTRICT RIGHT OF WAY CURVE; THENCE SOUTHWESTERLY ALONG SAID FLOOD CONTROL DISTRICT RIGHT OF WAY CURVE, CONCAVE NORTHWESTERLY AND HAVING A RADIUS OF 3944.83 FEET THROUGH A CENTRAL ANGLE OF 0057'31"AN ARC DISTANCE OF 66.00 FEET; THENCE LEAVING SAID FLOOD CONTROL DISTRICT LINE, RADIALLY SOUTH 40022'46" EAST 42.00 FEET; THENCE NORTH 64°23'24" EAST 50.51 FEET TO A POINT ON SAID SOUTHEASTERLY LA NOVIA AVENUE RIGHT OF WAY LINE, A RADIAL THROUGH SAID POINT BEARS NORTH 67002'56" EAST; THENCE NORTHWESTERLY ALONG SAID LA NOVIA RIGHT OF WAY CURVE, CONCAVE SOUTHWESTERLY AND HAVING A RADIUS OF 7063.37 FEET, THROUGH A CENTRAL ANGLE OF 0028'14"AN ARC DISTANCE OF 58.00 FEET TO THE POINT OF BEGINNING. PARCEL B: THOSE PORTIONS OF SECTIONS 6 AND 7,TOWNSHIP 8 SOUTH,RANGE 7 WEST OF THE SAN BERNARDINO MERIDIAN, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT OF SAID LAND FILED IN THE DISTRICT LAND OFFICE,APRIL 12, 1875, AND THAT PORTION OF LOT 42, IN TOWNSHIP 8 SOUTH, RANGE 7 WEST, IN THE RANCHO BOCA DE LA PLAYA IN SAID CITY AND COUNTY,AS PER MAP RECORDED IN BOOK 4,PAGES 118 AND 119 OF PATENTS. IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT ON THE CENTER LINE OF SAN JUAN CREEK ROAD, 60.00 FEET IN WIDTH WHICH BEARS NORTH 50011'48"EAST 346.57 FEET FROM THE SOUTHERLY TERMINUS OF THAT CERTAIN COURSE SHOWN AS NORTH 50°11'48" EAST 1949.64 FEET ON A MAP FILED IN BOOK 68. PAGE 45 OF RECORDS OF SURVEY, ON FILE IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA; THENCE ALONG SAID CENTER LINE NORTH 50°11'48"EAST 575.03 FEET; THENCE LEAVING SAID CENTER LINE NORTH 39048'12" WEST 397.07 FEET, ALONG THE NORTHEASTERLY LINE OF A PARCEL OF LAND DESCRIBED IN EXCEPTION 3 OF PARCEL 4 AS DESCRIBED IN A DOCUMENT RECORDED AUGUST 10, 1971 AS INSTRUMENT NO. 8867, IN BOOK 9756, PAGES 217 OF OFFICIAL RECORDS, IN THE OFFICE OF SAID CLTA Preliminary Report Form—Modified(11/17/06) Page 3 PRELIMINARY REPORT Fidelity National Title Company Your Reference: Order No.: 997-23084148-CT1 EXHIBIT A (Continued) ORANGE COUNTY RECORDER, SAID LINE BEING ALSO THE NORTHEASTERLY LINE OF PARCELS 1 AND 2, PARCEL MAP NO. 83-863, AS SHOWN ON A MAP RECORDED IN BOOK 188. PAGES 1 I AND 12 QF PARCEL MAPS, IN THE OFFICE OF SAID ORANGE COUNTY RECORDER, TO THE SOUTHEASTERLY LINE OF SAN JUAN CREEK CHANNEL 250.00 FEET IN WIDTH AS SHOWN ON SAID RECORDS OF SURVEY, SAID POINT BEING THE TRUE POINT OF BEGINNING; THENCE ALONG SAID SOUTHEASTERLY LINE SOUTH 46'17'14" WEST 792.45 FEET TO A POINT ON THE SOUTHEASTERLY LINE OF LAND DESCRIBED IN PARCEL 2 OF A DEED TO THE STATE OF CALIFORNIA,RECORDED JUNE 04. 1959 AS INSTRUMENT NO.98254,IN BOOK 4742, PAGE 299 OF OFFICIAL RECORDS; THENCE ALONG SAID SOUTHEASTERLY LINE NORTH 29000'37" EAST 341.43 FEET TO THE POINT OF TANGENCY OF THIS COURSE WITH A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 5630.00 FEET;THENCE NORTHEASTERLY ALONG SAID CURVE THROUGH AN ANGLE OF 133'37" AN ARC DISTANCE OF 153.31 FEET; THENCE NORTH 36°42'16" EAST 153.45 FEET; THENCE NORTH 24049'23" EAST 176.77 FEET; THENCE SOUTH 40°41'47" EAST 54.36 FEET TO THE SOUTHEASTERLY LINE OF LOT 31 IN TRACT NO. 103,AS SHOWN ON A MAP RECORDED IN BQOK 11. PAGES 29 THROUGH 33, INCLUSIVE OF MISCELLANEOUS MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA; THENCE NORTH 40010'58" EAST 612.70 FEET ALONG SAID SOUTHEASTERLY LINE OF LOT 31 TO THE NORTHWESTERLY LINE OF THAT SAID SAN JUAN CREEK CHANNEL 250 FEET WIDE IN WIDTH; THENCE ALONG SAID NORTHWESTERLY LINE NORTH 4617'14"EAST 1059.13 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 11,625.00 FEET; THENCE ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 0047'42"AN ARC DISTANCE OF 161.31 FEET(A RADIAL LINE THROUGH SAID POINT BEARS NORTH 42055'04" WEST) TO THE BOUNDARY LINE OF THE SAN JUAN CAPISTRANO TOWNSITE,AS SHOWN ON A MAP RECORDED IN BOOK 3.PAGE 120 OF MISCELLANEOUS RECORDS OF LOS ANGELES COUNTY, CALIFORNIA, SAID POINT ALSO BEING ON THE WESTERLY LINE OF THE LAND DESCRIBED IN A DEED TO PAUL S. GOYA AND WIFE,RECORDED JANUARY 18. 1961 AS INSTRUMENT NO. 8921, IN BOOK 5593, PAGE 537 OF OFFICIAL RECORDS: THENCE SOUTH 0011'58" WEST ALONG SAID WESTERLY LINE OF THE LAND OF GOYA, 176.52 FEET,MORE OR LESS,TO A POINT ON THE CENTER LINE OF THAT SAID SAN JUAN CREEK CHANNEL 250 FEET IN WIDTH, SAID CENTER LINE BEING A CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 11,500.00 FEET,A RADIAL LINE THROUGH SAID POINT BEARS NORTH 43030'13"WEST; THENCE NORTHEASTERLY ALONG SAID CENTER LINE AND SAID CURVE THROUGH A CENTRAL ANGLE OF 8054'11" AN ARC DISTANCE OF 1786.96 FEET TO AN ANGLE POINT THEREIN,THENCE NORTH 55°23'58"EAST ALONG SAID CENTER LINE 370.92 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 3819.83 FEET; THENCE NORTHEASTERLY ALONG SAID CURVE AND ALONG SAID CENTER LINE THROUGH A CENTRAL ANGLE OF 4038'29"AN ARC DISTANCE OF 309.43 FEET TO THE MOST EASTERLY CORNER OF SAID LAND OF PAUL S. GOYA; THENCE NORTH 28139'43" WEST ALONG THE NORTHEASTERLY LINE OF SAID LAND OF GOYA, 127.24 FEET TO THE NORTHWESTERLY LINE OF SAID SAN JUAN CREEK CHANNEL; THENCE CONTINUING NORTHEASTERLY ALONG SAID NORTHWESTERLY LINE OF SAID SAN JUAN CREEK CHANNEL, SAID NORTHWESTERLY LINE BEING AS A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 3,694.83 FEET, THROUGH A CENTRAL ANGLE OF 2°54'02", AN ARC DISTANCE OF 187.75 FEET, MORE OR LESS, TO THE SOUTHWESTERLY LINE OF LA NOVIA AVENUE 104 FEET WIDE AS PRESENTLY EXISTS, SAID SOUTHWESTERLY LINE OF LA NOVIA AVENUE BEING A CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 7063.37 FEET, RADIAL LINE TO SAID POINT BEARS NORTH 42°30'58" WEST; THENCE SOUTHERLY ALONG THE SAID SOUTHWESTERLY LINE OF LA NOVIA AVENUE, THROUGH A CENTRAL ANGLE OF 207'32",AN ARC DISTANCE OF 264.12 FEET,MORE OR LESS,TO THE SOUTHEASTERLY LINE OF SAID SAN JUAN CREEK CHANNEL, SAID SOUTHEASTERLY LINE BEING A CURVE WITH A RADIUS OF 3944.83 FEET, A RADIAL LINE TO SAID POINT BEARS NORTH 66°34'42" EAST; THENCE ALONG SAID AFOREMENTIONED SOUTHEASTERLY OF SAN JUAN CREEK CHANNEL THROUGH A CENTRAL ANGLE OF 057'1", AN ARC DISTANCE OF 66.00 FEET, MORE OR LESS; THENCE SOUTH 40°22'46" EAST, 42.00 FEET; THENCE NORTH 64023'24"EAST 50.51 FEET, MORE OR LESS, TO THE SAID SOUTHWESTERLY LINE OF LA NOVIA AVENUE BEING A CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 7063.37 FEET, A RADIAL LINE TO SAID POINT BEARS NORTH 67002'56" EAST; THENCE SOUTHERLY ALONG SAID SOUTHWESTERLY LINE OF LA NOVIA AVENUE, THROUGH A CENTRAL ANGLE OF 1°23'47", AN ARC DISTANCE OF 172.19 FEET,MORE OR LESS,A RADIAL LINE TO SAID POINT BEARS NORTH 68°26'3"EAST; THENCE SOUTH 14007'24"WEST 29.16 FEET,MORE OR LESS;THENCE SOUTH 40°11'57"EAST,22.00 FEET TO CLTA Preliminary Report Form-Modified(11/17/06) Page 4 PRELIMINARY REPORT Fidelity National Title Company Your Reference: Order No.: 997-23084148-CTI EXFIIBIT A (Continued) A POINT ON THE NORTHWESTERLY LINE OF SAN JUAN CREEK ROAD, AS PRESENTLY EXISTS, 30 FEET WIDE FROM CENTER LINE; THENCE SOUTH 49°48'03" WEST ALONG THE SAID NORTHWESTERLY LINE, 728.86 FEET; THENCE NORTH 40°11'57" WEST 22.00 FEET; THENCE NORTH 35°45'13" WEST 67.70 FEET; THENCE NORTH 40011'57"WEST, 186.57 FEET; THENCE NORTH 70°11'57"WEST 45.85 FEET TO A POINT ON THE SOUTHEASTERLY LINE OF SAID SAN JUAN CREEK CHANNEL, SAID LINE BEING A CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 11,375.00 FEET;THENCE ALONG THE SAID SOUTHEASTERLY LINE OF SAID SAN JUAN CREEK CHANNEL THROUGH A CENTRAL ANGLE OF 9004'16", AN ARC DISTANCE OF 1800.69 FEET, MORE OR LESS, THENCE SOUTH 46°17'14" WEST, 1660.63 FEET TO THE TRUE POINT OF BEGINNING. EXCEPT THEREFROM THAT PORTION OF SAID LAND LYING SOUTHWESTERLY OF THE SOUTHERLY PROLONGATION OF THE NORTHEASTERLY LINE OF LOT"H" OF AMENDED MAP OF PARCEL MAP 79-856, AS PER MAP RECORDED IN BOOK 176. PAGES I T[IROUGH S. INCLUSIVE OF PARCEL_ MAPS, AS PER MAP RECORDED IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. APN:666-011-20;666-011-21 CLTA Preliminary Report Form—Modified(11/17/06) Page 5 EXHIBIT 3 EXHIBIT 3 INDEX Index DESCRIPTION No. 3a. Project Implementation Agreement 3b. Operating Lease Agreement by and between Capistrano Valley Water District,as Lessee, and San Juan Basin Authority,as Lessor,dated as of December 1,2002 and First Amendment to Operating Lease Agreement by and between Capistrano Valley Water District, as Lessee,and San Juan Basin Authority, as Lessor,dated as of December 1,2002 3c. Lease Agreement by and between Capistrano Valley Water District,as Lessee,and San Juan Basin Authority,as Lessor,dated as of December 1,2002 and Amended and Restated Lease Agreement by and between City of San Juan Capistrano,as Lessee,and San Juan Basin Authority, as Lessor,dated as of November 1,2014 3d. Trust Agreement among Capistrano Valley Water District,as Water District and San Juan Basin Authority, as Authority and BNY Western Trust Company,As Trustee,dated as of December 1,2002 and Trust Agreement among City of San Juan Capistrano and San Juan Basin Authority and The Bank of New York Trust Company,N.A.,as Trustee,dated as of November 1,2014 3e. Property Lease by and between City of San Juan Capistrano and San Juan Basin Authority,dated as of December 1,2002 DOCSOC/1773 5 50v 1/022027-0007 EXHIBIT 3a PROJECT IMPLEMENTATION AGREEMENT SAN JUAN BASIN DESALTER PROJECT THIS AGREEMENT is entered into by the SAN JUAN BASIN AUTHORITY("SJBA"),a joint powers authority, and the CITY OF SAN JUAN CAPISTRANO acting as the governing body for CAPISTRANO VALLEY WATER DISTRICT("CVWD"),which may sometimes hereinafter be referred to individually or collectively as"the PARTY"or"the PARTIES". References hereinafter to CVWD shall for purposes of this Agreement also mean the CITY. RECITALS A. On February 5, 1991, SJBA,CVWD,MNWD, SMWD and Trabuco Canyon Water District entered into the San Juan Basin Projects Agreement("the 1991 Agreement")for purposes including the development,conservation and management of imported water conjunctively with water produced locally. The 1991 Agreement provides, among other items,that whenever construction of project facilities for an authorized project shall be funded by a bond issue, each SJBA member shall enter into a Project Lease Agreement, which shall be substantially in the form attached to the 1991 Agreement. B. On November 21, 1995, SJBA, CVWD and the City of San Juan Capistrano entered into an agreement("the 1995 Agreement")to clarify the agreement between those parties with respect to the extraction of water from the San Juan Basin for CVWD and the City relative to SJBA's extraction of water from the Basin for the project specified in that 2:58 PM 10/14/2002 agreement. C. On October 27, 1998, SJBA,CVWD,MNWD and SMWD (collectively,the "Participating Members"for reference purposes only to this Recital and Recital"E", herein)entered into a Memorandum of Understanding("the 1998 MOU"),which provides among other items,that prior to commencing construction of the project specified in the MOU,the Participating Members allocated interest in the specified project's water rights and water supplies will be established by a project implementation agreement among the Participating Members and SJBA. D. The San Juan Basin Desalter Project is proposed for purposes of extracting approximately 5,800 acre-feet of water annually to enable the production of approximately 4,800 acre- feet of potable water annually, all of which will be delivered to CVWD's potable water delivery system for use within CVWD's service area allowing CVWD to reduce its purchase of treated non-interruptible water from Metropolitan Water District of Southern California("the Desalter Project"). E. The purpose of this Agreement is to i)comply with Section 7(a)of the 1991 Agreement, which requires a Project Lease Agreement whenever construction of a project is funded by a bond issue;ii)to comply with Section 7 of the 1998 MOU,which requires each Participating Member's allocated interest in the Project's water rights and water supplies to be established by a project implementation agreement among the Participating Members and SJBA; and, iii)to address provisions in the 1991 Agreement, 1995 Agreement and the 1998 MOU which are or may be affected by this Agreement. 2:58 PM 10/14/2002 -2- NOW THEREFORE,the Parties agree as follows: AGREEMENT 1. DESALTER PROJECT LEASE AGREEMENT The Desalter Project Lease Agreement are attached hereto collectively as Exhibit"A", incorporated by reference herein in substantially the form to be used, and is agreed to satisfy the requirements of Section 7(a)of the 1991 Agreement. 2. CVWD'S ALLOCATED INTEREST IN DESALTER PROJECT CVWD's and the City's allocated interest in the SJBA's Desalter Project's water rights and water supplies,which water rights are established by State Water Resources Control Board Permit No.21074, shall be in the amount of 5,800 acre-feet per year. A portion of the Desalter Project water may be delivered from time-to-time to SJBA's other member agencies on terms mutually agreeable to CVWD, SJBA and SJBA's participating member agencies. 3. GROUNDWATER SHORTFALL (a) In accordance with Section 7 of the 1998 MOU,in the event the Desalter Project is operated during periods when the Desalter Project interferes with extractions by CVWD, SJBA shall not have any obligation to provide CVWD with Make-Up Water since CVWD's allocation of Desalter Project water exceeds 3,325 acre-feet per year. This Section 3(a)shall operate to relieve SJBA of its obligations under Sections 4 and 5 of the 1995 Agreement to remedy the Desalter Project impacts on CVWD,however, SJBA's obligation under Sections 4 and 5 of the 1995 Agreement otherwise remain in full force and effect to the extent provided in Section 7 of the 1998 MOU. 2:58 PM 10/14/2002 -3- (b) The Parties agree to initiate negotiations immediately on diversions of water from the San Juan Basin in addition to the production of water from the Desalter Project,which may include one or more expansions of the Desalter Project capacity and/or the construction or use of groundwater wells not connected to the Desalter Project, subject to a comprehensive agreement to be entered into between the involved parties addressing, among other items,potential water quantity and water quality impacts, and consequential mitigation measures as appropriate, on the Desalter Project and/or CVWD's other groundwater supplies. 4. DECISIONS AND APPROVALS The Parties agree that, since CVWD is the only SJBA member participating in the Desalter Project,major decisions and approvals concerning the Desalter Project,as defined by Project Committee Nos.4 or 7,including construction, operation,maintenance and repair shall be made by CVWD in consultation with SJBA, Such decisions and approvals shall not impair the rights of SJBA in any subsequent expansion of the Desalter Project.Although CVWD will not necessarily be the sole member of SJBA Project Committee Nos. 4 and 7,SJBA will take no action that would impair the ability of the Desalter Project to extract up to 5,800 acre-feet per year or impair the 1998 San Juan Basin Desalter Project Agreement Between the Metropolitan Water District of Southern California,Municipal Water District of Orange County, and SJBA, dated December 4, 1998("1998 MWD Agreement"). CVWD will be a member of the SJBA Coordinating Committee established by the 1998 MWD Agreement. The subsidy described in the 1998 MWD Agreement shall be irrevocably committed to the Desalter Project and SJBA will not exercise its right to terminate the 1998 MWD Agreement without the prior written consent of CVWD. 2:58 PM 10/14/2002 -4- 5. OPERATION OF PHASE I PROJECT FACILITIES (a) CVWD will operate the Desalter Project as the contracted operator of SJBA during the Lease Term described in the Project Lease Agreement and the Operating Lease Agreement.CVWD's contracted operation of the Desalter Project shall include the right to make alterations or improvements or attach fixtures or structures to the Desalter Project in consultation with SJBA if said alterations, improvements, fixtures and structures are necessary or reasonably beneficial for the use of the Desalter Project and are consistent with sound engineering and construction practices. (b) SJBA and CVWD will comply with all conditions of approval and mitigation measures of the Permit for Diversion and Use of Water No. 21074 issued for the Project by the State Water Resources Control Board and with the conditions of approval and mitigation measures approved for the Project by SJBA. 6. MUTUAL INDEMNIFICATION (a) CVWD shall defend,indemnify,and hold harmless SJBA, SJBA's member agencies,their respective elected and appointed officials, officers, employees, and agents from any and all actual or alleged claims, demands, causes of action,liability,loss, damage,or injury, to property or persons,including wrongful death,whether imposed by a court of law or by administrative action of any federal, state,or local governmental body or agency arising out of or incident to the performance of this Agreement and resulting from the negligence or wrongful act of CVWD's elected and appointed officials, officers, agents, employees or invitees including without limitation any such claims,disputes,controversies or injury to property or persons arising from or in connection with the"Service Contract For The Design,Construction, 2:58 PM 10/14/2002 -5- Financing And Operation Of The San Juan Basin Desalter Project"between CVWD and Eco Resources,Inc.This indemnification includes,without limitation,the payment of all penalties, fines,judgments, awards,decrees, attorneys' fees, and related costs or expenses, and the reimbursement of SJBA,SJBA's member agencies,their respective elected officials,officers, employees,and/or agents for all legal expenses and costs incurred by each of them. (b) SJBA shall defend, indemnity, and hold harmless CVWD,its elected officials, officers, employees, and agents from any and all actual or alleged claims, demands, causes of action,liability, loss, damage, or injury,to property or persons,including wrongful death, whether imposed by a court of law or by administrative action of any federal,state,or local governmental body or agency,arising out of or incident to the performance of this Agreement and resulting from the negligence or wrongful act of SJBA, SJBA's member agencies,their respective elected and appointed officials,officers, agents, employees or invitees. This indemnification includes,without limitation,the payment of all penalties, fines,judgments, awards, decrees, attorneys' fees,and related costs or expenses,and the reimbursement of CVWD, its elected officials,officers, employees, and/or agents for all legal expenses and costs incurred by each of them. 7. CATASTROPHIC INTERRUPTION IN USE OF PROJECT FACILITIES In the event of destruction of or damage to the Desalter Project during the Lease Term by fire, flood, or earthquake or other casualty or event so that it becomes wholly or partly unusable, then CVWD, acting in consultation with SJBA,may do either of the following: (1) Rebuild and repair the Desalter Project using the money collected from insurance,if any,so that it may be fully restored to use,in which case this Agreement shall 2:58 PM 10/14/2002 -6- remain in full force and effect;or (2) Declare this Agreement terminated and use the money collected from insurance,if any, against destruction of or damage to the Desalter Project to the extent necessary to retire any outstanding securities which SJBA may have incurred for the Desalter Project. 8. EFFECT OF INCONSISTENT PROVISIONS This Agreement comprises the entire understanding of the Parties concerning the issues herein described, and supersedes all previous oral and written agreements,negotiations, communications,representations and commitments,and the provisions of this Agreement shall prevail in the event of any inconsistency between this Agreement and the 1971 Agreement, 1991 Agreement and 1998 MOU,however,the provisions of the 1971 Agreement,the 1991 Agreement and the 1998 MOU otherwise remain in full force and effect. To the extent the terms of this Agreement are inconsistent with the Property Lease,dated as of 1, 2002, (the "Property Lease"),by and between the City and SJBA,the Lease Agreement,dated as of 1,2002(the"Lease Agreement"),between CVWD and SJBA, and the Trust Agreement, dated as of ,2002, (the Trust Agreement") among CVWD, SJBA and BNY Westem Trust Company,the terms of the Property Lease,the Lease Agreement and the Trust Agreement shall prevail so long as the bonds issued under the Trust Agreement remain outstanding; provided however,that such Agreements shall not result in the imposition of any financial liabilities on SJBA,MNWD or SMWD. 9. NOTICES All notices, demands,requests, consents, or other communications permitted or required by this Agreement shall be personally delivered, sent by registered or certified mail,postage 2:58 PM 10/14/2002 -7- prepaid,return-receipt requested,or by facsimile, addressed to the respective parties as follows: TO SJBA: San Juan Basin Authority 27500 La Paz Road Laguna Niguel, California 92677 Attention: General Manager 949-448-4055 FAX: 949-831-5651 TO CVWD: Capistrano Valley Water District c/o City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, California 92675 Attention: Treasurer 949-443-6301 FAX: 949-493-1053 10. AUTHORITY Each of the individuals executing this Agreement verifies that each of them has the authority to enter into this Agreement,that the necessary resolutions or other consents have been passed or obtained, and that this Agreement shall be binding on the party for whom each of them is signing. 11. TIME IS OF THE ESSENCE Time is of the essence of all provisions of this Agreement where time is a factor. 12. GOVERNING LAW AND VENUE The interpretation,validity and enforcement of this Agreement shall be governed by and construed under the laws of the State of California. Venue for any action brought to enforce or interpret this Agreement shall be brought in the appropriate federal or state court in or nearest to the South Orange County Judicial District, County of Orange. 13. AMENDMENT 2:58 PM 10/14/2002 -8- This Agreement may not be modified orally or in any manner other than by an agreement in writing signed by the Parties or their respective successors in interest. No right or remedy will be waived unless the waiver is in writing and signed by the party claimed to have made the waiver. One waiver will not be interpreted as a continuing waiver. 14. BINDING NATURE OF AGREEMENT This Agreement shall inure to the benefit of and be binding upon the Parties and their respective officers,governing bodies, contractors, agents, employees,successors and assigns. 15. BREACH AND CURE (a) Any Party to this Agreement may declare a breach hereof by serving written notice describing the nature of the breach to all Parties. The Party alleged to have breached the Agreement shall be afforded a reasonable period,not less than thirty(30)days from service of the notice of breach to take whatever steps are necessary to cure the breach. (b) All disputes arising out of or in connection with the interpretation or enforcement of this Agreement shall be submitted to mediation prior to the commencement of court proceedings at the request of any Party,by a retired judge from the panel of the Judicial Arbitration and Mediation Services,Inc.,("JAMS")with experience in the area of California water law. This provision shall be specifically enforceable. If the Parties to the dispute fail to agree upon a member of the JAMS panel,any Party may apply to the Presiding Judge of the Orange County Superior Court for appointment of a panel member consistent with provision to resolve the dispute. Upon completion of the mediation process described herein, any Party may pursue all remedies otherwise provided them by law,including the remedy of specific performance. 2:58 PM 10/14/2002 -9- {c} In the event any legal action or proceeding is commenced to interpret or enforce the terms of,or obligations arising out of,this Agreement,or to recover damages for the breach of this Agreement,the party prevailing in any such action or proceeding shall be erititled to recover from the non-prevailing party all reasonable attorney fees and expenses incurred by such prevailing party. 16. COOPERATION The Parties agree to execute such other and further documents, assignments and instruments and to take such other actions as are or may become necessary or convenient to carry out this Agreement. The Parties agree to cooperate and do all acts as may be reasonably required to implement the Desalter Project including SJBA's financing and CVWD's construction, operation and maintenance of the Desalter Project. The Parties further agree to expedite issuance of all governmental permits and approvals necessary for CVWD to perform the acts described herein throughout the term of this Agreement. 17. SECTION HEADINGS All section headings are for convenience only and in no way define or limit the scope or interpretation of this Agreement. 18. INTERPRETATION Each of the Parties acknowledges that it has reviewed this Agreement and has consulted legal counsel,and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments hereto. 19. NO THIRD PARTY BENEFICIARIES 2:58 PM 10/14/2002 -10- Other than as provided in Section 21 of this Agreement,there are no intended third party beneficiaries of any right or obligation assumed by the Parties under this Agreement. 20. COMMENCEMENT AND TERMINATION OF AGREEMENT The term of this Agreement shall commence upon its execution by all Parties and shall continue until this Agreement is terminated by mutual agreement of the Parties. 21. NOTIFICATION OF AMENDMENT AND TERMINATION OF AGREEMENT The parties shall provide notice to the Chief Executive Officer of the Metropolitan Water District of Southern California, 700 North Alameda Street,Los Angeles, CA 90054-0153, upon any amendment or termination of this Agreement. The Metropolitan Water District Of Southern California is a third party beneficiary solely for the purpose of receiving notice pursuant to this Section 21. IN WITNESS WHEREOF,the Parties have caused this Agreement to be executed as of the day and year first written above. SAN JUAN BASIN AUTHORITY, a Joint Powers Authority Dated: I I5 va. By: (�4 0, Fres dent,Bolkd of Directors CAPISTRANO VALLEY WATER DISTRICT Dated: 101 KID2- By: o ak&;NA�� Chairperson,Board&Pbirectors 2:58 PM 10/14/2002 -11- EXHIBIT 3b This Document was electronically recorded by RECOR0140 STIDBY First American Title ,FMT AMERICAN TITLECOMPANY Recorded in Official Records,County of Orange Tom Daly,Clerk-Recorder RECORDING REQUESTED BY BIIIJill IIIIIjIIIId1I III1III1III1Iill111II NO FEE AND WHEN RECORDED MAIL TO: ) 2003000021099 04:07pm 01/07/03 103 15 L03 35 STRADLING YOCCA CARLSON&RAUTH 1.0010.00 0.00 0.00 0.00 0.00 0.00 0.00 660 Newport Center Drive, Suite 1600 ) Newport Beach,California 92660 ) Attn: Denise E.Hering,Esq. ) ���6 03 NoBcs 1 [Space above for recorder.] Y��76 75 This document is recorded for the benefit of the x917)-76 77 Capistrano Valley Water District,and the recording is fee-exempt under Section 6103 of the Government Code. Term of lease less than 99 years. OPERATING LEASE AGREEMENT By and Between CAPISTRANO VALLEY WATER DISTRICT, as Lessee and SAN JUAN BASIN AUTHORITY, as Lessor Dated as of December 1,2002 Relating to $31,555,000 SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2002 DOCSOC1923505v3\22027.0004 Table of Contents Page ARTICLE I DEFINITIONS AND EXHIBITS Section 1.1. Definitions and Rules of Construction..........................................................................2 Section1.2. Exhibits..........................................................................................................................6 ARTICLE II REPRESENTATIONS,COVENANTS AND WARRANTIES Section 2.1. Representations,Covenants and Warranties of the Water District...............................6 Section 2.2. Representations,Covenants and Warranties of the Authority.......................................8 ARTICLE III AGREEMENT OF LEASE;TERM OF LEASE;LEASE PAYMENTS Section3.1. Lease..............................................................................................................................9 Section3.2. Term....,..._.....................................................................................................................9 Section 3.3. Extension of Lease Term..................................................................................:............9 Section 3.4. Lease Payments......................................................... .............. .......................... ,...9 Section 3.5. Budget and Appropriation.............................................................................................9 Section3.6. Revenue Fund...............................................................................................................9 Section 3.7. Rates and Charges........... ................... ........ ........... ....... ... .....10 Section 3.8. Use and Possession......... ......... .............. ..... ......... ......... ......... ....................10 Section 3.9. Additional Payments..................................................:................................................10 Section3.10. Net-Net-Net Lease.................................................................................................,.....10 Section 3.11. Termination of Lease Agreement Prior to End of Term. ............................................10 ARTICLE IV INSURANCE AND CONDEMNATION Section 4.1. Insurance.....................................................................................................................11 Section4.2. Cooperation.............................................................................................. .........11 Section 4.3. Insurance and Condemnation Account....................... ...............................................I I ARTICLE V DAMAGE,DESTRUCTION AND EMINENT DOMAIN;USE OF NET PROCEEDS Section 5.1. Application of Net Insurance Proceeds.......................................................................12 Section 5.2. Eminent Domain Proceeds..........................................................................................13 i D OCSOC1923505 v3\22027.0004 Table of Contents (continued) Pase ARTICLE VI COVENANTS WITH RESPECT TO THE PROJECT Section 6.1. Use of the Project........................................................................................................13 Section 6.2. Leasehold Interest in the Property and Title to the Project.........................................13 Section 6.3. Quiet Enjoyment.......................................................................................................•,.13 Section 6.4, Installation of Water District's Personal Property.......................................................14 Section 6.5. Access to the Project...................................................... ....... .................................14 Section 6.6, Maintenance, Utilities,Taxes and Assessments............................... Section 6.7. Modification of the Project............. —....,.....,....._..........._,,,,,.,,,,.. ,.,...........15 Section6.8. Liens..................—.....................................................................................................-15 Section 6.9. Authority's Disclaimer of Warranties.........................................................................15 Section 6.10. Water District's Right to Enforce Warranties of Manufacturers,Vendors or Contractors..................................................................................................................16 Section 6,11. Reconstruction;Application of Net Insurance Proceeds.............................................16 Section 6.12. Against Encumbrances................................................................................................16 Section 6.13. Against Sale or Other Disposition of Project........................—...................................16 Section6.14. Payment of Claims.,...,......................................................,,,,,..............,,..,, ,........16 Section 6.15. Compliance with Lease...........................................-........,.........................................16 Section 6.16. Compliance with Governmental Regulations..............................................................17 ARTICLE VII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 7.1. Assignment and Subleasing by the Water District......................................................17 Section 7.2. Amendments and Modifications..................................................................................17 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES Section 8.1. Events of Default Defined................—.....................--.....................------..,.,,......... —17 Section 8.2. Remedies on Default...................................................................................................18 Section 8.3. Other Remedies of the Authority...... ....................................................................,.18 Section 8.4. No Remedy Exclusive...................................... ........................................................19 Section 8.5. Agreement to Pay Attorneys Fees and Expenses........................................................19 Section 8.6. No Additional Waiver Implied by One Waiver........................................,.,................,19 ARTICLE IX MISCELLANEOUS Section 9.1. Liability of Water District Limited,,,,,,,,,,,,,..,...............................................................19 Section 9.2. Waiver of Personal Liability...... . ,. ,,.,,..........................,..,..,....,.,,.,....,..,.,.,,......,..,,.19 Section9.3. Notices.........................................................................................................................19 ii DOCS009235050\22027.0004 Table of Contents (continued) Page Section9.4. Binding Effect.............................................................................................................20 Section9.5. Severability..................................................................................................................20 Section 9.6. Execution in Counterparts...........................................................................................20 Section9.7. Applicable Law ........................................•-.................................................................20 Section9.8. Captions.......................................................................................................................20 Signatures .....................................................................................................................................21 EXHIBIT A Description of the Property....................................................................................A-1 EXHIBIT B Description of the Project.......................................................................................B-1 iii DOCS00923505v3\22027.0004 OPERATING LEASE AGREEMENT THIS OPERATING LEASE AGREEMENT (this "Lease Agreement"). dated as of December 1, 2002, by and between the SAN JUAN BASIN AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California,as lessor(the "Authority"). and the CAPISTRANO VALLEY WATER DISTRICT, a county water district duly organized and existing under and by virtue of the laws of the State of Califomia,as lessee(the"Water District"); WITNESSETH : WHEREAS, pursuant to the laws of the State of California,the Water District may enter into leases and agreements relating to real property to be used by the Water District; and WHEREAS, the Water District has heretofore entered into an Installment Purchase Agreement dated as of March 1, 2002 by and between the Water District and the San Juan Capistrano Public Financing Authority (the "Series 2002 Installment Purchase Agreement") in connection with the execution and delivery of the $8,525,000 aggregate principal amount of Revenue Certificates of Participation Series 2002 delivered April 3, 2002 (the "Series 2002 Certificates of Participation"); and WHEREAS, pursuant to the Series 2002 Installment Purchase Agreement, revenues of the Water System (defined herein) are pledged to pay Installment Payments, as defined therein (the "Series 2002 Installment Payments") net of operation and maintenance costs (the "COP O&M Costs"), defined in the Series 2002 Installment Purchase Agreement to include in part "annual costs not to exceed (a)$2,750,000 for project lease payments,including principal and interest components for the Phase I San Juan Basin Ground Water Recovery Plant (the "Ground Water Recovery Plant"); plus (b) $1,100,000 for other capital and operations costs of the Ground Water Recovery Plant, increasing by 85% of CPI annually; plus (c)$1,200,000 for electricity costs of the Ground Water Recovery Plant,provided that(a), (b) and (c) above may be increased due to currently unforeseeable cost increases which are out of the control of the Water District and of the owner, operator and lenders with respect to the Ground Water Recovery Plant"; and WHEREAS, the parties hereto have determined that the Lease Payments are, and shall be deemed to be, for all purposes of the Series 2002 Installment Purchase Agreement, the project lease payments described and included in the COP O&M Costs and constitute Maintenance and Operation Costs (defined herein) for purposes of this Lease Agreement, and, as such, are payable from Revenues(as defined herein and in the Series 2002 Installment Purchase Agreement)on a senior lien basis to the Series 2002 Installment Payments;and WHEREAS, the City of San Juan Capistrano (the "City") has leased the Property (defined herein)to the Authority pursuant to that certain 55 year Property Lease by and between the Authority and the City of even date herewith upon which Property the Authority will cause to be constructed the Project; and WHEREAS, to finance the Project, the Authority will issue its Lease Revenue Bonds (Groundwater Recovery Project), Issue of 2002 (the "Bonds"), which Bonds will be secured by the lease payments to be paid by the Water District pursuant to the Project Lease Agreement to be DOCSOCl923505v3\22027.0004 entered into by and between the Authority and the Water District (the "Project Lease Agreement"); and WHEREAS, pursuant to the Project Lease Agreement, the Water District will lease the Property from the Authority,together with the Project to be constructed and installed thereon by the Water District and the Company on behalf of the Authority; and WHEREAS, the Authority will assign its rights under the Project Lease Agreement to BNY Western Trust Company, as Trustee (the "Trustee") under that certain Trust Agreement among the Trustee, the Water District and the Authority dated as of the date hereof(the "Trust Agreement"); and WHEREAS, the Water District, for the design, construction and operation of the Project pursuant to the terms thereof, has entered into that certain service contract with ECO Resources, Inc., a Texas corporation (the "Company"), dated as of August 3, 2002 (the "Service Contract"), pursuant to which the Company is obligated to implement the design and construction of the Project, and to operate the Project; and WHEREAS, pursuant to Section 13.2 of the Service Contract, the Water District may terminate the Service Contract under certain circumstances, in which event the Project Lease Agreement shall terminate as provided therein;and WHEREAS, in the event that the Project Lease Agreement is terminated as provided in Section 13.2 or is terminated upon the payment or the provision for the payment of all principal and interest due on the Bonds, the Authority and the Water District desire to provide that the Water District continue to maintain and operate the Project to the end of the term of the Property Lease as said term is now designated or as said term may be extended by mutual agreement of the City and the Authority; NOW, THEREFORE, in consideration of the above premises and of the mutual covenants hereinafter contained and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND EXHIBITS Section 1.1. Definitions and Rules of Construction. Unless the context otherwise requires, the capitalized terms used herein shall, for all purposes of this Lease Agreement,have the meanings herein specified. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. The terms "hereby," "hereof," "hereto," "herein," "hereunder"and any similar terms, as used in this Lease Agreement,refer to this Lease Agreement as a whole. Capitalized terms not otherwise defined herein shall have the meaning given to each such term in the Trust Agreement. "Additional Payments" shall have the meaning ascribed thereto in Section 3.9 hereof. 2 DOCS009235050\22027.0004 "Authority" means the San Juan Basin Authority, a joint exercise of powers authority organized and existing pursuant to Chapter 5, Division 7, Title 1 of the Government Code of the S tate. "Authorized Representative of the Authority" means the Administrator of the Authority and any person or persons designated by the Administrator of the Authority and authorized to act on behalf of the Authority as certified by a written certificate signed on behalf of the Authority by the Administrator of the Authority and containing the specimen signature of each such person. "Authorized Representative of the City" means the City Manager of the City, the Finance Director, the Public Works Director of the City or any person or persons designated by the City Manager and authorized to act on behalf of the City by a written certificate signed on behalf of the City by the City Manager and containing the specimen signature of each such person. "Authorized Representative of the Water District"means the General Manager of the Water District, the Finance Director or any person or persons designated by the General Manager and authorized to act on behalf of the Water District by a written certificate signed on behalf of the Water District by the General Manager and containing the specimen signature of each such person. "Board of Directors"means the Board of Directors of the Water District. "Bond" or "Bonds" means any of the San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project),Issue of 2002 issued pursuant to the Trust Agreement. "Bond Counsel"means a firm of nationally-recognized attorneys experienced in the issuance of tax-exempt obligations the interest on which is excludable from gross income under Section 103 of the Code. "City"means the City of San Juan Capistrano, California. "Closing Date" means the date on which the Bonds are delivered to the initial purchaser thereof. "Code" means the Internal Revenue Code of 1986, as amended and the United States Treasury Regulations proposed or in effect with respect thereto. "Company" means ECO Resources, Inc., a Texas corporation, and any successor thereto under the terms of the Service Contract. "End of Term"shall have the meaning ascribed thereto in Section 3.2. "Events of Default"means events of default as set forth in Section 8.1. "Fiscal Year" means the twelve month fiscal period of the Water District which commences on July 1 in every year and ends on June 30 of the succeeding year. "GAAP"means generally accepted accounting principles. 3 DOCSOC\923505 v3\22027.0004 "Independent Counsel" means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee or officer of the Authority or the Water District. "Joint Exercise of Powers Agreement" means that certain Joint Exercise of Powers Agreement entered into by and among the Capistrano Beach County Water District, the Santa Margarita Water District, and Orange County Water District No.4 dated as of November 22. 1971, as amended effective September 1, 1987 by Addendum No. 1 to the Joint Exercise of Powers Agreement and Addendum No. 3 dated as of September 1,2002. "Lease" or "Lease Agreement" means this Operating Lease Agreement, between the Water District and the Authority, as amended and supplemented from time to time in accordance with its terms. "Maintenance and Operation Costs" means costs spent or incurred for operation and maintenance of the Water System, including the Project, calculated in accordance with generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Water System in good repair and working order, and also means all costs of water purchased or otherwise acquired for delivery by the Water System;but excluding in all cases depreciation,replacement and obsolescence charges or reserves-therefor and amortization of intangibles or other bookkeeping entries of a similar nature. "Manager"means the General Manager of the Water District,or any other person designated by the General Manager to act on behalf of the General Manager. "Net Insurance Proceeds" means any insurance or condemnation proceeds paid with respect to the Project remaining after payment therefrom of all expenses incurred in the collection thereof. "Permitted Encumbrances" means as of any particular time: (1)liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the Water District may, pursuant to Section 6.8(c) hereof,permit to remain unpaid; (2)the Property Lease as they may be amended from time to time; (3)any right or claim of any mechanic, laborer,materialman, supplier or vendor filed or perfected in the manner prescribed by law to the extent permitted under Section 6.7(b) hereof; (4)easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record as of the Closing Date and which the Water District certifies in writing on the Closing Date will not materially impair the use of the Project; and (5)easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the Closing Date, to which the Authority and the Water District consent in writing and which the Water District certifies will not materially impair the use of the Project or real property substituted for the Project, as the case may be. "Property"means the real property described from time to time in Exhibit A hereto. "Property Lease" means the Property Lease between the City, as lessor, and the Authority, as lessee, as amended and supplemented from time to time in accordance with its terms. "Project"means the groundwater recovery project described in Exhibit B hereto. 4 DOCS009235050\22027.0004 "Project Lease Agreement" means the Lease Agreement dated as of the date hereof by and between the Authority and the Water District pursuant to which the Authority has leased to the Water District the Property and the Project. "Project Lease Payments" means the Lease Payments required to be made under the Project Lease Agreement. "Revenue Fund" means the enterprise fund of the Water District currently identified as the "Unrestricted Fund" of the Water District, any successor fund or funds, and such other funds as the Board of Directors shall establish as a part of the Revenue Fund which shall constitute the Revenue Fund maintained pursuant to this Lease Agreement. "Revenues" means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Water System, including, without limiting the generality of the foregoing, (1) all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the Water District from the sale, furnishing and supplying of the water or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Water System; (2) the earnings on and income derived from the investment of amounts described in clause(1)above and from Water District reserves; and (3) the proceeds derived by the Water District directly or indirectly from the sale, lease or other disposition of a part of the Water System; but excluding, (a) customers' deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the Water District; (b) any proceeds of taxes or assessments restricted by law to be used by the Water District to pay bonds or other obligations heretofore or hereafter issued. "Series 2002 Certificates of Participation" means the San Juan Capistrano Public Financing Authority Revenue Certificates of Participation, Series 2002, executed and delivered on April 3, 2002 in the aggregate principal amount of$8,525,000. "Series 2002 Installment Payments"means the installment payments of interest and principal scheduled to be paid by the Water District under and pursuant to the Series 2002 Installment Purchase Agreement, and any amendments thereto. "Series 2002 Installment Purchase Agreement" means that certain Installment Purchase Agreement by and between the Water District and the San Juan Capistrano Public Financing Authority, dated as of March 1,2002. 5 DOCS009235050\22027.0004 "Service Contract"means that certain service contract by and between the Water District and the Company, for the design, construction and operation of the Project dated as of September 3, 2002. "State"means the State of California. "Term"means the duration of this Lease Agreement pursuant to the provisions of Section 3.2 hereof. "Trust Agreement" means the Trust Agreement relating to the San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project) Issue of 2002, dated as of the date hereof entered into by and among the Water District, the Authority and the Trustee and any and all Supplemental Trust Agreements. "Trustee"means BNY Western Trust Company and its successor or successors which may at any time be substituted in its place pursuant to the provisions of the Trust Agreement. "Water District" means Capistrano Valley Water District, a county water district duly organized and existing under and by virtue of the laws of the State, and its successors and assigns, including any successor by merger to all of its rights and obligations. "Water System" means the entire water system of the Water District, including, without limitation, all real property and buildings, and including all improvements, works or facilities assessed, controlled or operated by the Water District to provide water, as such improvements, works or facilities now exist, including the Project, together with all improvements and extensions to said Water System later acquired,constructed or organized. Section 1.2. Fxhibits. The following Exhibits are attached to, and by reference made a part of,this Lease Agreement: Exhibit A: Description of the Property. Exhibit B: Description of the Project. ARTICLE II REPRESENTATIONS,COVENANTS AND WARRANTIES Section 2.1. Representations.Covenants and Warranties of the Water District. The Water District represents, covenants and warrants to the Authority as follows: (a) Due Organization and Existence. The Water District is a county water district duly organized and existing under and by virtue of the laws of the State, with the power and authority to own, lease and acquire real and personal property and equipment and to incur the obligations hereunder. (b) Authorization—Enforceability. The laws of the State authorize the Water District to enter into this Lease Agreement and to enter into the transactions contemplated by and to cavy out its obligations under this Lease Agreement, and the Water District has duly authorized and 6 DOCS00923505 v 3122027.0004 executed this Lease Agreement. This Lease Agreement constitutes the legal, valid and binding obligation of the Water District,enforceable in accordance with its terms,except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. (c) No Conflicts or Default; No Liens or Encumbrances. Neither the execution and delivery of this Lease Agreement, nor the fulfillment of or compliance with the terms and conditions hereof, nor the consummation of the transactions contemplated hereby, conflicts with or results in a breach of the terms, conditions or provisions of any restriction or any agreement or instrument to which the Water District is now a party or by which the Water District is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Water District or upon the Project,except for Permitted Encumbrances. (d) Execution and Delivery. The Water District has duly authorized and executed this Lease Agreement in accordance with the laws of the State. (e) No Consent Required. There is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory authority having jurisdiction over the Water District required for the consummation by the Water District of the transactions contemplated by this Lease Agreement. (f) No Litigation. There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public office or body, pending or threatened against the Water District affecting the existence of the Water District or the titles of its officers to their respective offices or seeking to prohibit, restrain or enjoin the Water District's covenants to make Lease Payments or in any way contesting or affecting the validity or enforceability of this Lease Agreement or contesting the powers of the Water District or its authority to enter into, adopt or perform its obligations under this Lease Agreement.or any amendment or supplement thereto, wherein an unfavorable decision, ruling or finding would materially adversely affect the Lease Agreement, or in which a final adverse decision could materially adversely affect the operations of the Water District. (g) Indemnification of Authority. To the extent permitted by law, the Water District covenants to defend, indemnify and hold harmless the Authority and its assigns, directors and employees (collectively, the"Indemnified Party")against any and all losses, claims, damages or liabilities,joint or several, including fees and expenses incurred in connection therewith, to which such Indemnified Party may become subject under any statute or at law or in equity or otherwise in connection with the transactions contemplated by this Lease Agreement, and shall reimburse any such Indemnified Party for any legal expenses reasonably incurred by it in connection with defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of the transactions contemplated by this Lease Agreement or the Property Lease. In particular,without limitation, to the extent permitted by law, the Water District shall and hereby agrees to indemnify and save the Indemnified Party harmless from and against all claims, losses and damages, including legal fees and expenses, to the extent arising out of(i)the use, maintenance, condition or management of, or from any work or thing done on, the Project by the Water District, (ii)any breach or default on the part of the Water District in the performance of any of its obligations under this Lease Agreement, (iii)any act of negligence of the Water District or of any of its agents, contractors, servants, employees or 7 DOCS009235050\22027.0004 licensees with respect to the Project,or(iv)any act of negligence of any assignee or sublessee of the Water District with respect to the Project. No indemnification is made under this Section or elsewhere in this Lease Agreement for claims, losses or damages, including legal fees and expenses arising out of the willful misconduct, negligent acts or omissions. or breach of duty under this Lease Agreement or the Property Lease by the Authority, its officers, directors, agents, employees. successors or assigns. Section 2.2. Representations. Covenants and Warranties of the Authority. The Authority represents,covenants and warrants to the Water District as follows: (a) Due Organization and Existence; Enforceability. The Authority is a joint powers authority, duly organized, existing and in good standing under and by virtue of the laws of the State, has the power to enter into this Lease Agreement and the Property Lease; is possessed of full power to own and hold real and personal property, and to lease and sell the same; and has duly authorized the execution and delivery of this Lease Agreement and the Property Lease. This Lease Agreement and the Property Lease constitute the legal, valid and binding obligations of the Authority, enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy,insolvency,reorganization,moratorium or similar laws or equitable principles affecting the rights of creditors generally. (b) No Conflicts or Defaults: No Liens or Encumbrances. Neither the execution and delivery of this Lease Agreement or the Property Lease nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of the Joint Exercise of Powers Agreement of the Authority or any restriction or any agreement or instrument to which the Authority is now a party or by which the Authority is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Authority or upon the Project, except for Permitted Encumbrances. (c) No Consent Required. There is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory authority having jurisdiction over the Authority required for the consummation by the Authority of the transactions contemplated by this Lease Agreement or the Property Lease. (d) No Litigation. There.is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public office or body, pending or threatened against the Authority affecting the existence of the Authority or the titles of its officers to their respective offices or seeking to prohibit, restrain or enjoin the Authority's or in any way contesting or affecting the validity or enforceability of this Lease Agreement or the Property Lease or contesting the powers of the Authority or its authority to enter into, adopt or perform its obligations under this Lease Agreement or the Property Lease or any amendment or supplement thereto,wherein an unfavorable decision, ruling or finding would materially adversely affect the Lease Agreement or the Property Lease, or in which a final adverse decision could materially adversely affect the operations of the Authority. (e) Execution and Delivery. The Authority has duly authorized and executed this Lease Agreement and the Property Lease in accordance with the Constitution and laws of the State. 8 DOCSOC1923505v3U2027.0004 (f) Maintenance of Corporate Existence. To the extent permitted by law. the Authority agrees that during the Term it will maintain its existence as a public entity, will not dissolve or otherwise dispose of all or substantially all of its assets. ARTICLE III AGREEMENT OF LEASE;TERM OF LEASE;LEASE PAYMENTS Section 3.1. Lease. The Authority hereby leases the Property and the Project to the Water District upon the terms and conditions set forth herein. Section 3.2. Term. The Term of this Lease Agreement shall commence on the Closing Date and shall end on December 1, 2035, unless extended pursuant to Section 3.3 hereof (as so extended the "End of Term"), provided, however, the maintenance and operation of the Project by the Water District is provided in the Project Lease Agreement and the maintenance and operation of the Project by the Water District under this Lease Agreement shall commence upon the termination, following extensions of term of the Project Lease Agreement upon the happening of the following events: (a) Payment of All Lease Payments. The payment by the Water District of all Project Lease Payments required under Section 3.4 of the Project Lease Agreement and any Additional Payments required under Section 4.14 of the Project Lease Agreement; or (b) Prepayment. The optional prepayment of all Project Lease Payments in accordance with Section 10.3 of the Project Lease Agreement and the payment of all Additional Payments due through such prepayment date;or (c) Extraordinary Termination. The exercise by the Water District of its right to terminate the Project Lease Agreement upon the occurrence of one or more of the conditions therefor as described in Section 3.11 hereof. Section 3.3. Extension of Lease Term. If on or prior to October 1, 2057, the Property Lease is extended, then the Term of this Lease Agreement shall be extended until the end of the term of the Property Lease. Section 3.4. Lease Payments. Upon the date that the Water District commences maintenance and operation of the Project under this Lease Agreement, the Water District shall pay to the Authority $1.00 per annum for the balance or the Term of this Lease Agreement (the "Lease Payments"). Section 3.5. Budget and Appropriation. The Water District covenants to take such action as may be necessary to include all Maintenance and Operation Costs and Additional Payments due hereunder in its proposed annual budget and its final adopted annual budget and to make the necessary appropriations for any amount of Maintenance and Operation Costs and Additional Payments to be paid therefor. Section 3.6. Revenue Fund. The Water District agrees to maintain the Revenue Fund held by the Treasurer of the Water District (the "Treasurer"). All Revenues shall be deposited with the 9 DOCSOC\923505v3\22027.0004 Treasurer and credited to the Revenue Fund. The Water District shall transfer moneys from the Revenue Fund to pay Maintenance and Operation Costs. Any Revenues in excess of the amounts budgeted, as required, for the payment of the Maintenance and Operation Costs shall constitute surplus revenues in the Revenue Fund. After all covenants contained herein have been duly performed each year, and provided that there are no amounts then owing for the payment of Maintenance and Operation Costs and Additional Payments, such surplus revenues may be used for: (1)extensions and betterments of the Water System;or(2)any lawful purpose of the Water District. Section 3.7. Rates and Charges. The Water District shall, to the maximum extent permitted by law, fix, prescribe and collect rates and charges for water service which will be at least sufficient to yield during each Fiscal Year Revenues equal to one hundred percent (100%) of Maintenance and Operation Costs paid in the immediately preceding Fiscal Year, plus Additional Payments payable in such Fiscal Year. The Water District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this rate covenant. Section 3.8. Use and Possession. The total Lease Payments and Additional Payments due in any Fiscal Year shall be for the use and possession of the Project for such Fiscal Year. During the Term of this Lease Agreement, the Water District shall be entitled to the exclusive use of the Project subject only to the Permitted Encumbrances and an agreement that may be entered into by the Authority or by any of its members and the Water District for the use of the Project by the Authority or any of its members. Section 3.9. Additional Payments. In addition to the Lease Payments, the Water District shall also pay such amounts ("Additional Payments") as shall be required for the payment of all administrative costs of the Authority relating to the Project,including without limitation all expenses including usual and ordinary legal fees and expenses, assessments, compensation and indemnification of the Authority payable by the Water District. All such Additional Payments to be paid hereunder shall be paid when due directly by the Water District to the Authority to whom such Additional Payments are owing. Section 3.10. Net-Net-Net Lease. This Lease Agreement shall be deemed and construed to be a "net-net-net lease" and the Water District hereby agrees that the Lease Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set-offs whatsoever, except as expressly provided herein. Section 3.11. Termination of Lease Agreement Prior to End of Term. (a) Termination of Lease Agreement for Failure to Achieve Acceptance. The Water District shall have the right to terminate this Lease Agreement in the event the Water District exercises its right to terminate the Service Contract pursuant to Section 13.2(A) thereof, provided that the Water District shall have no right to terminate this Lease if and after the Water District exercises any of its buy-out rights under the Service Contract. (b) Termination of Lease Agreement Upon an Event of Default by the Company. The Water District shall have the right to terminate this Lease Agreement in the event the Water District exercises its right, subject to applicable notice and cure provisions set forth in the Service 10 DOCSOC1923505v3Q2027.0004 Contract, to terminate the Service Contract pursuant to Section 13.2(B) thereof upon the occurrence of an Event of Default (as defined in the Service Contract) by the Company under the Service Contract, provided that the Water District shall have no right to terminate this Lease if and after the Water District exercises any of its buy-out rights under the Service Contract. (c) Except as provided in (a) and (b), the Water District and Authority acknowledge the Water District's obligations hereunder are not conditioned or affected by the Service Contract or the performance by any party of its obligations thereunder, including, without limitation, termination of the Service Contract pursuant to any provision other than Section 13.2(A) or(B). ARTICLE IV INSURANCE AND CONDEMNATION Section 4.1. Insurance. The Water District will procure and maintain insurance on the Project with responsible insurers at reasonable cost in such amount and against such risks (including damage to or destruction of the Project)as are usually covered in connection with facilities similar to the Project, but not less than the lesser of the full replacement cost or the principal amount of the Project, so long as such insurance is available from reputable insurance companies. In the event of any damage to or destruction of the Project caused by the perils covered by such insurance, the Net Insurance Proceeds thereof shall be applied in accordance with Article V hereof. The Water District shall provide adequate reserves to cover the amount of any deductible provisions of the insurance required to be maintained pursuant to this Section 4.1. Section 4.2. Cooperation. The Authority shall cooperate fully with the Water District at the expense of the Water District in filing any proof of loss with respect to any insurance policy maintained pursuant to this Article and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Project or any portion thereof. Section 4.3. Insurance and Condemnation Account. (a) Creation of Account. The Water District shall create, hold and administer for the benefit of the Water District and the Authority a fund• to be known as the Insurance and Condemnation Account. (b) Application of Net Insurance Proceeds. There shall be paid into the Insurance and Condemnation Account the Net Insurance Proceeds of insurance maintained pursuant to Section 4.1 hereof and any condemnation awards constituting Net Insurance Proceeds and any additional amount required to be paid by the Water District pursuant to Section 5.1(c) hereof. In the event that the Water District elects to restore or replace the Project as provided in Section 5.1(b) hereof, then such Net Insurance Proceeds shall be disbursed in accordance with requisitions approved by an Authorized Representative of the Water District. Promptly upon determining that the restoration of the Project are complete, the Authorized Representative of the Water District shall so notify the Authority in writing that the restoration is complete. Any balance of Net Insurance Proceeds 11 DOCS009235050\22027.0004 remaining after the final disbursement to restore the Project, or, in the event the Water District elects not to restore the Project as provided in Section 5.1(c) hereof, all Net Insurance Proceeds, and any deposit made by the Water District in accordance with Section 5.1(c) hereof shall be paid to the Authority. ARTICLE V DAMAGE,DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS Section 5.1. Ag2lication of Net Insurance Proceeds. (a) Deposit in Insurance and Condemnation Account. Pursuant to Section 4.1 hereof, the Water District shall deposit the Net Insurance Proceeds of any insurance required by Section 4.1 hereof in the Insurance and Condemnation Account established under this Lease Agreement promptly upon receipt thereof. (b) Disbursement for Reniacement or Repair of the Project. Upon receipt of the certification described in paragraph (i) below and the requisition described in paragraph (ii) below, the parties hereto agree that the Water District shall disburse moneys in the Insurance and Condemnation Account to the person, firm or corporation named in the requisition as provided in Section 4.3 hereof. (i) Certification. The Authorized Representative of the Water District must provide to the Authority a certificate stating that the Net Insurance Proceeds available for such purpose, together with other funds, if any, supplied by the,Water District for such purpose in its sole and absolute discretion, are sufficient to restore the Project to a value greater than or equal to the value thereof prior to the insured event, and (ii) gMuisition. An Authorized Representative of the Water District must state with respect to each payment to be made (1)the requisition number, (2)the name and address of the person, firm or corporation to whom payment is due, (3)the amount to be paid and (4)that each obligation mentioned therein has been properly incurred, is a proper charge against the Insurance and Condemnation Account, has not been the basis of any previous withdrawal therefrom, and specifying in reasonable detail the nature of the obligation. Any balance of the Net Insurance Proceeds remaining after such replacement or repair has been completed as evidenced by a certificate of the Water District shall be disbursed as provided in subsection(c)below. In the event and to the extent the requirements of subsections(b)(i) and (b)(ii) above are satisfied, the Water District shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, and shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Insurance Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Project shall be free and clear of all claims and liens except as provided in Section 6.8. 12 DOCS00923505 x3\.2027.0004 (c) Disbursement for Prepayment. If the Authorized Representative of the Water District notifies the Authority in writing of the Water District's determination that the certification provided in Section 5.1(b)(i) hereof cannot be made or replacement or repair of any portion of the Project is not economically feasible or in the best interest of the Water District, Net Insurance Proceeds will be paid to the Authority for deposit to the Credit of Project Committee No. 4 of the Authority. Section 5.2. Eminent Domain Proceeds. If all or any part of the Project shall be taken by eminent domain proceedings, the Net Insurance Proceeds thereof shall be applied by the Water District to pay to the Authority that portion of the Net Insurance Proceeds attributable to the value of the Project and pay to the City that portion of the Net Insurance Proceeds attributable to the value of the Property. ARTICLE VI COVENANTS WITH RESPECT TO THE PROJECT Section 6.1. Use of the Project. The Water District represents and warrants that it has an immediate need for all of the Project, which need is not expected to be temporary or to diminish in the foreseeable future. Section 6.2. Leasehold Interest in the Property and Title to the Project. (a) Authority bolds Leasehold Interest During Terra. During the Term, the Authority shall hold a leasehold interest in the Property pursuant to the Property Lease and title to the Project pursuant to the Project Lease Agreement. The Authority shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents, reasonably required to maintain and evidence the Authority's leasehold interest in the Property at all times during the Term. During the Term, the Water District shall hold as leasehold interest in the Property and in the Project. (b) Leasehold Interest Transferred to Authority_at End of_Term_ . Upon the expiration of the Term as provided in Section 3.2 hereof,the Water District's leasehold interest in the Project pursuant to this Lease Agreement shall terminate, and the Authority shall either be entitled to take over the Project subject to a renewal of the Property Lease or shall be entitled to remove the Project from the Property. Section 6.3. Ouiet Enjoyment. Subject only to Permitted Encumbrances, during the Term the Authority shall provide the Water District with quiet use and enjoyment of the Project, and the Water District shall during such Term peaceably and quietly have and hold and enjoy the Project, without suit, trouble or hindrance from the Authority, or any person or entity claiming under or through the Authority except as expressly set forth in this Lease Agreement. The Authority will, at the request of the Water District,join in any legal action in which the Water District asserts its right to such possession and enjoyment to the extent the Authority may lawfully do so. Notwithstanding the foregoing, the Authority shall have the right of access to the Project as provided in Section 6.5 hereof. 13 DOCS OC\923505v 3122027.0004 Section 6.4. Installation of Water District's Personal Property. The Water District may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon any portion of the Project. All such items shall remain the sole personal property of the Water District,regardless of the manner in which the same may be affixed to such portion of the Project, in which the Authority shall not have any interest, and may be modified or removed by the Water District at any time; provided that the Water District shall repair and restore any and all damage to such portion of the Project resulting from the installation,modification or removal of any such items of equipment. Nothing in this Lease Agreement shall prevent the Water District from purchasing items to be installed pursuant to this Section, provided that no lien or security interest attaching to such items shall attach to any part of the Project. Section 6.5. Access to the Project. The Water District agrees that the Authority and the Authority's successors or assigns shall have (1)the right at all reasonable times to enter upon the Project or any portion thereof to examine and inspect the Project, and(2)such rights of access to the Project as may be reasonably necessary to cause the proper maintenance of the Project in the event of failure by the Water District to perform its obligations hereunder. Section 6.6. Maintenance,Utilities,Taxes and Assessments. (a) Maintenance; Repair and Replacement. Throughout the Term of this Lease Agreement,as part of the consideration for the rental of the Project,all repair and maintenance of the Project shall be the responsibility of the Water District, and the Water District shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Project resulting from ordinary wear and tear or want of care on the part of the Water District or any sublessee thereof. The Water District shall provide or cause to be provided all security service, custodial service, power,gas,telephone,light,heating and water, and all other public utility services for the Project. In exchange for the Lease Payments herein provided,the Authority agrees to provide only the Project. (b) Tax and Assessments: Utility Charges. The Water District shall also pay or cause to be paid all taxes and assessments, including but not limited to utility charges of any type or nature charged to the Authority or the Water District or levied, assessed or charged against any portion of the Project(excluding the Property, with respect to which the City shall pay or cause to be paid such amounts) or the respective interests or estates therein;provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Water District shall be obligated to pay only such installments as are required to be paid during the Term of this Lease Agreement as and when the same become due. (c) Contests. The Water District may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom; provided that prior to such nonpayment it shall furnish the Authority with the opinion of an Independent Counsel to the effect that, by nonpayment of any such items, the interest of the Authority in such portion of the Project will not be materially endangered and that the Project will not be subject to loss or forfeiture. Otherwise,the Water District shall promptly pay such taxes, assessments or charges or make provisions for the payment thereof in form satisfactory to the Authority. The Authority will cooperate fully in such contest, upon the request and at the expense of the Water District. 14 DOCSOC\923505v3\22027.0004 Section 6.7. Modification of the Project. (a) Additions, Modifications and Improvements. The Water District shall, at its own expense, have the right to make additions, modifications or improvements to any portion of the Project if such additions, modifications or improvements are necessary or beneficial for the use of such portion of the Project. Such additions, modifications and improvements shall not in any way damage any portion of the Project or cause them to be used for purposes other than those authorized under the provisions of state and federal law or in any way which would impair the exclusion from gross income for federal income tax purposes of the interest portion of the Lease Payments; and the Project, upon completion of any additions, modifications and improvements made pursuant to this Section. shall be of a value which is not less than the value of the Project immediately prior to the making of such additions,modifications or improvements. (b) No Liens. Except for Permitted Encumbrances, the Water District will not permit any mechanic's or other lien to be established or remain against the Project for labor or materials furnished in connection with any additions, modifications or improvements made by the Water District pursuant to this Section; provided that if any such lien is established and the Water District shall first notify or cause to be notified the Authority of the Water District's intention to do so, the Water District may in good faith contest any lien filed or established against the Project, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Authority with full security against any loss or forfeiture which might arise from the nonpayment of any such lien, in form satisfactory to the Authority. The Authority will cooperate fully in any such contest, upon the request and at the expense of the Water District. Section 6.8. Liens. Except as permitted by this Lease Agreement (including without limitation Section 6.7 and Section 7.1), the Water District shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as applicable, on or with respect to the Project, other than Permitted Encumbrances and other than the respective rights of the Authority and the Water District as herein provided. Except as expressly provided in this Article, the Water District shall promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage,pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time; provided that the Water District may contest such lien or claim if it desires to do so, so long as such contest will not materially, adversely affect the rights of the Water District to the Project or the payment of Lease Payments hereunder. The Water District shall reimburse the Authority for any expense incurred by it in order to discharge or remove any such mortgage,pledge,lien,charge,encumbrance or claim. Section 6.9. A_utbo ty's Disclaimer of Warranties. THE AUTHORITY MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE WATER DISTRICT OF THE PROJECT OR PORTION THEREOF. In no event shall the Authority be liable for incidental, indirect, special or consequential damages,in connection with or arising out of this Lease Agreement or the Property Lease for the existence, furnishing, functioning or Water District's use and possession of the Project. 15 DOCS00923505 0\22027.0004 Section 6.10. Water District's Right to Enforce Warranties of Manufacturers. Vendors or Contractors. The Authority hereby irrevocably appoints the Water District its agent and attorney-in- fact during the Term, so long as the Water District shall not be in default hereunder, to assert from time to time whatever claims and rights, including without limitation, warranty claims, claims for indemnification and claims for breach of any representations, with respect to the Project or the improvements to the Project which the Authority may have against any manufacturer, vendor or contractor, or any agents thereof. The Water District's sole remedy for the breach of any such warranty, indemnification or representation shall be against the manufacturer, vendor or contractor with respect thereto, and not against the Authority, nor shall such matter have any effect whatsoever on the rights and obligations of the Authority with respect to this Lease Agreement, including the right to receive full and timely Lease Payments and to cause the Water District to make all other payments due hereunder. The Water District shall be entitled to retain any and all amounts recovered as a result of the assertion of any such claims and rights. The Authority shall, upon the Water District's request and at the Water District's expense, do all things and take all such actions as the Water District may request in connection with the assertion of any such claims and rights. The Water District expressly acknowledges that the Authority does not make, or has not made, any representation or warranty whatsoever as to the existence or availability of such warranties of the manufacturer,vendor or contractor with respect to any of the improvements on the Project. Section 6.11. Reconstruction, Application of Net Insurance Proceeds. If any useful portion of the Project shall be destroyed or is damaged by fire or other casualty, or title to, or the temporary use of, such portion shall be taken under the exercise of the power of eminent domain, the Water District shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair,reconstruction,restoration or replacement thereof, unless it is determined under the provisions of Section 5.1(c) hereof that such repair, reconstruction, restoration or replacement is not to be undertaken. Section 6.12. Against Encumbrances. The Water District may expend at any time, or from time to time, general fund revenues or may issue evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of and lien on general fund revenues. Section 6.13. Against Sale or Other Disposition of Project. The Water District will not enter into any agreement or lease which impairs the operation of the Project or any part thereof necessary to secure adequate water services for the community. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the improvements on the Project,or any material or equipment which has become worn out,may be sold if such sale will not impair the ability of the Water District to pay Lease Payments and if the proceeds of such sale are deposited in the Lease Payment Fund. Section 6.14. Payment of Claims. The Water District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Net Revenues or the funds or accounts created hereunder. Section 6.15. Compliance with Lease. The Water District will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or adversely affect the ability of the Water District to pay Lease Payments and the Maintenance and 16 DOCS00O235050\22027.00N Operations Costs; and the Water District will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Project, to the extent that the Water District is a party thereto. Section 6.16. Compliance with Governmental Regulations. The Water District will duly observe and comply with all valid regulations and requirements of any governmental authority relative to the operation of the improvements on the Project, or any part thereof, but the Water District shall not be required to comply with any regulations or requirements so lona as the validity or application thereof shall be contested in good faith. ARTICLE VII ASSIGNMENT,SUBLEASING AND AMENDMENT Section 7.1. Assignment and Subleasing by the Water District. (a) Assignment. This Lease Agreement may not be assigned by the Water District unless the Water District receives prior written consent of the Authority. (b) Sublease. The Water District may sublease any portion of the Project, with the prior written consent of the Authority, which consent shall not be unreasonably withheld, subject to all of the following conditions: (i) This Lease Agreement and the obligation of the Water District to make Lease Payments and perform the other covenants of the Water District hereunder shall remain obligations of the Water District; (ii) The Water District shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority a true and complete copy of such sublease; and (iii) No sublease by the Water District shall cause the Project to be used for a purpose other than a governmental or proprietary function authorized under the provisions of the laws of the State. Section 7.2. Amendments and Modifications. This Lease Agreement may be amended or any of its terms modified,with the written consent of the Authority and the Water District. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES Section 8.1. Events of Default Defined. The following shall be "Events of Default"under this Lease Agreement and the terms "Events of Default" and"default" mean, whenever they are used in this Lease Agreement,any one or more of the following events: (a) Payment Default. Failure by the Water District to pay any Lease Payment or Additional Payment required to be paid hereunder on the date such payment is due hereunder. 17 DOCSOCW235050\22027.0004 (b) Covenant Default. Failure by the Water District to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed herein or otherwise with respect hereto or in the Property Lease, other than as referred to in clause (a) of this Section, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the Water District by the Authority; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, then no Event of Default shall have occurred so long as corrective action is instituted by the Water District within the applicable period and diligently pursued until the default is corrected. (c) 13anlsrupIpy or_T_nsolvencl?. The filing by the Water District of a case in bankruptcy, or the subjection of any right or interest of the Water District under this Lease Agreement to any execution, garnishment or attachment, or adjudication of the Water District as a bankrupt, or assignment by the Water District for the benefit of creditors, or the entry by the Water District into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the Water District in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act which may hereafter be enacted. Section 8.2. Remedies on Default. Whenever any Event of Default referred to in Section 8.1 hereof shall have happened and be continuing, it shall be lawful for the Authority to exercise any and all remedies available pursuant to law or granted pursuant to this Lease Agreement, and, in each and every such case during the continuance of an Event of Default, the Authority may, and by notice in writing to the Water District rescind this Lease Agreement and re-enter or re-let the Project. The reasonable expenses of the Authority and any and all other defaults known to the Authority shall have been made good or cured to the satisfaction of the Authority or provision deemed by the Authority to be adequate shall have been made therefor, then and in every such case the Authority, by written notice to the Water District may rescind and annul such declaration and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon. Section 8.3. Other Remedies of the Authority. The Authority shall have the right (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Water District or any director, officer or employee thereof, and to compel the Water District or any such director,officer or employee to perform and carry out its or his duties under the agreements and covenants required to be performed by it or him contained herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority;or (c) by suit in equity upon the happening of an Event of Default to require the Water District and its directors,officers and employees to account as the trustee of an express trust. Notwithstanding anything contained herein, the Authority shall have no security interest in, the Water System or other assets of the Water District and no default hereunder shall result in the loss of the Water System, or other assets of the Water District. 18 DOCSOM9235050\22027.0004 Section 8.4. No Remedy Exclusive. Subject to the express limitation on remedies described in the last paragraph of Section 8.3 above, no remedy conferred herein upon or reserved to the Authority is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease Agreement or now or hereafter existing'at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in this Article it shall not be necessary to give any notice, other than such notice as may be required in this Article or by law. Section 8.5. Agreement to Pay Attorneys Fees and Expenses. In the event either party to this Lease Agreement should default under any of the provisions hereof and the nondefaulting party should commence legal action or arbitration for the collection of moneys or the enforcement of performance or observance of any obligation or agreement on the part of the defaulting party contained herein, the defaulting party agrees that it will pay on demand to the nondefaulting party the reasonable attorneys fees, court costs and legal expenses incurred by the nondefaulting party in such action or arbitration after payment of all fees and expenses of the Trustee. Section 8.6. No Additional Waiver IMplied by One Waiver. In the event any agreement contained in this Lease Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. ARTICLE IX MISCELLANEOUS Section 9.1. Liability of Water District Limited. Except for the pledge of Revenues pursuant to the terns of this Lease Agreement,neither the faith and credit nor the taxing power of the Water District is pledged to the payment of Lease Payments hereunder. Nevertheless, the Water District may, but shall not be required to, advance for any of the purposes hereof any funds of the Water District which may be made available to it for such purposes. The obligation of the Water District to make Lease Payments is a special obligation of the Water District payable solely from the Revenues which are hereby irrevocably pledged. Section 9.2. Waiver of Personal Liability_. No member, officer, agent or employee of the Water District or the Water District shall be individually or personally liable for the payment of Lease Payments hereunder or be subject to any personal liability or accountability by reason of the issuance thereof, but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law. Section 9.3. Notices. All notices, certificates or other communications hereunder to the Authority and Water District shall be sufficiently given and shall be deemed to have been received five(5)business days after deposit in the United States mail in certified form, postage prepaid, to the Water District or the Authority, as the case may be, at the following addresses: 19 DOCSOC\923505 v3\22027.0004 If to the Water District: Capistrano Valley Water District c/o City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano,California 92675 Attention: Treasurer 949-443-6301 Telecopier: 949-493-1053 If to the Authority: San Juan Basin Authority 27500 La Paz Road Laguna Niguel,California 92677 Attention: Administrator Telecopier: 949-831-5651 The Authority and the Water District, by notice given hereunder, may designate different addresses to which subsequent notices,certificates or other communications will be sent. Section 9.4. Bindin Effect. This Lease Agreement shall inure to the benefit of and shall be binding upon the Authority and the Water District and their respective successors and assigns. Section 9.5. Severability. In the event any provision of this Lease Agreement shall be held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 9.6. Execution in Counterparts. This Lease Agreement may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 9.7. Applicable Law. This Lease Agreement shall be governed by and construed in accordance with the laws of the State. Section 9.8. Captions. The captions or headings in this Lease Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Lease Agreement. 20 DOCSOM923505v3\22027.0004 IN WITNESS WHEREOF,the Authority has caused this Lease Agreement to be executed in its name by its duly authorized officers, and the Water District has caused this Lease Agreement to be executed in its name by its duly authorized officers,as of the date first above written. SAN JUAN BASIN AUTHORITY, as Lessor By: Its: President A xxxxxxxxxxxx x x SeFretary CAPISTRANO VALLEY WATER DISTRICT,as Lessee By: Its: General Manager ATTEST: Water District Secretary 21 DOCSOM923505v122027.0004 State of California ) )ss. County of Orange On ..')rrN ,2003,before me, �-`',� ,/ 1 "=/ n1� /L- personally (name,"title ofofficer,e.g., Jane Doe,Notary Public') personally appeared' ��ti �C�tr�r7 i (name(s)of signer(s)) 13 personally known to me,OR, ❑ proved to me on the basis of satisfactory evidence to be the person(s)whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity/ies, and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which person(s)acted,executed the instrument. Witness my hand and official seal. CINDY R.UNE (signature of notary) COnxntsfa►R 12919M om cowdy My Conte bepires Feb2tL�5 DOCSOC\923 505v3\22027.0004 IN WITNESS WHEREOF,the Authority has caused this Lease Agreement to be executed in its name by its duly authorized officers, and the Water District has caused this Lease Agreement to be executed in its name by its duly authorized officers,as of the date first above written. SAN JUAN BASIN AUTHORITY,as Lessor By: Its: President ATTEST: Secretary CAPISTRANO VALLEY WATER DISTRICT,as 4essee ATTEST: at District S cretary 21 DOCSOM9235050\22027.0004 PUBLIC AGENCY FORM OF ACKNOWLEDGEMENT State of California ) County of Orange ) ss. City of San Juan Capistrano ) (Gov't Code 40814&Civil Code 118 1) On January 7, 2003 before me, Margaret R. Monahan, Clerk of the Board, personally appeared George Scarborough, personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity,and that by his signature on the instrument the person, or the entity upon behalf of which the person acted,executed the instrument. (SEAL) WITNESS my hand and official seal. M gar R.Monahan, Clerk of the Board/City Clerk OPTIONAL Capacity Claimed by Signers Description of Attached Document General Manager Operating Lease Agreement between Capistrano Valley Water District&San Juan Title Basin Authority Title or Type of Document Signers are Representing 21 plus acknowledgements&exhibits Capistrano Valley Water District Number of Pages December 1, 2002 Date of Document President San Juan Basin Authority Signer(s)Other Than Named Above CERTIFICATE OF ACCEPTANCE This is to certify that the interest in real property conveyed under the foregoing to the Capistrano Valley Water District, a body corporate and politic, is hereby accepted by the undersigned officer or agent on behalf of the Board of Directors of the Capistrano Valley Water District, pursuant to authority conferred by resolution of said Board of Directors adopted on October 15, 2002, and the grantee consents to recordation thereof by its duly authorized officer. Dated: ' -7 —,200 CAPIS O VALL WATER DISTRICT By: Its: e DOCSOC\923505v3122027.0004 EXHIBIT A DESCRIPTION OF THE PROPERTY ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA.COUNTY OF ORANGE,CITY OF SAN JUAN CAPISTRANO,DESCRIBED AS FOLLOWS: PARCEL A(DANCE HALL): LOT 1 THAT PORTION OF LOT 60 OF TRACT NO, 103, AS SHOWN ON A MAP RECORDED IN BOOK 11, PAGES 29 THROUGH 33 INCLUSIVE, OF MISCELLANEOUS MAPS. RECORDS OF ORANGE COUNTY,CALIFORNIA,DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE SOUTHERLY LINE OF SAID LAND SOUTH 87055'30" EAST 92.80 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID SOUTHERLY LINE SOUTH 87055'30" EAST 169.49 FEET; THENCE NORTH 2°26'44" EAST 111.24 FEET; THENCE NORTH 87°33'16" WEST 108.59 FEET; THENCE NORTH 2030'44" EAST 127.34 FEET; THENCE NORTH 87°29'16" WEST 60.77 FEET; THENCE SOUTH 2030'44"WEST 239.75 FEET TO THE TRUE POINT OF BEGINNING. LOT 2 THAT PORTION OF LOT 60 OF TRACT NO. 103,AS SHOWN ON A MAP RECORDED IN BOOK 11, PAGES 29 THROUGH 33 INCLUSIVE, OF MISCELLANEOUS MAPS, RECORDS OF ORANGE COUNTY,CALIFORNIA,DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE WESTERLY LINE OF SAID LAND NORTH 2004'30" EAST 174.43 FEET; THENCE SOUTH 87°55'30" EAST 40.01 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING SOUTH 87°55'30" EAST 30.00 FEET; THENCE NORTH 2004'30" EAST 30.00 FEET; THENCE NORTH 87°55'30" WEST 30.00 FEET; THENCE SOUTH 2004'30"WEST 30.00 FEET TO THE TRUE POINT OF BEGINNING. PARCEL B(MARINER WELL SITE): THAT PORTION OF LOT 1 OF FRACTIONAL SECTION 14, TOWNSHIP 8 SOUTH, RANGE 8 WEST, SAN BERNARDINO MERIDIAN,DESCRIBED AS FOLLOWS: A 40.00 FOOT WIDE STRIP OF LAND, THE WESTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEAST CORNER OF LOT F OF TRACT NO. 7616 AS PER MAP FILED IN BOOK 350, PAGES I THROUGH 5 OF MISCELLANEOUS MAPS IN THE A-1 noCSM923505v3\22027.0004 OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE EASTERLY LINE OF SAID LOT F SOUTH 6046'00" WEST 61.06 FEET TO THE TRUE POINT OF BEGINNING;THENCE CONTINUING ALONG SAID EASTERLY LINE SOUTH 6046'00"WEST 40.00 FEET. PARCEL C(WELL NO. 1): PARCEL B, AS SHOWN ON EXHIBIT "B" ATTACHED TO LOT LINE ADJUSTMENT NO. 02-15858-13 RECORDED NOVEMBER 15, 2002 AS INSTRUMENT NO. 2002001029016 OF OFFICIAL RECORDS OF ORANGE COUNTY, CALIFORNIA. EXCEPTING THEREFROM ALL OIL RIGHTS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND RIGHTS TO ALL OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN TO ALL GEOTHERMAL HEAT AND TO ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING AND THE PERPETUAL RIGHT OF DRILL, MINE, EXPLORE AND OPERATE FOR AND TO PRODUCE, STORE AND REMOVE ANY OF THE SUBSURFACE RESOURCES ON OR FROM THE LAND INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAT THE LAND, WELLS, TUNNELS AND SHAFTS INTO THROUGH OR ACROSS THE SUBSURFACE OF THE LAND AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS WITHIN OR BEYOND THE EXTERIOR LIMITS OF THE PROPERTY AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES BUT WITHOUT THE RIGHT TO DRILL,MINES, EXPLORE, OPERATE,PRODUCE, STORE OR REMOVE ANY OF THE SUBSURFACE RESOURCES THROUGH OR IN THE SURFACE OR THE UPPER FIVE HUNDRED FEET (500') OF THE SUBSURFACE OF THE LAND AS RESERVED BY KB HOME COASTAL INC., A CALIFORNIA CORPORATION IN THE DEED RECORDED JULY 9, 2002 AS INSTRUMENT NO. 20020569988 OF OFFICIAL RECORDS. PARCEL D(WELL NO.2): THOSE PORTIONS OF LOT B OF TRACT NO. 15998, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 820, PAGES 42 THROUGH 47 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND THE LAND SHOWN AS "NOT A PART" WITHIN SAID LOT B ON SAID MAP, BEING A STRIP OF LAND, 20.00 FEET WIDE,THE EASTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEAST CORNER OF SAID LOT B; THENCE ALONG THE EASTERLY LINE OF SAID LOT B SOUTH 00020'50" WEST 95.00 FEET TO THE SOUTHEAST CORNER OF SAID LOT B. THE WESTERLY LINE OF SAID STRIP SHALL BE PROLONGED OR SHORTENED SO AS TO COMMENCE AND TERMINATE IN THE NORTHERLY AND SOUTHERLY LINES OF SAID LOT B. A-2 DOCSOC\923505v3\22027.0004 PARCEL E(WELL NO.4): LOT E OF TRACT NO. 15998 IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 820. PAGES 42 THROUGH 47 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM,THE SOUTHEASTERLY 15.00 FEET OF SAID LOT. PARCEL F(KINOSHITA): BEGINNING AT THE NORTHEAST CORNER OF TRACT NO. 11086, AS PER MAP FILED IN BOOK 479, PAGES 26 TO 31 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE CENTERLINE OF CAMINO DEL AVION NORTH 88045'27" WEST 28.52 FEET; THENCE NORTH 00048'04" WEST TO A POINT WHICH IS 1.00 FOOT NORTHERLY OF THE CENTERLINE OF CAMINO DEL AVION, MEASURED AT RIGHT ANGLES AND 28.50 FEET WESTERLY OF THE EASTERLY CENTERLINE OF ALIPAZ STREET MEASURED AT RIGHT ANGLES, AS SHOWN ON SAID MAP, SAID POINT BEING THE TRUE POINT OF BEGINNING; THENCE PARALLEL WITH THE CENTERLINE OF SAID CAMINO DEL AVION NORTH 88045'27" WEST 40.00 FEET; THENCE NORTH 25°52'46" EAST 89.03 FEET TO A POINT WHICH IS 28.50 FEET WESTERLY OF THE EASTERLY CENTERLINE OF SAID ALIPAZ STREET, MEASURED AT RIGHT ANGLES; THENCE PARALLEL WITH SAID EASTERLY CENTERLINE SOUTH 00048'04" EAST 80.97 FEET TO THE TRUE POINT OF BEGINNING. PARCEL G: (TIRADOR): THAT PORTION OF LOT 31 OF TRACT NO. 103 IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA,AS PER MAP FILED IN BOOK 11, PAGES 29 THROUGH 33 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY,DESCRIBED AS FOLLOWS: BEGINNING AT THE MOST EASTERLY CORNER OF SAID LOT 31; THENCE ALONG THE NORTHERLY LINE OF SAID LOT NORTH 89002'56" WEST 127.69 FEET TO A POINT THAT IS 40.00 FEET SOUTHEASTERLY MEASURED AT RIGHT ANGLES FROM THE CENTERLINE OF PASEO TIRADOR AS SHOWN ON THE AMENDED DIAGRAM OF ASSESSMENT DISTRICT NO. 78-3 FILED IN BOOK 19, PAGES 14 THROUGH 22 OF ASSESSMENT MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE PARALLEL WITH SAID CENTERLINE SOUTH 47054'43"WEST 43.95 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING SOUTH 47054'43" WEST 40.00 FEET; THENCE SOUTH 42'05'17" EAST 40.00 FEET; THENCE NORTH 47°54'43" EAST 40.00 FEET; THENCE NORTH 42°05'I7" WEST 40.00 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN THAT MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF A-3 DOCSOCW235050\22027.0004 DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR. AND REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND. INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP. MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 100 FEET OF THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED OR OTHERWISE IN SUCH MANNER AS TO ENDANGER THE SAFETY OF ANY HIGHWAY THAT MAY BE CONSTRUCTED ON SAID LAND, AS RESERVED IN THE DEED FROM CARL L. STROSCHEIN AND OTHERS, RECORDED FEBRUARY 15, 1955 IN BOOK 2959, PAGE 307 OF OFFICIAL RECORDS. A-4 DOCSOC\923505 v3\22027.0004 EXHIBIT B DESCRIPTION OF THE PROJECT Construction of the San Juan Basin Authority Phase I Ground Water Recovery Plant, including all pipelines,well and other facilities relating to the Plant. These costs included but are not limited to: Project development fees and expenses of the District, estimated administrative, legal, engineering and other professional fees and expenses of the District, the Issuer and the Trustee relating to the Project and the Bonds during the Construction Period, acquisition of property and/or access rights, demolition of any existing facilities, relocation of any existing operations on the Plant site, construction of the Plant and installation of all necessary equipment. B-1 DOCS00O235050\22027.0004 GOVERNMENT CODE 27361.7 I CERTIFY UNDER PENALTY OF PERJURY THAT THE NOTARY SEAL ON THE DOCUMENT TO WHICH THIS STATEMENT IS ATTACHED READS AS FOLLOWS: NAME OF NOTARY: DATE COMMISSION EXPIRES: COUNTY WHERE BOND IS FILEED: COMMISSION NUMBER: o� MANUFACTURER/VENDOR NUMBER: PLACE OF EXECUTION: SANTA ANA DATE: SIGNATURE: FIRST AMERICAN TITLE INSURANCE CO. I CERTIFY UNDER PENALTY OF PERJURY THAT THE ILLEGIBLE PORTION OF THE DOCUMENT TO WHICH THIS STATEMENT IS ATTACHED READS AS FOLLOWS: PLACE OF EXECUTION: SANTA ANA DATED: SIGNATURE: FIRST AMERICAN TITLE INSURANCE CO. *he/she/they executed the same in his/her/their authorized capacity(ies) , and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. t w c Recorded in Official Records,Orange t aufft RECORDING REQUESTED BY: H IUyop,01ark-Aseorder A> ll'WHEN RECORDED MAIL TO: NO FEE $ R 6' Q 11111111 ' 64i +� SI?AMrNG'YOCCA CARLSON`&.RAM 2000MW 32&02 am.0912063 660 Newport Center Drive,Suite 1600 0 422 Ail F13 12 Now port; each,aCstif'ti 0660 0:00 666 0.06 0.00 38.04.046?.00 0.00 Atteriti©n: Douglas S.Shown,Esq, 1. • {Space above far rwordcr] This document is mordeid for the benefit of ft City of Sen Juan Capi§tranb, and t}iet r6cording . is fes-exethpt under. Section 0.0.3 of the Government Code. Term of 1easb is less than 99 {� 1 years. FIRST AMENDMENT TO OPERATING LEASE AGREIMUNT between CITY OF SAN JUAN CAPISTRANO, as Leasee and SAN JUANBASIN AUTHORITV, - as Lessor - Dated as of Deceinbor 1,2402 Relating to $31,555,000 SAN JUAN BASIN AUMORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2002 DOCSOC11631722v2102265"017 ATTACHMENT 1 -Page 1 of 10 . FIRST AMENDMENT TO OPERATING LEASE AGREEMENT This First Amendment to Operating Lease Agreement (the "First Amendment to Operating Lease Agreement") is made and entered into as of ,2013,by and between the SAN JUAN BASIN AUTHORITY,a joint powers authority duly organized and existing under the laws of the State of California, as'lessor (the "Authbr"rty'l, and the CITY OF SAN JUAN CAPISTRANO,a municipal corporation duly organized and existing under and by virtue of the laws of the State of California, as lessee(the 'City"), and amends, in part, that certain Operating Lease Agreement between the Capistrano 'Valley Water District, as lessee (the "Water District"), and the Authority,as lessor,dated as of December 1,2002,and recorded in the official records of the County of Orange on January 7,2003,as Document No.2003000021099(the"Operating Lease"); WITNESSETH: WHEREAS, the Water District entered into the Operating Lease with the Authority for the purpose of leasing from the Authority, as lessee thereunder, the real property described in Exhibit A thereto (and improvements thereon) in connection with the execution and delivery of the Lease Revenue Bonds(Groundwater Recovery Project),Issue of 2002(the"2002 Bonds");and WHEREAS,the City is the successor in interest to the Water District;and WRBRCAS,the City and the Authority desire to enter into this-First Amendment to Operating Lease Agreement in order to correct a.typographical error-in the Operating Lease;and WHEREAS, pursuant to Section 72 of the Operating Lease, the City and the Authority reserved the right to amend the Operatiirg Lease;and WHEREAS, the parties hereto have agreed to amend the Operating Lease as described herein,which amendment does not adversely affect the interests of the Owners of the-2002 Bonds; NOW,THEREFORE, in consideration of the mutual covenants contained herein,and for other valuable consideration,it is hereby mutually agreed as follows: SECTION 1. Definitions. Unless-the context otherwise requires, the capitalized terns herein which are not defined herein small have the meanings ascribed thereto in the Operating Lease and the Trust Agreement(defined in the Operating Lease), SECTION 2. Amendment of Section 3.2. Section 3.2 of the Operating Lease is amended by deleting the words "December 1, 2035" and inserting in their place the words "October 1,2057." SECTION 3. No Other Amendments. Except as expressly set forth in Section 2, above,all other provisions of the Operating Lease remain in full force and effect. SECTION 4.'Counterparts. This First Amendment to Operating Lease Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the safne instrument. [REW NDER OF PAGE 1]VTF.NTION fLLYLEFT BLANK] 1 DO CSOCJ 1631722v2/022658-0017 ATTACHMENT 1 -Page 2 of 10 r IN WITNESS WHEREOF, the City has caused this Fust Amendment to Operating Lease Agreement to be executed in its name by its duty authorized officer, and the Authority has caused this First Amendment to Operating Lease Agreement to be executed in its name by its duly authorized officer,as of the date first above written. SAN JUAN BASIN AUTHORITY,as Lessor r By.- Its: s Chairman, Larry McKenney ATTES`r: Secretary CITY OF SAN JUAN CAPISTRANO By: � Joh aylor, Mt A"frTE T Massa M 4,City C1 APPROVED AS TO FORM: 2 ALigten, City Attorney S-1 DOCSOC/7 631722v21022658.0017 ATTACHMENT I Page 3 of 10 STATE OF CALIFORNJA COUNTY OF ORANGE On - /O'"!j before me. 1 49 Ne._. Notary Public, personally appeared Z-4 y rock, v a d.aR+uic(, R • j EPvVs , who proved to me on the basis of satisfactory evidence to'be the person(s) whose names(s) is rc subscribed to the within instrument and acknowledged to me that he ey xecuted the same in heir authorized capacity(ics), and that by tris/he it ignature(s) on the instrument the person(s),or the entity upon behalf of which the person(s)acted,executed the instrument_ I certify under PENALTY OF PERJURY under the laws of the State of.Califomia that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF OTARY PUBLIC IIO'tt(1.t.Al1E "Nino *2007m NiIN'y a1l�lte-C�lirrirnir 0"0" CeNM�. ln�.Mn 15 8017 DOCSOQ 1 b31722v2102265S-0017 ATTACHMENT 1 -Page 5 of 10 EXHIBIT 3c This Document was electronically recorded by I TAMEF C RF - First American Title &ADIVISIGN DtFr,RT'MENT Recorded in Official Records,County of Orange RECORDING REQUESTED BY Tompaly,Clerk-Recorder AND WHEN RECORDED MAIL TO: J11NIIIIN111IM1111 NO FEE STRADLING YOCCA CARLSON&RAUTH 2003000021098 04:07pm 01/07/03 660 Newport Center Drive, Suite 1600 10315 L03 46 Newport Beach,California 92660 0.00.00 0.00 0.00 0.00 0.00 0.00 0.00 Attn: Denise E.Hering,Esq. ) [Space above for recorder.] This document is recorded for the benefit of the 1 7(;?7 Capistrano Valley Water District.and the recording is fee-exempt under Section 6103 of the Government Code. Term of lease less than 99 years. LEASE AGREEMENT By and Between CAPISTRANO VALLEY WATER DISTRICT, as Lessee and SAN JUAN BASIN AUTHORITY, as Lessor Dated as of December 1,2002 Relating to $31,555,000 SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2002 DOCS001909571 v20122658.0017 Table of Contents Page ARTICLE I DEFINITIONS AND EXHIBITS Section 1.1. Definitions and Rules of Construction..........................................................................2 Section1.2. Exhibits.............................................................. ......... ......... ..................... ...........7 ARTICLE II REPRESENTATIONS,COVENANTS AND WARRANTIES Section 2.1. Representations,Covenants and Warranties of the Water District...............................7 Section 2.2. Representations,Covenants and Warranties of the Authority.....................................10 ARTICLE III ACQUISITION AND CONSTRUCTION OF THE SERVICE CONTRACT PROJECT IMPROVEMENTS Section3.1. Deposit of Bond Proceeds...........................................................................................11 Section 3.2. Acquisition and Construction of the Service Contract Project Improvements............I 1 Section 3.3. Further Assurances and Corrective Instruments..........................................................11 ARTICLE IV AGREEMENT OF LEASE;TERM OF LEASE; LEASE PAYMENTS Section4.1. Lease............................................................................................................................12 Section4.2. Term.............................................................................................................................12 Section 4.3. Extension of Lease Term.................. .........................................................................12 Section4.4. Lease Payments.......................... ................................................................................12 Section4.5. No Withholding............................................................................................................13 Section 4.6. Obligation Absolute ....................................................................................................13 Section 4.7. Budget and Appropriation...........................................................................................13 Section4.8. Revenue Fund..............................................................................................................13 Section 4.9. Rates and Charges.......................................................................................................14 Section 4.10. No Priority for Additional Obligations........................................................................14 Section 4.11. Limits on Additional Debt.........................s.................................................................14 Section 4.12. Assignment of Lease Payments...................................................................................15 Section 4.13. Use and Possession......................................................................................................16 Section 4.14. Additional Payments ...............................................--................................ ...............16 Section 4.15. Net-Net-Net Lease.......................................................................................................16 Section 4.16. Lease Revenue Bonds Rate Stabilization Reserve........................................„............16 Section 4.17. Termination of Lease Agreement Prior to End of Term. ............................................17 i DOCSOC\909571 v20\22658.0017 Table of Contents (continued) Page ARTICLE V INSURANCE AND CONDEMNATION Section5.1. Insurance.....................................................................................................................18 Section5.2. Cooperation.................................................................................................................18 ARTICLE VI DAMAGE,DESTRUCTION AND EMINENT DOMAIN;USE OF NET PROCEEDS Section 6.1. Application of Net Insurance Proceeds.......................................................................18 Section 6.2. Eminent Domain Proceeds..........................................................................................19 ARTICLE VU COVENANTS WITH RESPECT TO THE PROJECT Section 7.1. Use of the Project........................................................................................................19 Section 7.2. Leasehold Interest in the Project.................................................................................20 Section 7.3. Option to Prepay Lease Payments...............................................................................20 Section7.4. Quiet Enjoyment..........................................................................................................20 Section 7.5. Installation of Water District's Personal Property.......................................................20 Section 7.6. Access to the Project...................................................................................................20 Section 7.7. Maintenance,Utilities,Taxes and Assessments..........................................................21 Section 7.8. Modification of the Project..........................................................................................21 Section7.9. Liens.................................................................................................................•..........22 Section 7.10. Authority's Disclaimer of Warranties.........................................................................22 Section 7.11. Water District's Right to Enforce Warranties of Manufacturers,Vendors or Contractors..................................................................................................................22 Section 7.12. Reconstruction; Application of Net Insurance Proceeds.............................................23 Section 7.13. Against Encumbrances................................................................................................23 Section 7.14. Against Sale or Other Disposition of Project..............................................................23 Section 7.15. Payment of Claims......................................................................................................23 Section 7.16. Compliance with Lease...............................................................................................23 Section 7.17. Compliance with Governmental Regulations..............................................................24 ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.1. Assignment by the Authority.......................................................................................24 Section 8.2. Assignment and Subleasing by the Water District......................................................24 Section 8.3. Amendments and Modifications..................................................................................25 ii Docs00909571 v20\22658.0017 Table of Contents (continued) Page ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of Default Defined...........................................................................................25 Section 9.2. Remedies on Default....................................................................................................26 Section 9.3. Application of Funds Upon Acceleration....................................................................26 Section 9.4. Other Remedies of the Authority................................................................................27 Section 9.5. No Remedy Exclusive.......................................................................................... ...27 Section 9.6. Agreement to Pay Attorneys Fees and Expenses........................................................27 Section 9.7. No Additional Waiver Implied by One Waiver...........................................................27 Section9.8. Trustee to Exercise Rights...........................................................................................28 ARTICLE X PREPAYMENT OF LEASE PAYMENTS Section10.1. Security Deposit..........................,..............................,.............................................,..28 Section 10.2. Mandatory Prepayment From Net Insurance Proceeds...............................................28 Section 10.3. Optional Prepayment...................................................................................................28 Section 10.4. Effect of Prepayment...................................................................................................29 ARTICLE XI MISCELLANEOUS Section 11.1. Liability of Water District Limited..............................................................................29 Section 11.2. Waiver of Personal Liability.......................................................................................29 Section11.3. Notices.........................................................................................................................29 Section 11.4. Bond Insurer as Third Party Beneficiary.....................................................................30 Section11.5. Binding Effect..................................................................,......,..........,........................30 Section11.6. Severability..................................................................................................................30 Section 11.7. Execution in Counterparts...........................................................................................30 Section11.8. Applicable Law ...........................................................................................................31 Section11.9. Captions.......................................................................................................................31 Signatures ...................................................................................................................................S-1 EXHIBIT A Description of the Property......................................................................................A-1 EXHIBIT B Schedule of Lease Payments.....................................................................................B-1 iii.. DOCSO 909571v20\22658.0017 LEASE AGREEMENT THIS LEASE AGREEMENT (this "Lease Agreement"), dated as of December 1, 2002, by and between the SAN JUAN BASIN AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California,as lessor(the"Authority"), and the CAPISTRANO VALLEY WATER DISTRICT, a county water district duly organized and existing under and by virtue of the laws of the State of California,as lessee(the"Water District"); WITNESSETH : WHEREAS,pursuant to the laws of the State of California, the Water District may enter into leases and agreements relating to real property to be used by the Water District; and WHEREAS, the Water District has heretofore entered into an Installment Purchase Agreement dated as of March 1,2002 by and between the Water District and the San Juan Capistrano Public Financing Authority (the "Series 2002 Installment Purchase Agreement") in connection with the execution and delivery of the $8,525,000 aggregate principal amount of Revenue Certificates of Participation Series 2002 delivered April 3, 2002 (the "Series 2002 Certificates of Participation"); and WHEREAS, pursuant to the Series 2002 Installment Purchase Agreement, revenues of the Water System (defined herein) are pledged to pay Installment Payments, as defined therein (the "Series 2002 Installment Payments") net of operation and maintenance costs (the "COP O&M Costs"), defined in the Series 2002 Installment Purchase Agreement to include in part "annual costs not to exceed(a)$2,750,000 for project lease payments, including principal and interest components for the Phase I San Juan Basin Ground Water Recovery Plant(the "Ground Water Recovery Plant"); plus (b)$1,100,000 for other capital and operations costs of the Ground Water Recovery Plant, increasing by 85% of CPI annually; plus (c)$1,200,000 for electricity costs of the Ground Water Recovery Plant, provided that(a), (b) and (c) above may be increased due to currently unforeseeable cost increases which are out of the control of the Water District and of the owner, operator and lenders with respect to the Ground Water Recovery Plant";and WHEREAS, the parties hereto have determined that the Lease Payments are, and shall be deemed to be, for all purposes of the Series 2002 Installment Purchase Agreement, the project lease payments described and included in the COP O&M Costs and constitute Maintenance and Operation Costs (defined herein) for purposes of this Lease Agreement, and, as such, are payable from Revenues (as defined herein and in the Series 2002 Installment Purchase Agreement)on a senior lien basis to the Series 2002 Installment Payments;and WHEREAS, the City of San Juan Capistrano (the "City") has leased the Property (defined herein)to the Authority pursuant to that certain Property Lease by and between the Authority and the City of even date herewith;and WHEREAS, to finance the Service Contract Project Improvements (defined in the Trust Agreement), the Authority and the Water District will enter into this Lease Agreement pursuant to which the Water District will lease the Property from the Authority, together with the Service DOCSOCA909571 v20\22658.0017 Contract Project Improvements to be constructed and installed thereon by the Water District and the Company; and WHEREAS, the Authority will assign its rights under this Lease Agreement to BNY Western Trust Company, a banking corporation organized under the laws of the State of California. as Trustee (the "Trustee") under that certain Trust Agreement among the Trustee, the Water District and the Authority dated as of the date hereof(the"Trust Agreement"); and WHEREAS, the Water District, for the design, construction and operation of the Service Contract Project Improvements pursuant to the terms thereof, has entered into that certain service contract with ECO Resources, Inc., a Texas corporation (the "Company"), dated as of September 3, 2002 (the "Service Contract"), pursuant to which the Company is obligated to implement the design and construction of the Service Contract Project Improvements, and to operate the Service Contract Project Improvements;and WHEREAS, pursuant to Section 13.2 of the Service Contract, the Water District may terminate the Service Contract under certain circumstances, in which event this Lease Agreement shall terminate as provided herein; NOW, THEREFORE, in consideration of the above premises and of the mutual covenants hereinafter contained and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND EXHIBITS Section 1.1. Definitions and Rules of Construction. Unless the context otherwise requires, the capitalized terms used herein shall, for all purposes of this Lease, have the meanings herein specified. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. The terms"hereby,""hereof,""hereto," "herein," "hereunder"and any similar terms, as used in this Lease, refer to this Lease as a whole. Capitalized terms not otherwise defined herein shall have the meaning given to each such term in the Trust Agreement. "Additional Payments"shall have the meaning ascribed thereto in Section 4.14 hereof. "Alternative Facilities" shall mean any new water storage and production facilities that would in aggregate supply more than 3.0 MGD of potable water. Alternative Facilities shall not include any wells existing on the Closing Date, any facilities for the importation or transmission of local water sources delivered by wholesale water agencies to the Water District, or other generation, storage and production sources developed by the Water District in the course of its ongoing program to develop local water supply infrastructure, including without limitation for reclaimed water, prior to an event of default under the Service Contract and not in view of a Lease Termination. "Authority" means the San Juan Basin Authority, a joint exercise of powers authority organized and existing pursuant to Chapter 5, Division 7, Title 1 of the Government Code of the State. 2 DOCSM909571 v20\22658.0017 "Authorized Representative of the City" means the City Manager of the City, the Public Works Director of the City or any person or persons designated by the City Manager and authorized to act on behalf of the City by a written certificate signed on behalf of the City by the City Manager and containing the specimen signature of each such person. "Board of Directors"means the Board of Directors of the Water District. "Bond" or "Bonds" means any of the San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project),Issue of 2002 issued pursuant to the Trust Agreement. "Bond Counsel"means a firm of nationally-recognized attorneys experienced in the issuance of tax-exempt obligations the interest on which is excludable from gross income under Section 103 of the Code. "Bond Insurer" means Ambac Assurance Corporation, a Wisconsin stock insurance corporation or any successor thereto. "City"means the City of San Juan Capistrano, California. "Closing Date" means the date on which the Bonds are delivered to the initial purchaser thereof. "Code" means the Internal Revenue Code of 1986, as amended and the United States Treasury Regulations proposed or in effect with respect thereto. "Company" means ECO Resources, Inc., a Texas corporation, and any successor thereto under the terms of the Service Contract. "Costs of Issuance" means all expenses and costs of the Authority or the Water District incident to the performance of its obligations in connection with the authorization, execution, sale and delivery of the Bonds, including, but not limited to, printing costs, initial Trustee fees and expenses and fees and expenses of its counsel, fees and expenses of consultants and fees and expenses of bond counsel to the Authority or the Water District, credit enhancement fees and bond insurance costs. "Costs of Issuance Account" means the account by that name established pursuant to Section 4.1 of the Trust Agreement. "CPI"means Consumer Price Index, as published by U.S. Department of Commerce, Bureau of Economic Analysis. "Debt Service Payment Account" means the Debt Service Payment Account established in Section 4.1 of the Trust Agreement. "Delivery Date"means the date of the initial issuance of the Bonds. "End of Term" shall have the meaning ascribed thereto in Section 4.2. "Events of Default"means events of default as set forth in Section 9.1. 3 DOCSOC1909571 v20\22658.0017 "Fiscal Year"means the twelve month fiscal period of the Water District which commences on July 1 in every year and ends on June 30 of the succeeding year. "GAAP"means generally accepted accounting principles. "Independent Counsel" means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee or officer of the Authority, the Trustee or the Water District. "Interest Payment Date" means June 1 and December 1 of each year commencing June 1, 2003. "Joint Exercise of Powers Agreement" means that certain Joint Exercise of Powers Agreement entered into by and among the Capistrano Beach County Water District, the Santa Margarita Water District, and Orange County Water District No.4 dated as of November 22, 1971, as amended effective September 1, 1987 by Addendum No. 1 to the Joint Exercise of Powers Agreement and Addendum No. 3 dated as of September 1,2002. "Lease" or"Lease Agreement"means this Lease Agreement, between the Water District and the Authority, as amended and supplemented from time to time in accordance with its terms. "Lease Payment" means the amount to be paid by the Water District for the lease of the Project corresponding to the Lease Payment Date set forth in Section 4.4 and Exhibit B of this Lease Agreement. "Lease Payment Date" means the 15th day of the month preceding each Interest Payment Date(or if the 15th day of the month is not a Business Day, on the next succeeding Business Day). "Lease Revenue Bonds Rate Stabilization Reserve" means the fund by that name established pursuant to Section 4.16 hereof. "Lease Termination"means any termination of this Lease pursuant to Section 4.17 hereof. "Lock-out Period" shall mean a three-year period from the date of a Termination Event. "Maintenance and Operation Costs" means costs spent or incurred for operation and maintenance of the Water System calculated in accordance with generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Water System in good repair and working order, and also means all costs of water purchased or otherwise acquired for delivery by the Water System (including the Lease Payments, any Parity Obligations and any interim or renewed arrangement for water purchase or acquisition); but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature and any amounts transferred to the Lease Revenue Bonds Rate Stabilization Reserve. "Maintenance and Operation Cap" means annual costs not to exceed $2,750,000 for Lease Payments,as such costs may be increased due to currently unforeseeable cost increases which are out 4 DOCS00009571 v20U2658.0017 of the control of the Water District and of the owner,operator and lenders with respect to the Ground Water Recovery Plant. "Manager"means the General Manager of the Water District,or any other person designated by the General Manager to act on behalf of the General Manager. "Metropolitan Water Agreement" means that certain 1998 San Juan Basin DeSalter Agreement between the Metropolitan Water District of Southern California("MWD"), the Municipal Water District of Orange County("MWDOC"), and the San Juan Basin Authority dated December 4, 1998, as amended effective October 15, 2002 by that certain First Amendment thereto by and between MWD,MWDOC,the Authority and the Water District. "Net Insurance Proceeds" means any insurance or condemnation proceeds paid with respect to the Project remaining after payment therefrom of all expenses incurred in the collection thereof. "Net Revenues" means the amounts of Revenues of the Water System remaining after payment therefrom of the Maintenance and Operation Costs. "Operating Lease"means that certain Operating Lease of even date herewith by and between the Water District and the Authority. "Parity Obligations" means any obligations secured on a panty with the Lease Payments which are incurred in accordance with the provisions of Section 4.11 hereof. "Permitted Encumbrances"means as of any particular time: (1)liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the Water District may, pursuant to Section 7.7(c)hereof,permit to remain unpaid; (2)the Trust Agreement as it may be amended from time to time; (3)this Lease Agreement and the Property Lease as they may be amended from time to time; (4)any right or claim of any mechanic, laborer, materialman, supplier or vendor filed or perfected in the manner prescribed by law to the extent permitted under Section 7.8(b) hereof; (5)easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record as of the Closing Date and which the Water District certifies in writing on the Closing Date will not materially impair the use of the Project; (6)easements, rights of way, mineral rights, drilling rights and other rights,reservations, covenants, conditions or restrictions established following the Closing Date, to which the Authority and the Water District consent in writing and which the Water District certifies will not materially impair the use of the Project or real property substituted for the Project, as the case may be;and(7)liens created in connection with the issuance of Parity Obligations. "Property"means the real property described from time to time in Exhibit A hereto. "Property Lease"means the Property Lease between the City, as lessor, and the Authority, as lessee,as amended and supplemented from time to time in accordance with its terms. "Purchase Option Price" means the amount to be paid pursuant to this Lease Agreement, as the same may be amended, less the amount of any funds held by the Trustee which are available for redemption of the Bonds plus interest on such principal to the redemption date and premium,if any. 5 DOCSOC\909571 v20\22658.0017 "Revenue Fund" means the enterprise fund of the Water District currently identified as the "Water Enterprise Fund" of the Water District, any successor fund or funds, and such other funds as the Board of Directors shall establish as a part of the Revenue Fund which shall constitute the Revenue Fund maintained pursuant to this Lease Agreement and the "Revenue Fund" maintained pursuant to the Series 2002 Installment Purchase Agreement. "Revenues" means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Water System, including, without limiting the generality of the foregoing, (1) all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the Water District from the sale, furnishing and supplying of the water or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Water System; (2) the earnings on and income derived from the investment of amounts described in clause (1)above and from Water District reserves; (3) the proceeds derived by the Water District directly or indirectly from the sale, lease or other disposition of a part of the Water System; and (4) payments under Metropolitan Water Agreement; but excluding (a) customers' deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the Water District; (b) any proceeds of taxes or assessments restricted by law to be used by the Water District to pay bonds or other obligations heretofore or hereafter issued. Revenues shall also include all amounts transferred from the Lease Revenue Bonds Rate Stabilization Reserve to the Revenue Fund during any Fiscal Year in accordance with Section 4.16 hereof. "S&P" or"Standard & Poor's" means Standard & Poor's Ratings Group, a municipal bond rating service with offices in New York,New York. "Series 2002 Certificates of Participation" means the San Juan Capistrano Public Financing Authority Revenue Certificates of Participation, Series 2002, executed and delivered on April 3, 2002 in the aggregate principal amount of$8,525,000. "Series 2002 Installment Payments"means the installment payments of interest and principal scheduled to be paid by the Water District under and pursuant to the Series 2002 Installment Purchase Agreement,and any amendments thereto. "Series 2002 Installment Purchase Agreement" means that certain Installment Purchase Agreement by and between the Water District and the San Juan Capistrano Public Financing Authority,dated as of March 1,2002. 6 DOCSOCU09571 v20\22658.0017 "Service Contract" means that certain service contract by and between the Water District and the Company, for the design, construction and operation of the Project dated as of September 3, 2002. "State"means the State of California. "Term"means the duration of this Lease Agreement pursuant to the provisions of Section 4.2 hereof. "Transaction Documents" means, collectively, this Lease Agreement, the Trust Agreement, the Property Lease, the Service Contract and the Insurance and Indemnity Agreement among the Bond Insurer,the Water District and the Company dated as of December 1,2002. "Trust Agreement" means the Trust Agreement relating to the San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project) Issue of 2002, dated as of the date hereof entered into by and among the Water District, the Authority and the Trustee and any and all Supplemental Trust Agreements. "Trustee"means BNY Western Trust Company and its successor or successors which may at any time be substituted in its place pursuant to the provisions of the Trust Agreement. "Water District" means Capistrano Valley Water District, a county water district duly organized and existing under and by virtue of the laws of the State, and its successors and assigns, including any successor by merger to all of its rights and obligations. "Water System" means the entire water system of the Water District, including, without limitation, all real property and buildings, and including all improvements, works or facilities assessed,controlled or operated by the Water District to provide water, as such improvements, works or facilities now exist, together with all improvements and extensions to said water system later acquired,constructed or organized. Section 1.2. Exhibits. The following Exhibits are attached to, and by reference made a part of,this Lease Agreement: Exhibit A: Description of the Property. Exhibit B: Schedule of Lease Payments. ARTICLE II REPRESENTATIONS,COVENANTS AND WARRANTIES Section 2.1. Representations, Covenants and Warranties of the Water District. The Water District represents,covenants and warrants to the Authority as follows: (a) Due Organization and Existence. The Water District is a county water district duly organized and existing under and by virtue of the laws of the State, with the power and authority to own, lease and acquire real and personal property and equipment and to incur the obligations hereunder. 7 DOCS00909571 v20\22658.0017 (b) Authorization: Enforceability. The laws of the State authorize the Water District to enter into this Lease Agreement and to enter into the transactions contemplated by and to carry out its obligations under this Lease Agreement, and the Water District has duly authorized and executed this Lease Agreement. This Lease Agreement constitutes the legal, valid and binding obligation of the Water District,enforceable in accordance with its terms,except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. (c) No Conflicts or Default; No Liens or Encumbrances. Neither the execution and delivery of this Lease Agreement, nor the fulfillment of or compliance with the terms and conditions hereof, nor the consummation of the transactions contemplated hereby, conflicts with or results in a breach of the terms, conditions or provisions of any restriction or any agreement or instrument to which the Water District is now a party or by which the Water District is bound. or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Water District or upon the Project,except for Permitted Encumbrances. (d) Execution and Pelivery. The Water District has duly authorized and executed this Lease Agreement in accordance with the laws of the State. (e) No Consent Required. There is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory authority having jurisdiction over the Water District required for the consummation by the Water District of the transactions contemplated by this Lease Agreement. (f) No Litigation. There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public office or body, pending or threatened against the Water District affecting the existence of the Water District or the titles of its officers to their respective offices or seeking to prohibit, restrain or enjoin the Water District's covenants to make Lease Payments or in any way contesting or affecting the validity or enforceability of this Lease Agreement or contesting the powers of the Water District or its authority to enter into, adopt or perform its obligations under this Lease Agreement or any amendment or supplement thereto, wherein an unfavorable decision, ruling or finding would materially adversely affect the Lease Agreement,or in which a final adverse decision could materially adversely affect the operations of the Water District. (g) Indemnification of Authority. To the extent permitted by law, the Water District covenants to defend, indemnify and hold harmless the Authority and its assigns (including specifically the Trustee), directors and employees (collectively, the "Indemnified Party") against any and all losses,claims, damages or liabilities,joint or several, including fees and expenses incurred in connection therewith, to which such Indemnified Party may become subject under any statute or at law or in equity or otherwise in connection with the transactions contemplated by this Lease Agreement or the Trust Agreement, and shall reimburse any such Indemnified Party for any legal expenses reasonably incurred by it in connection with defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of the transactions contemplated by this Lease Agreement, the Trust Agreement or the Property Lease. In particular, without limitation, to the extent permitted by law, the Water District shall and hereby agrees to indemnify and save the Indemnified Party harmless from and against all claims,losses and damages, including legal fees and 8 DOCSOa909571 v20\22658.0017 expenses, to the extent arising out of(i)the use, maintenance, condition or management of, or from any work or thing done on, the Project by the Water District, (ii)any breach or default on the part of the Water District in the performance of any of its obligations under this Lease Agreement or the Trust Agreement, (iii) any act of negligence of the Water District or of any of its agents, contractors, servants, employees or licensees with respect to the Project, (iv)any act of negligence of any assignee or sublessee of the Water District with respect to the Project or (v) the acceptance of, and performance of the duties of the Trustee under the Trust Agreement. No indemnification is made under this Section or elsewhere in this Lease Agreement for claims, losses or damages, including legal fees and expenses arising out of the willful misconduct, negligent acts or omissions, or breach of duty under this Lease Agreement, the Property Lease or the Trust Agreement by the Authority,its officers,directors,agents,employees, successors or assigns(including specifically the Trustee). (h) General Tax and Arbitrage Covenant. The Water District hereby covenants that,notwithstanding any other provision of this Lease Agreement,it shall not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest with respect to the Bonds under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"). The Water District shall not, directly or indirectly, use or permit the use of proceeds of the Bonds or the Service Contract Project Improvements,or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest on the Bonds. The Water District shall not take any action, or fail to take any action, if any such action or failure to take action would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, shall not make any use of the proceeds of the Bonds or the Service Contract Project Improvements, or any portion thereof, or any other funds of the Water District, that would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any Bonds are outstanding, the Water District, with respect to such proceeds and the Service Contract Project Improvements and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time,applicable and in effect. The Water District shall not, directly or indirectly, use or permit the use of any proceeds of any Bonds, or of the Service Contract Project Improvements, or other funds of the Water District, or take or omit to take any action, that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the Water District shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the Bonds. The Water District shall not make any use of the proceeds of the Bonds or any other funds of the Water District, or take or omit to take any other action, that would cause the Bonds to be "federally guaranteed"within the meaning of Section 149(b)of the Code. (i) The Lease Payments as due and payable pursuant to Exhibit A hereto, do not in any year exceed the Maintenance and Operations Cap and, except as Lease Payments exceed the 9 DOCS00909571 v20122658.0017 Maintenance and Operations Cap in any year due to acceleration thereof, shall constitute Maintenance and Operations Costs. Section 2.2. Representations. Covenants and Warranties of the Authority. The Authority represents,covenants and warrants to the Water District as follows: (a) Due Organization and Existence; Enforceability. The Authority is a joint powers authority, duly organized, existing and in good standing under and by virtue of the laws of the State, has the power to enter into this Lease Agreement, the Property Lease and the Trust Agreement; is possessed of full power to own and hold real and personal property, and to lease and sell the same; and has duly authorized the execution and delivery of this Lease Agreement, the Property Lease and the Trust Agreement. This Lease Agreement, the Property Lease and the Trust Agreement constitute the legal, valid and binding obligations of the Authority, enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. (b) No Encumbrances. The Authority will not pledge the Lease Payments or Additional Payments or other amounts derived from the Project or from its other rights under this Lease Agreement or the Property Lease, except for Permitted Encumbrances and except as provided under the terms of this Lease Agreement and the Trust Agreement. (c) No Conflicts or Defaults; No Liens or Encumbrances. Neither the execution and delivery of this Lease Agreement, the Property Lease or the Trust Agreement nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of the Joint Exercise of Powers Agreement of the Authority or any restriction or any agreement or instrument to which the Authority is now a party or by which the Authority is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Authority or upon the Project,except for Permitted Encumbrances. (d) No Consent Required. There is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory authority having jurisdiction over the Authority required for the consummation by the Authority of the transactions contemplated by this Lease Agreement,the Trust Agreement or the Property Lease. (e) No Litigation. There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public office or body, pending or threatened against the Authority affecting the existence of the Authority or the titles of its officers to their respective offices or seeking to prohibit, restrain or enjoin the Authority's receipt of, or assignment to the Trustee of, Lease Payments or in any way contesting or affecting the validity or enforceability of this Lease Agreement, the Trust Agreement or the Property Lease or contesting the powers of the Authority or its authority to enter into, adopt or perform its obligations under this Lease Agreement, the Trust Agreement or the Property Lease or any amendment or supplement thereto, wherein an unfavorable decision, ruling or finding would materially adversely affect the Lease Agreement, the Trust Agreement or the Property Lease, or in which a final adverse decision could materially adversely affect the operations of the Authority. 10 DOCSOC\90957 tv20\22659.0017 (f) Execution and Delivery. The Authority has duly authorized and executed this Lease Agreement, the Property Lease and the Trust Agreement in accordance with the Constitution and laws of the State. (g) General Tax and Arbitrage Covenant. The Authority covenants that, notwithstanding any other provision of this Lease Agreement, it will make no use of the proceeds of the Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action that may cause the obligations of the Water District under this Lease Agreement to be"arbitrage bonds" subject to federal income taxation by reason of Section 148 of the Code. In addition, the Authority covenants that it will not make any use of the proceeds of the obligations provided herein or in the Trust Agreement or of any other funds of the Water District or the Authority or take or omit to take any other action that would cause such obligations to be"private activity bonds" within the meaning of Section 141 of the Code, or"federally guaranteed" within the meaning of Section 149(b) of the Code. To that end, so long as necessary to maintain the exclusion from gross income for federal income tax purposes of the interest portion of the Lease Payments, the Authority will comply with all requirements of such Sections and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent that such requirements are, at the time, applicable and in effect. (h) Maintenance of Corporate Existence. To the extent permitted by law, the Authority agrees that during the Term it will maintain its existence as a public entity, will not dissolve or otherwise dispose of all or substantially all of its assets. ARTICLE III ACQUISITION AND CONSTRUCTION OF THE SERVICE CONTRACT PROJECT IMPROVEMENTS Section 3.1. Deposit of Bond Proceeds. On the Closing Date, the Authority agrees to deposit to the Project Account of the Project Trust Fund created under the Trust Agreement the proceeds of the Authority's sale of the Bonds in the amount specified in Section 4.1 of the Trust Agreement. Section 3.2. Acquisition and Construction of the Service Contract Project The Water District agrees, as agent for the Authority, to exercise its rights pursuant to the terms of the Service Contract as may be reasonably necessary to cause the Service Contract Project Improvements to be acquired, constructed, delivered and installed with the proceeds of Bonds made available by the Trustee, pursuant to Section 3.1 above, and the Authority shall have no responsibility with respect thereto. Section 3.3. Further Assurances and Corrective Instruments. The Authority and the Water District agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Property hereby leased or intended so to be or for carrying out the expressed intention of this Lease Agreement. 11 DOCSOC1909571 v20\22658.0017 ARTICLE IV AGREEMENT OF LEASE;TERM OF LEASE;LEASE PAYMENTS Section 4.1. Lease. The Authority hereby leases the Property to the Water District upon the terms and conditions set forth herein. Section 4.2. Term. The Term of this Lease Agreement shall commence on the Closing Date and shall end on December 1, 2035, unless extended pursuant to Section 4.3 hereof (as So extended the "End of Term"), or unless terminated prior thereto upon the earlier of the following events: (a) Pa meet of All Lease Payments. The payment by the Water District of all Lease Payments required under Section 4.4 hereof and any Additional Payments required under Section 4.14 hereof, or (b) Prepayment. The optional prepayment of all Lease Payments in accordance with Section 10.3 hereof and the payment of all Additional Payments due through such prepayment date;or (c) Extraordinary Termination. The exercise by the Water District of its right to terminate this Lease Agreement upon the occurrence of one or more of the conditions therefor as described in Section 4.17 hereof. Section 4.3. Extension of Lease Term. If on December 1, 2035 the Bonds shall not be fully paid, then the Tenn shall be extended until all Bonds shall be fully paid, except that the Term shall in no event be extended beyond December 1,2045. Section 4.4. Lease Payments. (a) Time and Amount. Subject to the provisions of Article X hereof(regarding prepayment of Lease Payments) and subject to the provisions of Section 4.17 hereof (regarding termination of this Lease Agreement), the Water District agrees to pay to the Authority, its successors and assigns, as annual rental for the use and possession of the Project, the Lease Payments to be due and payable in arrears on the days specified in Exhibit B hereto or if such a day is not a Business Day then on the next preceding Business Day(each such day a"Lease Payment Date"). (b) Priority Payment. The Water District hereby unconditionally pledges the Revenues to the payment of the Lease Payments on a senior basis to its pledge of Net Revenues to the payment of the Series 2002 Installment Payments up to the Maintenance and Operation Cap and unconditionally pledges Net Revenues to the payment of Lease Payments on a parity to its pledge of Net Revenues to the payment of the Series 2002 Installment Payments. The Water District covenants to make no changes in the Series 2002 Installment Purchase Agreement or otherwise that impairs the priority of such pledge and such priority shall survive any partial payment or defeasance of the Series 2002 Installment Purchase Agreement or Series 2002 Certificates of Participation. 12 DOCSM909571 v20U2658.0017 (c) Credits. Any amount held in the Debt Service Payment Account on any Lease Payment Date (other than amounts required for payment of past due principal or interest with respect to any Bonds that have matured or been called for redemption and have not been presented for payment or amounts which have been paid with respect to a prior Lease Payment Date but not yet distributed to Bond Owners) shall be credited toward the Lease Payment then due and payable. No Lease Payment need be made on any Lease Payment Date if the amounts then held in the Debt Service Payment Account (other than those amounts excluded under the prior sentence) are at least equal to the cumulative total of Lease Payments then required to be paid. (d) Rate on Overdue Payments. In the event the Water District should fail to make any Lease Payment required by this Section 4.4, or any portion of any such Lease Payment, the Lease Payment or portion in default shall continue as an obligation of the Water District until the amount in default shall have been fully paid, and the Water District agrees to pay the same with interest thereon, to the extent permitted by law, from the date such amount was originally payable at the rate equal to the highest stated interest rate on any of the Bonds as stated in the Trust Agreement. Section 4.5. No Withholding. Notwithstanding any dispute between the Authority and the Water District, the Water District shall make all Lease Payments when due and shall not withhold any Lease Payment pending the final resolution of such dispute. Section 4.6. Obligation Absolute. Except as permitted pursuant to Section 4.17 hereof, the obligation of the Water District to make the Lease Payments is absolute and unconditional and until such time as the Lease Payments shall have been paid in full (or provision for the payment thereof shall have been made pursuant to Article X), the Water District will not discontinue or suspend any Lease Payments or Additional Payments required to be made by it under this Lease Agreement when due, whether or not the Water System or any part thereof is operating or operable or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. Section 4.7. Budget and Appropriation. The Water District covenants to take such action as may be necessary to include all Lease Payments and Additional Payments due hereunder in its proposed annual budget and its final adopted annual budget and to make the necessary appropriations for any amount of Lease Payments and Additional Payments to be paid therefor. Section 4.8. Revenue Fund. The Water District agrees to maintain the Revenue Fund held by the Treasurer of the Water District (the "Treasurer"). All Revenues shall be deposited with the Treasurer and credited to the Revenue Fund. The Water District shall transfer moneys from the Revenue Fund to pay Maintenance and Operation Costs, including without limitation the Lease Payments in accordance with Section 4.4 of this Lease Agreement and lease payments securing Parity Obligations, if any. Any Revenues in excess of the amounts budgeted, as required, for the payment of the Lease Payments and Maintenance and Operation Costs shall constitute surplus revenues in the Revenue Fund. After all covenants contained herein have been duly performed each year, and provided that there are no amounts then owing to Authority or the Trustee by the Water District, such surplus revenues may be used for: (1)payment of Series 2002 Installment Payments, (2)extensions and betterments of the Water System; or(3) any lawful purpose of the Water District. 13 DOCS00909571 OU2658.0017 Section 4.9. Rates and Charges. The Water District shall, to the maximum extent permitted by law, fix,prescribe and collect rates and charges for water service which will be at least sufficient to yield during each Fiscal Year Revenues equal to one hundred percent (100%) of Maintenance and Operation Costs paid in the immediately preceding Fiscal Year,provided that such costs shall include the Lease Payments payable in such Fiscal Year, plus Additional Payments payable in such Fiscal Year, plus the amount by which the amount on deposit in the Lease Revenue Bonds Rate Stabilization Reserve on the last day of the immediately preceding Fiscal Year was less than twenty-five percent (25%) of Maximum Annual Debt Service as of such day. The Water District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary,but shall not reduce the rates and charges then in effect unless the Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this rate covenant. Section 4.10. No Priority for Additional Obligations. The Water District covenants that no additional bonds, notes or obligations shall be issued or incurred by the Water District which will have any priority in payment out of the Revenues over the Lease Payments. Section 4.11. Limits on Additional Debt. The Water District covenants that, except for obligations issued to prepay all or a portion of the Lease Payments, it will issue obligations payable from Revenues on a parity basis with the Lease Payments only if the Water District delivers to the Trustee prior to the issuance of any Parity Obligations a certificate certifying that all of the following additional conditions are met: (a) The Water District is not in default under the terms of this Lease Agreement; and (b) the Revenues as shown by the books of the District for the twelve (12) calendar months ending prior to the incurring of such additional obligations shall have amounted to at least the sum of(x) one hundred percent (10001o) of Maintenance and Operation Costs, including without limitation Lease Payments, for such twelve (12)calendar month period,plus (y)the amount by which the amount on deposit on the Lease Revenue Bonds Rate Stabilization Reserve on the date prior to the first day of such twelve (12) calendar month period was less than twenty-five percent (25%) of Maximum Annual Debt Service; for purposes of preparing the certificate or certificates described above, the Water District may rely upon financial statements prepared by the Water District, which have not been subject to audit by an Independent Certified Public Accountant if audited financial statements for the Fiscal Year or period are not available; (c) the estimated Revenues for the twelve (12) calendar months following the date of incurring such Parity Obligations will be at least equal to one hundred percent(100%) of all Maintenance and Operation Costs, including without limitation Lease Payments projected to be paid in the next succeeding Fiscal Year and payments in the next succeeding Fiscal Year on Parity Obligations to be outstanding immediately after the incurring of such Parity Obligations, and the Additional Payments paid in the prior Fiscal Year as of the date of incurring of such Parity Obligations; (d) the amount on deposit in the Lease Revenue Bonds Rate Stabilization Reserve on the date of incurring such Parity Obligations will, after giving effect to additional deposits in connection therewith, be at least equal to twenty-five percent (25%) of the sum of 14 DOCS00909571 v20122658.0017 (i)Maximum Annual Debt Service, (ii)the maximum annual lease payment for such Parity Obligations,and(iii)the Additional Payments paid in the prior Fiscal Year as of the date of incurring of such Parity Obligations; and (e) for so long as the Series 2002 Certificates of Participation are Outstanding, the Lease Payments plus lease payments securing all Parity Obligations, including without limitation the Parity Obligations proposed to be issued, do not in the aggregate exceed the Maintenance and Operation Cap. For purposes of the computations to be made as described in (b) above, the determination of the Revenues: (i) may take into account any increases in rates and charges which relate to the Water System and shall take into account any reduction in such rates and charges, which will be effective prior to or at the time of incurring such proposed additional obligations; (ii) may take into account an allowance for any estimated increase in such Revenues from any revenue producing additions to or improvements or extensions of the Water System to be made with the proceeds of such additional obligations or with the proceeds of obligations previously issued,as shown by a certificate of the Water District;and (iii) for the period contemplated by(c) above,Maintenance and Operation Costs of the Water System shall be deemed to be the same as for the period for which a calculation is done pursuant to (b) above, but adjusted, if deemed necessary by the Water District,for any increased Maintenance and Operation Costs of the Water System which are, in the judgment of the Water District, essential to maintaining and operating the Water System. Nothing herein shall preclude the Water District from issuing obligations which are subordinate to the payment of the Lease Payments. In the event the additional indebtedness bears interest at a variable rate, for purposes of the rate covenant (Section 4.9 above) and determining compliance with the tests for issuance of additional indebtedness under this Section 4.11, debt service payable on variable rate additional indebtedness shall be computed assuming such additional indebtedness bears interest at the rate quoted in The Bond Buyer 25 Revenue Bond Index for the last week of the month preceding the date when the Water District incurs such additional indebtedness, as published in The Bond Buyer, plus one-half of one percent (0.50%), or if such index is no longer published, another similar index to be selected by the Authority, or if the Authority fails to select a replacement index,an interest rate equal to eighty percent(80%)of the yield for outstanding United States Treasury bonds having a maturity equivalent to that of the additional indebtedness proposed to be incurred, or if there are no such Treasury bonds having equivalent maturities, eighty percent (80%u) of the lowest prevailing prime rate of any of the five largest commercial banks in the United States ranked by assets. Section 4.12. Assignment of Lease Payments. Certain of the Authority's rights under this Lease Agreement, including the right to receive and enforce payment of the Lease Payments to be made by the Water District hereunder, have been absolutely assigned by the Authority to the Trustee, 15 DOCS00909571 v20\22658.0017 subject to certain exceptions, pursuant to the Trust Agreement, to which assignments the Water District hereby consents. The Authority hereby directs the Water District, and the Water District hereby agrees, to pay to the Trustee at the Trustee's corporate trust office, or to the Trustee at such other place as the Trustee shall direct in writing,all Lease Payments or prepayments thereof payable by the Water District hereunder. The Authority will not assign or pledge the Lease Payments or other amounts derived from the Project or from its other rights under this Lease Agreement except as provided under the terms of this Lease Agreement and the Trust Agreement, or its duties and obligations except as provided under the Trust Agreement. Section 4.13. Use and Possession. The total Lease Payments and Additional Payments due in any Fiscal Year shall be for the use and possession of the Project for such Fiscal Year. During the Term of this Lease Agreement,the Water District shall be entitled to the exclusive use of the Project subject only to the Permitted Encumbrances. Section 4.14. Additional Payments. In addition to the Lease Payments, the Water District shall also pay such amounts ("Additional Payments") as shall be required for the payment of all administrative costs of the Authority relating to the Project, including without limitation all expenses including usual and ordinary legal fees and expenses, assessments, compensation and indemnification of the Authority and the Trustee, any amounts required to be rebated to the federal government in order to comply with the provisions of Section 148 of the Code, any amounts required to be paid to the Trustee to replenish the Reserve Account to the Reserve Requirement pursuant to Section 4.4(f) of the Trust Agreement, fees under any AIternative Reserve Account Security instruments, taxes of any sort whatsoever payable by the Authority as a result of its lease of the Project or undertaking of the transactions contemplated herein or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers,insurance premiums required by Article V hereof,items required by Section 7.7 hereof and all other necessary administrative costs of the Authority or charges required to be paid by it in order to comply with the terms of the Bonds or of the Trust Agreement or to pay or indemnify the Trustee and its officers and directors. All such Additional Payments to be paid hereunder shall be paid when due directly by the Water District to the respective parties to whom such Additional Payments are owing. Section 4.15. Net-Net-Net Lease. This Lease Agreement shall be deemed and construed to be a "net-net-net lease" and the Water District hereby agrees that the Lease Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set-offs whatsoever, except as expressly provided herein. Section 4.16. Lease Revenue Bonds Rate Stabilization Reserve. There is hereby established a special fund designated as the "Lease Revenue Bonds Rate Stabilization Reserve" to be held by the Water District which fund the Water District agrees and covenants to hold separate and apart from other funds so long as any Bonds remain outstanding. The Water District is required hereby to fund the Lease Revenue Bonds Rate Stabilization Reserve in an amount equal to 25% of Maximum Annual Debt Service (the "Rate Stabilization Requirement"). Money transferred by the Water District to the Lease Revenue Bonds Rate Stabilization Reserve in accordance with this Section 4.16 shall be held in the Lease Revenue Bonds Rate Stabilization Reserve and applied in accordance with this Lease Agreement. The Water District shall withdraw all or any portion of the amounts on deposit in the Lease Revenue Bonds Rate Stabilization Reserve and transfer such amounts to the Revenue Fund for application in accordance with Section 4.8 hereof to the extent amounts in the Revenue Fund are not sufficient to pay Maintenance and Operation Costs, The Water 16 DOCSOCW09571 v20\22658.0017 District may expend amounts in the Lease Revenue Bonds Rate Stabilization Reserve for any purpose permitted by law. The Rate Stabilization Requirement is in addition to amounts required to be maintained in the separate rate stabilization reserve established in connection with the Series 2002 Certificates of Participation and amounts in the Lease Revenue Bonds Rate Stabilization Reserve are not available to make payments relative to the Series 2002 Certificates of Participation. Section 4.17. Termination of Lease Agreement Prior to End of Term. (a) Termination of Lease Agreement for Failure to Achieve Acceptance. The Water District shall have the right to terminate this Lease in the event the Water District exercises its right to terminate the Service Contract pursuant to Section 13.2(A) thereof, provided that the Water District shall have no right to terminate this Lease if and after the Water District exercises any of its buy-out rights under the Service Contract. (b) Termination of Lease Agreement Upon an Event of Default by the Company. The Water District shall have the right to terminate this Lease Agreement in the event the Water District exercises its right, subject to applicable notice and cure provisions set forth in the Service Contract, to terminate the Service Contract pursuant to Section 13.2(B)(2) thereof upon the occurrence of an Event of Default (as defined in the Service Contract) by the Company under Section 13.2(B)(2) the Service Contract, provided that the Water District shall have no right to terminate this Lease if and after the Water District exercises any of its buy-out rights under the Service Contract. (c) Trustee Benefit Rights. The Water District and the Authority hereby acknowledge the rights of the Trustee as assignee of all rights of the Authority pursuant to the Trust Agreement and rights of Trustee and Bond Insurer to notice and rights to cure under Article XIII of the Service Contract. (d) Obligations Not Conditioned on Service Contract. Except as provided in (a) and(b),the Water District and Authority acknowledge the Water District's obligations hereunder are not conditioned or affected by the Service Contract or the performance by any party of its obligations thereunder, including, without limitation, termination of the Service Contract pursuant to any provision other than Section 13.2(A)or(B). (e) Lock-out Provisions of Insurance and Indemnity Agreement. The Water District and the Authority hereby accept and agree to be bound by the lockout provisions of Section 6.4 of the Insurance and Indemnity Agreement affecting the rights of the Water District, City and Authority in the event of a termination of the Lease Agreement pursuant to this Section 4.17, subject to the express terms of Section 6.4 of the Insurance and Indemnity Agreement. To the extent permitted by law, the District shall not develop or construct Alternative Facilities during any cure period following an Event of Default, including any Lock-out Period, if applicable, without the prior written consent of the Bond Insurer. 17 DOCS00909571 v20\22658.0017 ARTICLE V INSURANCE AND CONDEMNATION Section 5.1. insurance. The Water District will procure and maintain insurance on the Project with responsible insurers at reasonable cost in such amount and against such risks(including damage to or destruction of the Service Contract Project Improvements) as are usually covered in connection with facilities similar to the Service Contract Project Improvements, but not less than the lesser of the full replacement cost or the principal amount of Bonds then outstanding,so long as such insurance is available from reputable insurance companies. In the event of any damage to or destruction of the Project caused by the perils covered by such insurance, the Net Insurance Proceeds thereof shall be applied in accordance with Article VI hereof. The Water District shall provide adequate reserves to cover the amount of any deductible provisions of the insurance required to be maintained pursuant to this Section 5.1. Section 5.2. Cooperation. The Authority shall cooperate fully with the Water District at the expense of the Water District in filing any proof of loss with respect to any insurance policy maintained pursuant to this Article and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Project or any portion thereof. ARTICLE VI DAMAGE,DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS Section 6.1. Application of Net Insurance Proceeds. (a) Deposit in Insurance and Condemnation Account. The Water District and/or the Authority shall transfer to the Trustee any Net Insurance Proceeds received by the Water District and/or Authority in respect of any insurance required by Section 5.1 hereof or in the event of any taking by eminent domain or condemnation with respect to the Project, for deposit in the Insurance and Condemnation Account by the Trustee in accordance with the Trust Agreement. (b) Disbursement for Replacement or Repair of the Project. Upon receipt of the certification described in paragraph (i) below and the requisition described in paragraph (ii) below, the parties hereto agree that the Trustee shall disburse moneys in the Insurance and Condemnation Account to the person,firm or corporation named in the requisition. (i) Certification. The Authorized Representative of the Water District must provide to the Authority and the Trustee a certificate stating that the Net Insurance Proceeds available for such purpose, together with other funds,if any, supplied by the Water District for such purpose in its sole and absolute discretion, are sufficient to restore the Project to a value greater than or equal to the value thereof prior to the insured event,and 18 DOCSOD909571 v20\22658.0017 (ii) Requisition. An Authorized Representative of the Water District must state with respect to each payment to be made (1)the requisition number, (2)the name and address of the person, firm or corporation to whom payment is due, (3)the amount to be paid and (4)that each obligation mentioned therein has been properly incurred, is a proper charge against the Insurance and Condemnation Account, has not been the basis of any previous withdrawal therefrom, and specifying in reasonable detail the nature of the obligation. Any balance of the Net Insurance Proceeds remaining after such replacement or repair has been completed as evidenced by a certificate of the Water District shall be disbursed as provided in subsection (c)below. In the event and to the extent the requirements of subsections(b)(i) and (b)(ii) above are satisfied, the Water District shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, and shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Insurance Proceeds and funds provided by it (if any) in its sole discretion all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Project shall be free and clear of all claims and liens except as provided in Section 7.8. (c) Disbursement for Prepayment. If the Authorized Representative of the Water District notifies the Trustee in writing of the Water District's determination that the certification provided in Section 6.1(b)(i) hereof cannot be made or replacement or repair of any portion of the Project is not economically feasible or in the best interest of the Water District, Net Insurance Proceeds will be applied to the prepayment of Lease Payments, provided that if available Net Insurance Proceeds exceed the amount necessary to prepay enough Lease Payments and any other amounts due or to become due under the Lease Agreement or the Trust Agreement, such that the value of the remaining portion of the Project is equal to or greater than the value of such portion of the Project prior to the insured event,excess proceeds shall be available to be expended by the Water District for any lawful purpose. Section 6.2. Eminent Domain Proceeds. If all or any part of the Service Contract Project Improvements shall be taken by eminent domain proceedings rendering the Project substantially unavailable for use by the Water District, the Net Insurance Proceeds thereof shall be applied by the Water District to the prepayment of Lease Payments as provided in Article X and to such other fund or account as may be appropriate and used for the retirement of Bonds. ARTICLE VII COVENANTS WITH RESPECT TO THE PROJECT Section 7.1. Use of the Project. The Water District represents and warrants that it has an immediate need for all of the Project, which need is not expected to be temporary or to diminish in the foreseeable future. 19 DOCSM909571 v2012265&0017 Section 7.2. Leasehold Interest in the Project. (a) Authority Holds Leasehold Interest During Term. During the Term, the Authority shall hold a leasehold interest in the Project pursuant to the Property Lease. The Authority shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents, reasonably required to maintain and evidence the Authority's leasehold interest in the Project at all times during the Term. (b) Leasehold Interest Transferred to Authority at End of Term. Upon the expiration of the Term as provided in Section 4.2 hereof,the Water District's leasehold interest in the Project pursuant to this Lease shall terminate, provided that, concurrent with such termination, the leasehold interest of the Water District pursuant to the terms of the Operating Lease shall become effective without the necessity of any additional document of transfer. Section 7.3. Option to Prepay Lease Payments. The Water District may exercise an option to prepay all or a portion of the Lease Payments in accordance with Article X hereof and, by prepaying Lease Payments in the amounts necessary to cause the termination of the Term as provided in Section 4.2(b)hereof(the"Purchase Option Price"), terminate the Authority's leasehold interest in the Property under the Property Lease. Section 7.4. Quiet Enjoyment. Subject only to Permitted Encumbrances, during the Term the Authority shall provide the Water District with quiet use and enjoyment of the Project, and the Water District shall during such Term peaceably and quietly have and hold and enjoy the Project, without suit, trouble or hindrance from the Authority, or any person or entity claiming under or through the Authority except as expressly set forth in this Lease Agreement. The Authority will, at the request of the Water District,join in any legal action in which the Water District asserts its right to such possession and enjoyment to the extent the Authority may lawfully do so. Notwithstanding the foregoing, the Authority shall have the right of access to the Project as provided in Section 7.6 hereof. Section 7.5. Installation of Water District's Personal Prgmn. The Water District may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon any portion of the Project. All such items shall remain the sole personal property of the Water District,regardless of the manner in which the same may be affixed to such portion of the Project, in which neither the Authority nor the Trustee shall have any interest, and may be modified or removed by the Water District at any time; provided that the Water District shall repair and restore any and all damage to such portion of the Project resulting from the installation, modification or removal of any such items of equipment. Nothing in this Lease Agreement shall prevent the Water District from purchasing items to be installed pursuant to this Section, provided that no lien or security interest attaching to such items shall attach to any part of the Project. Section 7.6. Access to the Project. The Water District agrees that the Authority and the Authority's successors or assigns shall have (1)the right at all reasonable times to enter upon the Project or any portion thereof to examine and inspect the Project, and(2)such rights of access to the Project as may be reasonably necessary to cause the proper maintenance of the Project in the event of failure by the Water District to perform its obligations hereunder. 20 DOCSOC\909571 v20\22658 0017 Section 7.7. Maintenance,Utilities.Taxes and Assessments. (a) Maintenance- Repair and Re lacement. Throughout the Term of this Lease Agreement, as part of the consideration for the rental of the Project, all repair and maintenance of the Project shall be the responsibility of the Water District, and the Water District shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Project resulting from ordinary wear and tear or want of care on the part of the Water District or any sublessee thereof. The Water District shall provide or cause to be provided all security service, custodial service, power, gas, telephone, light, heating and water, and all other public utility services for the Project. In exchange for the Lease Payments herein provided,the Authority agrees to provide only the Project. (b) Tax and Assessments; Utility Charges. The Water District shall also pay or cause to be paid all taxes and assessments, including but not limited to utility charges of any type or nature charged to the Authority or the Water District or levied, assessed or charged against any portion of the Project(excluding the Property, with respect to which the City shall pay or cause to be paid such amounts pursuant to the Property Lease) or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Water District shall be obligated to pay only such installments as are required to be paid during the Term of this Lease Agreement as and when the same become due. (c) Contests. The Water District may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom; provided that prior to such nonpayment it shall furnish the Authority and the Trustee with the opinion of an Independent Counsel to the effect that, by nonpayment of any such items, the interest of the Authority in such portion of the Project will not be materially endangered and that the Project will not be subject to loss or forfeiture or lien. Otherwise, the Water District shall promptly pay such taxes, assessments or charges or make provisions for the payment thereof in form satisfactory to the Authority. The Authority will cooperate fully in such contest, upon the request and at the expense of the Water District. Section 7.8. Modification of the Project. (a) Additions, Modifications and Improvements. Subject only to applicable restrictions and conditions of the Service Contract, and provided Bond Insurer's prior written consent shall be required if to do so would (i)render available funds insufficient to complete the Project, or (ii)require additional time to complete the Project, the Water District shall, at its own expense, have the right to make additions, modifications or improvements to any portion of the Project if such additions, modifications or improvements are necessary or beneficial for the use of such portion of the Project. Such additions, modifications and improvements shall not in any way damage any portion of the Project or cause them to be used for purposes other than those authorized under the provisions of state and federal law or in any way which would impair the exclusion from gross income for federal income tax purposes of the interest portion of the Lease Payments; and the Project, upon completion of any additions, modifications and improvements made pursuant to this Section, shall be of a value which is not less than the value of the Project immediately prior to the making of such additions,modifications or improvements. 21 DOCSOC\909571 v20\22658.0017 (b) No Liens. The Water District will not create, will use its best efforts to prevent the creation of, and will remove any mortgage or lien upon the Water System or any property essential to the proper operation of the Water System or to the maintenance of the Revenues, provided that, notwithstanding the foregoing, the Water District may encumber the Water System with mechanic's or materialman's liens,in connection with provision of administration buildings and operational facilities, or with the prior written consent of the Bond Insurer; and provided further, that the foregoing covenant shall not affect the Authority's right to issue Parity Obligations in accordance with the Trust Agreement and this Lease Agreement. Except for Permitted Encumbrances,the Water District will not permit any mechanic's or other lien to be established or remain against the Project for labor or materials furnished in connection with any additions, modifications or improvements made by the Water District pursuant to this Section;provided that if any such lien is established and the Water District shall first notify or cause to be notified the Authority of the Water District's intention to do so, the Water District may in good faith contest any lien filed or established against the Project, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Authority with full security against any loss or forfeiture which might arise from the nonpayment of any such lien,in form satisfactory to the Trustee of the Authority. The Authority will cooperate fully in any such contest, upon the request and at the expense of the Water District. Section 7.9. Liens. Except as permitted by this Lease Agreement (including without limitation Section 7.8, Section 8.1 or Section 8.2 hereof), the Water District shall not, directly or indirectly, create,incur, assume or suffer to exist any mortgage,pledge,Iiens,charges,encumbrances or claims, as applicable, on or with respect to the Project, other than Permitted Encumbrances and other than the respective rights of the Authority and the Water District as herein provided, except with the prior written consent of the Bond Insurer. Except as expressly provided in this Article, the Water District shall promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time;provided that the Water District may contest such lien or claim if it desires to do so, so long as such contest will not materially,adversely affect the rights of the Water District to the Project or the payment of Lease Payments hereunder. The Water District shall reimburse the Authority for any expense incurred by it in order to discharge or remove any such mortgage,pledge,lien,charge,encumbrance or claim. Section 7.10. Authority's Disclaimer of Warranties. THE AUTHORITY OR TRUSTEE MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE WATER DISTRICT OF THE PROJECT OR PORTION THEREOF. In no event shall the Authority or Trustee be liable for incidental, indirect, special or consequential damages, in connection with or arising out of this Lease Agreement, the Property Lease, or the Trust Agreement for the existence, furnishing, functioning or Water District's use and possession of the Project. Section 7.11. Water District's Right to Enforce Warranties of Manufacturers, Vendors or Contractors. The Authority hereby irrevocably appoints the Water District its agent and attorney-in- fact during the Term, so long as the Water District shall not be in default hereunder, to assert from time to time whatever claims and rights, including without limitation, warranty claims, claims for indemnification and claims for breach of any representations, with respect to the Project or the improvements to the Project which the Authority may have against any manufacturer, vendor or 22 DOCSOa909571 v20\22658.0017 contractor, or any agents thereof. The Water District's sole remedy for the breach of any such warranty, indemnification or representation shall be against the manufacturer, vendor or contractor with respect thereto, and not against the Authority,nor shall such matter have any effect whatsoever on the rights and obligations of the Authority with respect to this Lease Agreement, including the right to receive full and timely Lease Payments and to cause the Water District to make all other payments due hereunder. The Water District shall be entitled to retain any and all amounts recovered as a result of the assertion of any such claims and rights. The Authority shall, upon the Water District's request and at the Water District's expense, do all things and take all such actions as the Water District may request in connection with the assertion of any such claims and rights. The Water District expressly acknowledges that neither the Authority nor the Trustee makes, or has made, any representation or warranty whatsoever as to the existence or availability of such warranties of the manufacturer, vendor or contractor with respect to any of the improvements on the Project. Section 7.12. Reconstruction; Application of Net Insurance Proceeds. If any useful portion of the Service Contract Project Improvements shall be destroyed or is damaged by fire or other casualty, or title to, or the temporary use of, such portion shall be taken under the exercise of the power of eminent domain, the Water District shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair, reconstruction, restoration or replacement thereof, unless it is determined under the provisions of Section 6.1(c) hereof that such repair, reconstruction,restoration or replacement is not to be undertaken. Section 7.13. Against Encumbrances. The Water District will not make any pledge of or place any lien on the Net Revenues except as provided herein. The Water District may expend at any time, or from time to time, general fund revenues or may issue evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of and lien on general fund revenues. Section 7.14. Against Sale or Other Disposition of Project. The Water District will not enter into any agreement or lease which impairs the operation of the Project or any part thereof necessary to secure adequate water services for the community. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the improvements on the Project, or any material or equipment which has become worn out,may be sold if such sale will not impair the ability of the Water District to pay Lease Payments and if the proceeds of such sale are deposited in the Lease Payment Fund. Section 7.15. Payment of Claims. The Water District will pay and discharge any and all Iawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Net Revenues or the funds or accounts created hereunder or on any funds in the hands of the Water District pledged to pay the Bonds prior or superior to the lien of the Trust Agreement or which might impair the security of the Bonds. Notwithstanding the foregoing, the Water District may pledge, encumber or otherwise secure its obligations with the Net Revenues; provided, that in all instances any such pledge, lien or security is wholly subordinate and junior to the obligations of the Water District contained in the Trust Agreement and this Lease Agreement. Section 7.16. Compliance with Lease. The Water District will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or 23 DOCSOC\9095 7 1 v20\22658.0017 adversely affect the ability of the Water District to pay Lease Payments; and the Water District will comply with, keep, observe and perform all agreements, conditions,covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Project,to the extent that the Water District is a party thereto. Section 7.17. Compliance with Governmental Regulations. The Water District will duly observe and comply with all valid regulations and requirements of any governmental authority relative to the operation of the improvements on the Project, or any part thereof, but the Water District shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.1. Assignment by the Authority. Except as provided herein and in the Trust Agreement, the Authority will not assign this Lease Agreement, or any right, title or interest of the Authority in and to this Lease Agreement, to any other person,firm or corporation so as to impair or violate the representations,covenants and warranties contained in Section 2.2 hereof. Section 8.2. Assignment and Subleasing by the Water District. (a) Assignment. This Lease Agreement may not be assigned by the Water District unless the Water District receives (i)prior written consent of the Bond Insurer, which consent shall not be unreasonably withheld, and (ii)an opinion of Bond Counsel, stating that such assignment does not adversely affect the exclusion from gross income for federal income tax purposes or from State of California personal income taxes of the interest portion of Lease Payments. In the event that this Lease Agreement is assigned by the Water District, the obligation to make Lease Payments and perform the other covenants of the Water District hereunder shall remain the obligation of the Water District. (b) Sublease. The Water District may sublease any portion of the Project, with the prior written consent of the Authority and Bond Insurer,which consent shall not be unreasonably withheld,subject to all of the following conditions: (i) This Lease Agreement and the obligation of the Water District to make Lease Payments and perform the other covenants of the Water District hereunder shall remain obligations of the Water District; (ii) The Water District shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority, the Bond Insurer and the Trustee a true and complete copy of such sublease; (iii) No sublease by the Water District shall cause the Project to be used for a purpose other than a governmental or proprietary function authorized under the provisions of the laws of the State;and 24 DOCSOC\909571 v20\22658.0017 (iv) No sublease shall cause the interest portion of Lease Payments, or any of them to become subject to federal income taxes or State of California personal income taxes. Section 8.3. Amendments and Modifications. The terms of this Lease Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever except by written instrument signed by the Authority and the Water District, with the written consent of the Bond Insurer and the Trustee subject to the same conditions as set forth in Sections 7.2, 7.3 and 7.4 of the Trust Agreement. ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of Default Defined. The following shall be "Events of Default" under this Lease Agreement and the terms"Events of Default" and"default" mean,whenever they are used in this Lease Agreement, any one or more of the following events: (a) Payment Default. Failure by the Water District to pay any Lease Payment or Additional Payment required to be paid hereunder on the date such payment is due hereunder. (b) Covenant Default. Failure by the Water District to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed herein or otherwise with respect hereto or in the Property Lease, other than as referred to in clause (a) of this Section, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the Water District by the Authority or the Trustee; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, then no Event of Default shall have occurred for a period of 90 days after such applicable period so long as corrective action is instituted by the Water District within the applicable period and diligently pursued until the default is corrected. Notwithstanding the foregoing, an Event of Default shall have occurred concurrent with any failure by the Water District to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed in Section 4.9, 4.10, 4.12, 4.17, 5.1, 7.9,7.13 or 7.14 hereof. (c) Bankruptcy or Insolvency. The filing by the Water District of a case in bankruptcy, or the subjection of any right or interest of the Water District under this Lease Agreement to any execution, garnishment or attachment, or adjudication of the Water District as a bankrupt, or assignment by the Water District for the benefit of creditors, or the entry by the Water District into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the Water District in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act which may hereafter be enacted. (d) Breach of Representation. A material breach of any representation of the Water District or the Authority hereunder after written notice specifying such failure and requesting that it be remedied has been given to the Water District by the Authority, the Trustee or the Bond Insurer. 25 DOCSOC1909571 v20\22556.0017 Section 9.2. Remedies on Default. Whenever any Event of Default referred to in Section 9.1 hereof shall have happened and be continuing, it shall be lawful for the Authority to exercise any and all remedies available pursuant to law or equity or granted pursuant to this Lease Agreement, and, in each and every such case during the continuance of an Event of Default, the Authority may, with the consent of the Bond Insurer, and by notice in writing to the Water District and shall, at the direction of the Bond Insurer,declare the entire principal amount of the unpaid Lease Payments and the accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything contained herein to the contrary notwithstanding. This section, however,is subject to the condition that if at any time after the entire principal amount of the unpaid Lease Payments and the accrued interest thereon shall have been so declared due and payable and before any judgment or decree for the payment of the moneys due shall have been obtained or entered the Water District shall deposit with the Authority a sum sufficient to pay the unpaid principal amount of the Lease Payments due prior to such declaration and the accrued interest thereon, with interest on such overdue installments, at the rate or rates applicable to the remaining unpaid principal balance of the Lease Payments, and the reasonable expenses of the Authority, and any and all other defaults known to the Authority (other than in the payment of the entire principal amount of the unpaid Lease Payments and the accrued interest thereon due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Authority or provision deemed by the Authority to be adequate shall have been made therefor, then and in every such case the Authority, by written notice to the Water District may rescind and annul such declaration and its consequences;but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon. Anything in this Lease Agreement to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default as defined herein, so long as the Bond Insurer is not in default under the Bond Insurance Policy, the Bond Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Authority or the Trustee under this Lease Agreement or otherwise available to the Authority or Trustee, including, without limitation: (i)the right to accelerate the portion of each Lease Payment designated as and representing the principal of the Bonds as described in this Lease Agreement and (ii)the right to annul any declaration of acceleration, and the Bond Insurer shall also be entitled to approve all waivers of Events of Default. Notwithstanding anything to the contrary contained in this Lease Agreement or any Transaction Document, none of the Authority, the Trustee, the Bond Insurer, or the Bondholders shall have the right hereunder to re-enter or re-let the Project under any circumstances unless otherwise permitted under the Transaction Documents. Section 9.3. Application of Funds Upon Acceleration. Upon the date of the declaration of acceleration as provided in Section 9.2, all Revenues thereafter received by the Water District shall be applied in the following order-- First, to the payment, without preference or priority, and in the event of any insufficiency of such Revenues ratably without any discrimination or preference, of the fees, costs and expenses of the Authority and Trustee, if any, in carrying out the provisions of this article, including reasonable compensation to their respective accountants and counsel and any other fees, costs and expenses of the Trustee then owing for Trustee's services hereunder or under the Trust Agreement, including the reasonable fees and expenses of its counsel and accountants; and 26 DOCS00909571 v20\22658.00I7 Second,to the payment of the Maintenance and Operation Costs including without limitation the entire principal amount of the unpaid Lease Payments and lease payments securing Parity Obligations, if any, and the accrued interest thereon, with interest on the overdue installments at the rate or rates of interest applicable to the Lease Payments and such lease payments securing Parity Obligations if paid in accordance with their respective terms, provided that, to the extent Lease Payments and lease payments securing Parity Obligations exceed in any year the Maintenance and Operation Cap due to acceleration, Revenues shall be applied to pay Lease Payments and lease payments securing Parity Obligations on a parity basis with Series 2002 Installment Payments. Section 9.4. Other Remedies of the Authority. The Authority shall have the right (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Water District or any director, officer or employee thereof, and to compel the Water District or any such director,officer or employee to perform and carry out its or his duties under the agreements and covenants required to be performed by it or him contained herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority;or (c) by suit in equity upon the happening of an Event of Default to require the Water District and its directors,officers and employees to account as the trustee of an express trust. Notwithstanding anything contained herein,the Authority shall have no security interest in or mortgage on the Project, the Water System or other assets of the Water District and no default hereunder shall result in the loss of the Project, the Water System, or other assets of the Water District. Section 9.5. No Remedy Exclusive. Subject to the express limitation on remedies described in the last paragraph of Section 9.4 above, no remedy conferred herein upon or reserved to the Authority is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in this Article it shall not be necessary to give any notice,other than such notice as may be required in this Article or by law. Section 9.6. Aglreement to Pay Attorneys Fees and Expenses. In the event either party to this Lease Agreement should default under any of the provisions hereof and the nondefaulting party should commence legal action or arbitration for the collection of moneys or the enforcement of performance or observance of any obligation or agreement on the part of the defaulting party contained herein,the defaulting party agrees that it will pay on demand to the nondefaulting party the reasonable attorneys fees, court costs and legal expenses incurred by the nondefaulting party in such action or arbitration after payment of all fees and expenses of the Trustee. Section 9.7. No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Lease Agreement should be breached by either party and thereafter waived by the 27 DOCSOCW09571 v2012265&0017 other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 9.8. Trustee to Exercise Rights. Such rights and remedies as are given to the Authority under this Lease Agreement have been assigned by the Authority to the Trustee, to which assignment the Water District hereby consents. Such rights and remedies shall be exercised by the Trustee subject to the terms of the Trust Agreement and this Lease Agreement. ARTICLE X PREPAYMENT OF LEASE PAYMENTS Section 10.1. Security Deposit. Notwithstanding any other provision of this Lease Agreement, the Water District may,on any date,secure the payment of all unpaid Lease Payments as set forth in Exhibit B hereto by an irrevocable deposit by it with the Trustee of sufficient moneys and non-callable Investment Securities, issued by the United States of America and described in clause (A) of the definition thereof, the principal of and interest on which when due will provide money sufficient to pay all principal,prepayment premium, if any, and interest of such Lease Payments to and including their respective Lease Payment Dates or prepayment date or dates as the case may be. In such event, and provided that the Water District has made arrangements acceptable to the Trustee to pay any Additional Payments, all obligations of the Water District under this Lease Agreement, and all security provided by this Lease Agreement for said obligations, shall cease and terminate, excepting only the obligation of the Water District to make, or cause to be made, Lease Payments from such deposit. On the date of said deposit the leasehold interest in the Project shall vest in the Water District automatically and without further action by the Water District or the Authority(except as provided herein);provided that the leasehold interest with respect to the Project shall be subject to the subsequent payment of all Lease Payments made from said deposit in full in accordance with the provisions hereof. Said deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the provisions of this Lease Agreement. The Authority shall execute and deliver such further instruments and take such further action as may reasonably be requested by the Water District for carrying out the leasehold interest transfer of the Project. Section 10.2. Mandatory Pregaylnent From Net Insurance Proceeds, The Water District shall be obligated to prepay the Lease Payments in whole or in part on any date, from and to the extent of any Net Insurance Proceeds theretofore transferred to the Insurance and Condemnation Account and not otherwise applied to the Project in accordance with Article VI. The Water District and the Authority hereby agree that such proceeds shall be credited towards the Water District's obligations hereunder with respect to the portion of the Project from which such proceeds were derived (except in the case of such prepayment of the Lease Payments in whole) such that approximately equal annual Lease Payments will prevail with respect to the Project following such prepayment. Section 10.3. Optional Prepayment. Subject to the terms and conditions of this Section, the Authority hereby grants an option to the Water District to prepay in whole or in part-a principal portion of Lease Payments, in whole or in part in increments of $5,000 on any date on or after November 15,2012 hereafter at a prepayment price equal to the principal portion to be redeemed. 28 DOCSOM909571 v2o\22659.0017 The Water District shall execute said option by giving written notice to the Trustee thereof at least 60 days prior to the date of redemption of Bonds from such prepayment and depositing with said notice cash in the minimum amount of (1)accrued interest on the principal portion of Lease Payments to be prepaid to the date of redemption of Bonds with the proceeds of such prepayment. plus (2)the principal portion of any Lease Payments to be prepaid, plus (3)the applicable prepayment premium described herein. Section 10.4. Effect of Prepayment. (a) In Whole. In the event that the Water District prepays all remaining Lease Payments pursuant to Section 10.3 or Section 10.2 hereof and has paid all Additional Payments due hereunder, the Water District's obligations under this Lease Agreement shall thereupon cease and terminate, including but not limited to the Water District's obligation to continue to pay Lease Payments hereunder. (b) In Part. In the event the Water District prepays less than all of the remaining principal portion of the Lease Payments pursuant to Section 10.2 or 10.3 hereof, the amount of such prepayment shall be applied to reduce the principal portion of the remaining Lease Payments corresponding to the resulting prepayment of the principal portion with respect to the Bonds. ARTICLE XI MISCELLANEOUS Section 11.1. Liability of Water District Limited. Except for the pledge of Revenues pursuant to the terms of this Lease Agreement,neither the faith and credit nor the taxing power of the Water District is pledged to the payment of Lease Payments hereunder. Nevertheless, the Water District may, but shall not be required to, advance for any of the purposes hereof any funds of the Water District which may be made available to it for such purposes. The obligation of the Water District to make Lease Payments is a special obligation of the Water District payable solely from the Revenues which are hereby irrevocably pledged, subject to Section 4.17 hereof. Section 11.2. Waiver of Personal Liahility. No member, officer, agent or employee of the Water District or the Water District shall be individually or personally liable for the payment of Lease Payments hereunder or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by the Trust Agreement. Section 11.3. Notices. All notices, certificates or other communications hereunder to the Authority and Water District shall be sufficiently given and shall be deemed to have been received five(5)business days after deposit in the United States mail in certified form,postage prepaid,to the Water District or the Authority,as the case may be, at the following addresses: 29 DOCSM909571 v20\22658.0017 If to the Water District: Capistrano Valley Water District c/o City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano,California 92675 Attention: Treasurer 949-443-6301 If to the Authority: San Juan Basin Authority 27500 La Paz Road Laguna Niguel,CA 92677 Attention: General Manager 949-448-4055 If to the Trustee: BNY Western Trust Company 700 South Flower Street, Suite 500 Los Angeles,California 90017 Attention: Corporate Trust If to the Bond Insurer: Ambac Assurance Corporation One State Street Plaza New York,NY 10004 Attention: Surveillance Department All notices,certificates and other communications to the Trustee shall be sufficiently given and shall be deemed to have been received five (5)days after deposit in the United States mail in registered or certified form,postage prepaid. Notices to the Trustee may be given initially either telephonically or by written telecommunication and shall then be confirmed in writing delivered by certified mail, return receipt requested. The Authority, the Water District and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent. Section 11.4. Bond Insurer as Third Party Beneficiary. To the extent that this Lease Agreement confers upon or gives or grants to the Bond Insurer any right, remedy or claim under or by reason of this Lease Agreement,the Bond Insurer is hereby explicitly recognized as being a third- party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder. Section 11.5. Binding Effect. This Lease Agreement shall inure to the benefit of and shall be binding upon the Authority and the Water District and their respective successors and assigns (including without limitation the Trustee). Section 11.6. Severability. In the event any provision of this Lease Agreement shall be held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 11.7. Execution in Counter carts. This Lease Agreement may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 30 DOCSOC1909571 v20\22658.0017 Section 11.8. Applicable Law. This Lease Agreement shall be governed by and construed in accordance with the laws of the State. Section 11.9. Captions. The captions or headings in this Lease Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Lease Agreement. 31 DOCSOC\909571 v20X22658,0017 IN WITNESS WHEREOF,the Authority has caused this Lease Agreement to be executed in its name by its duly authorized officers, and the Water District has caused this Lease Agreement to be executed in its name by its duly authorized officers, as of the date first above written. SAN JUAN BASIN AUTHORITY, as Lessor By: �2a' 4& Its: Prjsident of the p6ard of Directors ATTEST: Secretary of the Board of Directors CAPISTRANO VALLEY WATER DISTRICT,as Lessee By: Its: General Manager ATTEST: Secretary S-1 DOCSOCDW571 v18\22658.0017 State of California ) )ss. County of Orange On • 7 ,2002,before me, � � V✓ ,. dlu/tV �u.�becc `,,� � (name,title ofoffce�f�/le.g., "Jane oe.Notary Public") personally appeared �1t71�.!'�- �� (name(s)of signer(s)) ( personally known to me,OR, ❑ proved to me on the basis of satisfactory evidence to be the personNMhose name is/qFK'subscribed to the within instrument and acknowledged to me that he/sheft wy executed the same in hist authorized capacityand that by his/leir signatures on the instrument the person, or the entity upon behalf of which perso4--,Xacted,executed the instrument. Witness my hand and official seal. t;;Z66 .+6." - (signature of notary) LESLIE C.GRAY Commisaionf 1385461 Notary Public-CaKomia y Oranps County ARy Comm.Ejwina Jul 1 D,T008 DOCSOC\909571 v18\22658.0017 IN WITNESS WHEREOF, the Authority has caused this Lease Agreement to be executed in its name by its duly authorized officers, and the Water District has caused this Lease Agreement to be executed in its name by its duly authorized officers,as of the date first above written. SAN JUAN BASIN AUTHORITY,as Lessor By: Its: President of the Board of Directors ATTEST: Secretary of the Board of Directors CAPISTRANO VALLEY WATER DISTRICT,as Lessee By, Its: Chairperson of the Boar of Directors ATTEST: S e of the Board of Directors S-1 DOCS00W571v18 22658.0017 PUBLIC AGENCY FORM OF ACKNOWLEDGEMENT State of California ) County of Orange ) ss. City of San Juan Capistrano ) (Gov't Code 40814&Civil Code 118 1) On !' GLS' a 7 XCIbefore me,Margazet R.Monahan,Clerk of the Board,personally appeared Diane Bathgate Chi airman, personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity,and that by her signature on the instrument the person,or the entity upon behalf of which the person acted,executed the instrument. (SEAL) •` r il, WITNESS my hand and official seal. • �yd r , 11.ILI Margaz R.Monahan, Clerk of the Board' !''? ti•� OPTIONAL Capacity Claimed by Signers Description of Attached Document Chairman Lease Agreement between Capistrano Valley Water District&San Juan Basin Authority_ Title Title or Type of Document Signers are Representing 31 plus sioature pages&acknowledgements Number of Pages Capistrano Valley Water District November 1,2002 Date of Document San Juan Basin Authority Board President Signer(s)Other Than Named Above CERTIFICATE OF ACCEPTANCE This is to certify that the interest in real property conveyed under the foregoing to the Capistrano Valley Water District,a body corporate and politic,is hereby accepted by the undersigned officer or agent on behalf of the Board of Directors of the Capistrano Valley Water District, pursuant to authority conferred by resolution of said Board of Directors adopted on October 15, 2002, and the grantee consents to recordation thereof by its duly authorized officer. Dated: January 6,2003 C4Gei VALLEY WATER DISTRICT B Itanage DOCS00909571vM22658.0017 EXHIBIT A DESCRIPTION OF THE PROPERTY ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF ORANGE,CITY OF SAN JUAN CAPISTRANO,DESCRIBED AS FOLLOWS: PARCEL A(DANCE HALL): LOT 1 THAT PORTION OF LOT 60 OF TRACT NO. 103, AS SHOWN ON A MAP RECORDED IN BOOK 11, PAGES 29 THROUGH 33 INCLUSIVE, OF MISCELLANEOUS MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE SOUTHERLY LINE OF SAID LAND SOUTH 87055'30"EAST 92.80 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID SOUTHERLY LINE SOUTH 87055'30" EAST 169.49 FEET; THENCE NORTH 2°26'44" EAST 111.24 FEET; THENCE NORTH 87°33'16" WEST 108.59 FEET; THENCE NORTH 2030'44" EAST 127.34 FEET; THENCE NORTH 87°29'16" WEST 60.77 FEET; THENCE SOUTH 2030'44"WEST 239.75 FEET TO THE TRUE POINT OF BEGINNING. LOT 2 THAT PORTION OF LOT 60 OF TRACT NO. 103, AS SHOWN ON A MAP RECORDED IN BOOK 11, PAGES 29 THROUGH 33 INCLUSIVE, OF MISCELLANEOUS MAPS, RECORDS OF ORANGE COUNTY,CALIFORNIA,DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE WESTERLY LINE OF SAID LAND NORTH 2004'30" EAST 174.43 FEET; THENCE SOUTH 87055'30" EAST 40.01 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING SOUTH 87°55'30" EAST 30.00 FEET; THENCE NORTH 2004'30" EAST 30.00 FEET; THENCE NORTH 87°55'30" WEST 30.00 FEET; THENCE SOUTH 2004'30"WEST 30.00 FEET TO THE TRUE POINT OF BEGINNING. PARCEL B(MARINER WELL SITE): THAT PORTION OF LOT 1 OF FRACTIONAL SECTION 14, TOWNSHIP 8 SOUTH, RANGE 8 WEST, SAN BERNARDINO MERIDIAN,DESCRIBED AS FOLLOWS: A 40.00 FOOT WIDE STRIP OF LAND, THE WESTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEAST CORNER OF LOT F OF TRACT NO. 7616 AS PER MAP FILED IN BOOK 350, PAGES 1 THROUGH 5 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE A-1 DOCSOC\909571 v20\22658.0017 EASTERLY LINE OF SAID LOT F SOUTH 6046'00" WEST 61.06 FEET TO THE TRUE POINT OF BEGINNING;THENCE CONTINUING ALONG SAID EASTERLY LINE SOUTH 6046'00"WEST 40.00 FEET. PARCEL C(WELL NO.1): PARCEL B,AS SHOWN ON EXHIBIT "B" ATTACHED TO LOT LINE ADJUSTMENT NO. 02-15858-13 RECORDED NOVEMBER 15, 2002 AS INSTRUMENT NO. 2002001029016 OF OFFICIAL RECORDS OF ORANGE COUNTY,CALIFORNIA. EXCEPTING THEREFROM ALL OIL RIGHTS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND RIGHTS TO ALL OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN TO ALL GEOTHERMAL HEAT AND TO ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING AND THE PERPETUAL RIGHT OF DRILL, MINE, EXPLORE AND OPERATE FOR AND TO PRODUCE, STORE AND REMOVE ANY OF THE SUBSURFACE RESOURCES ON OR FROM THE LAND INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAT THE LAND, WELLS, TUNNELS AND SHAFTS INTO THROUGH OR ACROSS THE SUBSURFACE OF THE LAND AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS WITHIN OR BEYOND THE EXTERIOR LIMITS OF THE PROPERTY AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES BUT WITHOUT THE RIGHT TO DRILL,MINES,EXPLORE, OPERATE, PRODUCE, STORE OR REMOVE ANY OF THE SUBSURFACE RESOURCES THROUGH OR IN THE SURFACE OR THE UPPER FIVE HUNDRED FEET(500') OF THE SUBSURFACE OF THE LAND AS RESERVED BY KB HOME COASTAL INC., A CALIFORNIA CORPORATION IN THE DEED RECORDED JULY 9, 2002 AS INSTRUMENT NO. 20020569988 OF OFFICIAL RECORDS. PARCEL D(WELL NO.2): THOSE PORTIONS OF LOT B OF TRACT NO. 15998, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE,STATE OF CALIFORNIA,AS PER MAP FILED IN BOOK 820, PAGES 42 THROUGH 47 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND THE LAND SHOWN AS "NOT A PART" WITHIN SAID LOT B ON SAID MAP, BEING A STRIP OF LAND, 20.00 FEET WIDE,THE EASTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEAST CORNER OF SAID LOT B; THENCE ALONG THE EASTERLY LINE OF SAID LOT B SOUTH 00020'50" WEST 95.00 FEET TO THE SOUTHEAST CORNER OF SAID LOT B. THE WESTERLY LINE OF SAID STRIP SHALL BE PROLONGED OR SHORTENED SO AS TO COMMENCE AND TERMINATE IN THE NORTHERLY AND SOUTHERLY LINES OF SAID LOT B. A-2 DOCS OCU09571 v20U2656.0017 PARCEL E(WELL NO.4): LOT E OF TRACT NO. 15998 IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 820, PAGES 42 THROUGH 47 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM,THE SOUTHEASTERLY 15.00 FEET OF SAID LOT. PARCEL F(KINOSHITA): BEGINNING AT THE NORTHEAST CORNER OF TRACT NO. 11086, AS PER MAP FILED IN BOOK 479, PAGES 26 TO 31 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE CENTERLINE OF CAMINO DEL AVION NORTH 88045'27" WEST 28.52 FEET; THENCE NORTH 0048'04" WEST TO A POINT WHICH IS 1.00 FOOT NORTHERLY OF THE CENTERLINE OF CAMINO DEL AVION, MEASURED AT RIGHT ANGLES AND 28.50 FEET WESTERLY OF THE EASTERLY CENTERLINE OF ALIPAZ STREET MEASURED AT RIGHT ANGLES, AS SHOWN ON SAID MAP, SAID POINT BEING THE TRUE POINT OF BEGINNING; THENCE PARALLEL WITH THE CENTERLINE OF SAID CAMINO DEL AVION NORTH 88°45'27" WEST 40.00 FEET; THENCE NORTH 25052'46" EAST 89.03 FEET TO A POINT WHICH IS 28.50 FEET WESTERLY OF THE EASTERLY CENTERLINE OF SAID ALIPAZ STREET, MEASURED AT RIGHT ANGLES; THENCE PARALLEL WITH SAID EASTERLY CENTERLINE SOUTH 00048'04" EAST 80.97 FEET TO THE TRUE POINT OF BEGINNING. PARCEL G: (TIRADOR): THAT PORTION OF LOT 31 OF TRACT NO. 103 IN THE CITY OF SAN JUAN CAPISTRANO,COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 11, PAGES 29 THROUGH 33 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT THE MOST EASTERLY CORNER OF SAID LOT 31; THENCE ALONG THE NORTHERLY LINE OF SAID LOT NORTH 89002'56" WEST 127.69 FEET TO A POINT THAT IS 40.00 FEET SOUTHEASTERLY MEASURED AT RIGHT ANGLES FROM THE CENTERLINE OF PASEO TIRADOR AS SHOWN ON THE AMENDED DIAGRAM OF ASSESSMENT DISTRICT NO. 78-3 FILED IN BOOK 19, PAGES 14 THROUGH 22 OF ASSESSMENT MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE PARALLEL WITH SAID CENTERLINE SOUTH 47054'43"WEST 43.95 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING SOUTH 47054'43" WEST 40.00 FEET; THENCE SOUTH 42'05'17" EAST 40.00 FEET; THENCE NORTH 47°54'43" EAST 40.00 FEET; THENCE NORTH 42°05'I7" WEST 40.00 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN THAT MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF A-3 DOCSOCA90957 3 v2OX22658.0017 DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR, AND REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED,AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRELL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 100 FEET OF THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED OR OTHERWISE IN SUCH MANNER AS TO ENDANGER THE SAFETY OF ANY HIGHWAY THAT MAY BE CONSTRUCTED ON SAID LAND, AS RESERVED IN THE DEED FROM CARL L. STROSCHEIN AND OTHERS, RECORDED FEBRUARY 15, 1955 IN BOOK 2959, PAGE 307 OF OFFICIAL RECORDS. A-4 DOCSOCN909571 v20\22658.0017 EXHIBIT B SCHEDULE OF LEASE PAYMENTS Lease Payment Date Princi aI Payment Interest Payment TotaI Lease Payment 05/15/2003 $ $ 593,099.45 $ 593,099.45 11/15/2003 -- 746,558.75 746,558.75 05/15/2004 746,558.75 746,558.75 11/15/2004 -- 746,558.75 746,558.75 05/15/2005 746,558.75 746,558.75 11/15/2005 755,000 746,558.75 1,501,558.75 05/15/2006 735,233.75 735,233.75 11/15/2006 780,000 735,233.75 1,515,233.75 05/15/2007 723,533.75 723,533.75 11/15/2007 805,000 723,533.75 1,528,533.75 05/15/2008 711,458.75 711,458.75 11/15/2008 825,000 711,458.75 1,536,458.75 05/15/2009 699,083.75 699,083.75 11/15/2009 850,000 699,083.75 1,549,083.75 05/15/2010 682,083.75 682,083.75 11/15/2010 885,000 682,083.75 1,567,083.75 05/15/2011 664,383.75 664,383.75 11/15/2011 920,000 664,383.75 1,584,383.75 05/15/2012 647,823.75 647,823.75 11/15/2012 955,00 647,823.75 1,602,823.75 05/15/2013 630,156.25 630,156.25 11/15/2013 990,000 630,156.25 1,620,156.25 05/15/2014 605,406.25 605,406.25 11/15/2014 1,040,000 605,406.25 1,645,406.25 05/15/2015 578,106.25 578,106.25 11/15/2015 1,095,000 578,106.25 1,673,106.25 05/15/2016 549,362.50 549,362.50 11/15/2016 1,150,000 549,362.50 1,699,362.50 05/15/2017 519,175.00 519,175.00 11/15/2017 1,210,000 519,175.00 1,729,175.00 05/15/2018 487,412.50 487,412.50 11/15/2018 1,275,000 487,412.50 1,762,412.50 05/15/2019 453,943.75 453,943.75 11/15/2019 1,340,000 453,943.75 1,793,943.75 05/15/2020 418,768.75 418,768.75 11/15/2020 1,415,000 418,768.75 1,833,768.75 05/15/2021 381,625.00 381,625.00 11/15/2021 1,485,000 381,625.00 1,866,625.00 05/15/2022 344,500.00 344,500.00 11/15/2022 1,560,000 344,500.00 1,904,500.00 05/15/2023 305,500.00 305,500.00 11/15/2023 1,640,000 305,500.00 1,945,500.00 05/15/2024 264,500.00 264,500.00 B-1 DOCSOC1909571 v20\22658.0017 11/15/2024 1,720,000 264,500.00 1,984,500.00 05/15/2025 221,500.00 221,500.00 11/15/2025 705,000 221,500.00 926,500.00 05/15/2026 203,875.00 203,875.00 11/15/2026 740,000 203,875.00 943,875.00 05/15/2027 185,375.00 185,375.00 11/15/2027 775,000 185,375.00 960,375.00 05/15/2028 166,000.00 166,000.00 11/15/2028 815,000 166,000.00 981,000.00 05/15/2029 145,625.00 145,625.00 11/15/2029 855,000 145,625.00 1,000,625.00 05/15/2030 124,250.00 124,250.00 11/15/2030 900,000 124,250.00 1,024,250.00 05/15/2031 101,750.00 101,750.00 11/15/2031 945,000 101,750.00 1,046,750.00 05/15/2032 78,125.00 78,125.00 11/15/2032 990,000 78,125.00 1,068,125.00 05/15/2033 53,375.00 53,375.00 11/15/2033 1,040,000 53,375.00 1,093,375.00 05/15/2034 27,375.00 27,375.00 11/15/2034 1,095,000 27,375.00 1,122,375.00 B-2 DOCSOC%909571 v20U2658.0017 AMENDED AND RESTATED LEASE AGREEMENT By and Between CITY OF SAN JUAN CAPISTRANO, as Lessee and SAN JUAN BASIN AUTHORITY, as Lessor Dated as of November 1,2014 Relating to $20,361,090 SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2014 Amending and restating Lease Agreement,dated as of December 1,2002, by and between the City of San Juan Capistrano as successor to Capistrano Valley Water District, as Lessee, and San Juan Basin Authority,as Lessor OHSUSA:754110187.8 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND EXHIBITS Section LI Definitions and Rules of Construction................................................................... 1 Section1.2 Exhibits..................................................................................................................8 ARTICLE II REPRESENTATIONS,COVENANTS AND WARRANTIES Section 2.1 Representations,Covenants and Warranties of the City........................................8 Section 2.2 Representations, Covenants and Warranties of the Authority............................. 11 ARTICLE III APPLICATION OF BONDS PROCEEDS Section 3.1 Deposit of Bond Proceeds.................................................................................... 12 Section 3.2 Redemption of 2002 Bonds................................................................................. 12 ARTICLE IV AGREEMENT OF LEASE;TERM OF LEASE;LEASE PAYMENTS Section4.1 Lease.................................................................................................................... 13 Section4.2 Term..................................................................................................................... 13 Section 4.3 Extension of Lease Term..................................................................................... 13 Section 4.4 Lease Payments.................................................................................................... 13 Section 4.5 No Withholding......................................................................... .... 14 Section 4.6 Obligation Absolute............................................................................................. 14 Section 4.7 Budget and Appropriation.................................................................................... 14 Section 4.8 Revenue Fund...................................................................................................... 14 Section 4.9 Rates and Charges................................................................................................ 14 Section 4.10 No Priority for Additional Obligations................................................................ 15 Section 4.11 Limits on Additional Debt................................................................................... 15 Section 4.12 Assignment of Lease Payments........................................................................... 16 Section 4.13 Use and Possession............................................................. Section 4.14 Additional Payments............................................................................................ 16 Section 4.15 Net-Net-Net Lease............................................................................................... 17 Section 4.16 Further Assurances and Corrective Instruments.................................................. 17 Section 4.17 Financial Statements and Budgets....................................................................... 17 Section 4.18 Notices...................................................................................... ... 17 ........................ Section4.19 Litigation.............................................................................................................. 18 Section 4.20 Financial Statements............................................................................................ 18 Section 4.21 Accuracy of Information...................................................................................... 18 OHSUSA:754110187.8 -i.. Table of Contents (continued) Page ARTICLE V INSURANCE AND CONDEMNATION Section 5.1 Insurance.............................................................................................................. 19 Section5.2 Cooperation.......................................................................................................... 19 ARTICLE VI DAMAGE,DESTRUCTION AND EMINENT DOMAIN;USE OF NET PROCEEDS Section 6.1 Application of Net Insurance Proceeds................................................................20 Section 6.2 Eminent Domain Proceeds...................................................................................21 ARTICLE VII COVENANTS WITH RESPECT TO THE PROJECT Section 7.1 Use of the Project.................................................................................................21 Section 7.2 Leasehold Interest in the Project..........................................................................21 Section 7.3 Option to Prepay Lease Payments..................................................... .21 Section 7.4 Quiet Enjoyment..................................................................................................21 Section 7.5 Installation of City's Personal Property...............................................................22 Section 7.6 Access to the Project............................................................................................22 Section 7.7 Maintenance,Utilities,Taxes and Assessments..................................................22 Section 7.8 Modification of the Project..................................................................................23 Section7.9 Liens.....................................................................................................................23 Section 7.10 Authority's Disclaimer of Warranties..................................................................24 Section 7.11 City's Right to Enforce Warranties of Manufacturers,Vendors or Contractors...........................................................................................................24 Section 7.12 Reconstruction; Application of Net Insurance Proceeds.....................................24 Section 7.13 Against Encumbrances.........................................................................................24 Section 7.14 Against Sale or Other Disposition of Project.......................................................24 Section 7.15 Payment of Claims...............................................................................................25 Section 7.16 Compliance with Lease........................................................................................25 Section 7.17 Compliance with Governmental Regulations......................................................25 ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.1 Assignment by the Authority...............................................................................25 Section 8.2 Assignment and Subleasing by the City..............................................................25 Section 8.3 Amendments and Modifications..........................................................................26 OHSUSA:754110187.8 -ii- Table of Contents (continued) Page ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1 Events of Default Defined...................................................................................26 Section 9.2 Remedies on Default;No Acceleration...............................................................27 Section 9.3 No Remedy Exclusive...................................................................... .................28 Section 9.4 Agreement to Pay Attorneys Fees and Expenses.................................................28 Section 9.5 No Additional Waiver Implied by One Waiver...................................................28 Section 9.6 Trustee to Exercise Rights...................................................................................28 ARTICLE X PREPAYMENT OF LEASE PAYMENTS Section 10.1 Security Deposit...................................................................................................28 Section 10.2 Mandatory Prepayment From Net Insurance Proceeds.......................................29 Section 10.3 Optional Prepayment...........................................................................................29 Section 10.4 Effect of Prepayment...........................................................................................29 ARTICLE XI MISCELLANEOUS Section 11.1 Liability of City Limited......................................................................................30 Section 11.2 Waiver of Personal Liability................................................................................30 Section 11.3 Notices........................................................................... ....30 ......... . ............. Section11.4 Binding Effect......................................................................................................31 Section11.5 Severability..........................................................................................................31 Section 11.6 Execution in Counterparts....................................................................................31 Section11.7 Applicable Law....................................................................................................31 Section11.8 Captions...............................................................................................................31 Section11.9 No Merger............................................................................................................31 Section 11.10 Amendment of Original Lease.............................................................................31 oxsusa:754110187.8 -iii- LEASE AGREEMENT THIS AMENDED AND RESTATED LEASE AGREEMENT (this "Lease" or "Lease Agreement"), dated as of November 1, 2014, by and between the SAN JUAN BASIN AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California, as lessor (the "Authority"), and the CITY OF SAN JUAN CAPISTRANO, a municipality duly organized and existing under and by virtue of the laws of the State of California, as lessee(the"City"), amending the Lease Agreement, dated as of December 1, 2002 (the"Original Lease"),between the Authority and the City as successor to the Capistrano Valley Water District(the"Water District"); WITNESSETH: WHEREAS,pursuant to the laws of the State of California,the City may enter into leases and agreements relating to real property to be used by the City; and WHEREAS, the City has leased the Property (defined herein) to the Authority pursuant to that certain Property Lease by and between the Authority and the City dated December 1, 2002; and WHEREAS, the Authority and the Water District entered into the Original Lease pursuant to which the Water District leased the Property from the Authority;and WHEREAS, the Authority issued its San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project Bonds) Issue of 2002 (the "2002 Bonds") secured by, among other things,lease payments made by the Water District under the Original Lease;and WHEREAS,the City is the successor to the Water District; and WHEREAS, the Authority has authorized the issuance of its San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project) Issue of 2014 (the `Bonds") for the purpose of refunding the 2002 Bonds; and WHEREAS, in connection with the issuance of the Bonds, the City and the Authority have agreed to amend the Original Lease by entering into this Lease Agreement; NOW, THEREFORE, in consideration of the above premises and of the mutual covenants hereinafter contained and for other good and valuable consideration,the parties hereto agree as follows: ARTICLE I DEFINITIONS AND EXMBITS Section 1.1 Definitions and Rules of Construction. Unless the context otherwise requires,the capitalized terms used herein shall,for all purposes of this Lease,have the meanings herein specified. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. The terms "hereby," "hereof," "hereto," OHSUSA:754110187,8 "herein," "hereunder" and any similar terms, as used in this Lease,refer to this Lease as a whole. Capitalized terms not otherwise defined herein shall have the meaning given to each such term in the Trust Agreement. "Additional Payments"shall have the meaning ascribed thereto in Section 4.14 hereof. "Applicable Environmental Laws" means and shall include, but shall not be limited to, the Comprehensive Environmental Response, Compensation,and Liability Act("CERCLX),42 USC Sections 9601 et seq.; the Resource Conservation and Recovery Act ("RCRA"), 42 USC Sections 6901 et seq.; the Federal Water Pollution Control Act, 33 USC Sections 1251 et seq.; the Clean Air Act, 42 USC Sections 7401 et seq.; the California Hazardous Waste/control Law ("HWC12), California Health & Safety Code Sections 25100 et seq.; the Hazardous Substance Account Act ("HSAA"), California Health & Safety Code Sections 25300 et seq.; the Porter- Cologne Water Quality Control Act (the "Porter-Cologne Act"), California Water Code Sections 1300 et seq.; the Air Resources Act, California Health & Safety Code Sections 3900 et seq.; the Safe Drinking Water & Toxic Enforcement Act, California Health & Safety Code Sections 25249.5 et seq.; and the regulations under each thereof; and any other local, state, and/or federal laws or regulations, whether currently in existence or hereafter enacted, that govern: (a) the existence,cleanup, and/or remedy of contamination on property; (b) the protection of the environment from spilled, deposited, or otherwise emplaced contamination; (c) the control of hazardous wastes; or (d) the use, generation, transport, treatment, removal, or recovery of hazardous substances,including building materials. "Applicable Law"means (a) all applicable common law and principles of equity and (b) all applicable provisions of all (i) constitutions, statutes, rules, regulations and orders of all Governmental Authorities, (ii) Applicable Environmental Laws, (iii) applicable seismic building code requirements at the time of construction, and (iv) orders, decisions, judgments, writs, injunctions and decrees of all courts(whether at law or in equity)and arbitrators. "Authority" means the San Juan Basin Authority, a joint exercise of powers authority organized and existing pursuant to Chapter 5, Division 7, Title 1 of the Government Code of the State. "Authorized Representative of the City" means the City Manager of the City, the Public Works and Utilities Director of the City,the Chief Financial Officer/Treasurer of the City or any person or persons designated by the City Manager and authorized to act on behalf of the City by a written certificate signed on behalf of the City by the City Manager and containing the specimen signature of each such person. "Bond" or "Bonds" means any of the San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project)Issue of 2014 issued pursuant to the Trust Agreement. OHSUSA:754110187.8 2 "2002 Bonds"means the San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project)Issue of 2002. "Bond Counsel" means a firm of nationally-recognized attorneys experienced in the issuance of tax-exempt obligations the interest on which is excludable from gross income under Section 103 of the Code. "City"means the City of San Juan Capistrano,California. "City Council"means the City Council of the City. "Closing Date" means the date on which the Bonds are delivered to the initial purchaser thereof. "Code" means the Internal Revenue Code of 1986, as amended and the United States Treasury Regulations proposed or in effect with respect thereto. "Costs of Issuance"means all expenses and costs of the Authority or the City incident to the performance of its obligations in connection with the authorization, execution, sale and delivery of the Bonds, including, but not limited to, printing costs, initial Trustee fees and expenses and fees and expenses of its counsel, fees and expenses of consultants and fees and expenses of bond counsel to the Authority or the City. "Costs of Issuance Account" means the account by that name established pursuant to Section 4.1 of the Trust Agreement. "Debt Service Payment Account"means the Debt Service Payment Account established in Section 4.1 of the Trust Agreement. "End of Tenn"shall have the meaning ascribed thereto in Section 4.2. "Escrow Agent"means The Bank of New York Mellon Trust Company,N.A.,acting in it capacity as trustee and escrow agent under and pursuant to the Escrow Agreement, and its successor and assigns as provided in the Escrow Agreement. "Escrow Agreement" means that certain Escrow Agreement, dated as of November 1, 2014, by and among the City, the Authority and the Escrow Agent, providing for the refunding of the 2002 Bonds. "Events of Default"means events of default as set forth in Section 9.1. "Financing Authority"means the San Juan Capistrano Public Financing Authority. "Fiscal Year" means the twelve month fiscal period of the City which commences on July 1 in every year and ends on June 30 of the succeeding year. "GAAP"means generally accepted accounting principles. OHSUSA:754110187.8 3 "Governmental Authority" means any governmental or quasi-governmental entity, including any court, department, commission, board, bureau, agency, administration, central bank, service, City or other instrumentality of any governmental entity or other entity exercising executive, legislative, judicial, taxing, regulatory, fiscal, monetary or administrative powers or functions of or pertaining to government, or any arbitrator, mediator or other person with authority to bind a party at law. "Independent Counsel"means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee or officer of the Authority,the Trustee or the City. "Interest Payment Date"means June 1 and December 1 of each year commencing June 1, 2015. "Joint Exercise of Powers Agreement" means that certain Joint Exercise of Powers Agreement entered into by and among the Capistrano Beach County Water District, the Santa Margarita Water District, and Orange County Waterworks District No.4 dated as of November 22, 1971, as amended effective October 16, 1979 by Amendment No. 1, September 1, 1987 by Addendum No. 1, August 1, 1989 by Addendum No. 2 and September 1, 2002 by Addendum No. 3,and as it may be subsequently amended in accordance with its terms. "Lease" or "Lease Agreement" means this Lease Agreement, between the City and the Authority,as amended and supplemented from time to time in accordance with its terms. "Lease Payment" means the amount to be paid by the City for the lease of the Project corresponding to the Lease Payment Date set forth in Section 4.4 and Exhibit B of this Lease Agreement. "Lease Payment Date"means the 15th day of the month preceding each Interest Payment Date (or if the 15th day of the month is not a Business Day, on the next succeeding Business Day). "Lease Termination" means any termination of this Lease pursuant to Section 4.17 hereof. "Maintenance and Operation Costs" means costs spent or incurred for operation and maintenance of the Water System calculated in accordance with generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and otber expenses necessary to maintain and preserve the Water System in good repair and working order, and also means all costs of water purchased or otherwise acquired for delivery by the Water System (including the Lease Payments, any Parity Obligations and any interim or renewed arrangement for water purchase or acquisition); but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature and any amounts transferred to the Lease Revenue Bonds Rate Stabilization Reserve. "Maintenance and Operation Cap" means annual costs not to exceed $2,750,000 for Lease Payments, as such costs may be increased due to currently unforeseeable cost increases OHSUSA:754110187.8 4 which are out of the control of the City and of the owner, operator and lenders with respect to the Ground Water Recovery Plant. "Material Adverse Effect" means an event or occurrence which adversely affects in a material manner(a)the assets,liabilities, condition(financial or otherwise),business,facilities or operations of the City or the Water System, (b) the ability of the City to cavy out its business in the manner conducted as of the date of this Lease or to meet or perform its obligations under this Lease on a timely basis, (c)the validity or enforceability of this Lease, or(d)the exclusion of the interest component of the Lease Payments from gross income for federal income tax purposes or the exemption of such interest for state income tax purposes, and shall include, amongst other events or occurrences, any material, adverse change to the rating by Moody's Investors Service, Inc., Standard&Poor's, a Standard&Poor's Financial Services LLC business, or Fitch Ratings, Inc. of any debt securities issued by the City. "Material Litigation"means any action, suit, proceeding, inquiry or investigation against the City in any court or before any arbitrator of any kind or before or by any Governmental Authority, (i) if determined adversely to the City, may have a Material Adverse Effect, (ii) seek to restrain or enjoin any of the transactions contemplated by this Lease, or (iii) may adversely affect(A)the exclusion of the interest component of the Lease Payments from gross income for federal income tax purposes or the exemption of such interest for state income tax purposes, (B) the ability of the City to perform its obligations under this Lease, or (C) the operation of the Water System. "Metropolitan Water Agreement" means that certain 1998 San Juan Basin DeSalter Agreement between the Metropolitan City of Southern California("MWD"), the Municipal City of Orange County ("MWDOC"), and the San Juan Basin Authority dated December 4, 1998, as amended effective October 15, 2002 by that certain First Amendment thereto by and between MWD,MWDOC,the Authority and the City. "Net Insurance Proceeds" means any insurance or condemnation proceeds paid with respect to the Project remaining after payment therefrom of all expenses incurred in the collection thereof. "Net Revenue Bond Indentures" means that certain Indenture, dated as of September 1, 2014, by and between the City and The Bank of New York Mellon Trust Company, N.A., as Trustee and any other indenture or trust agreement providing for the issuance of Net Revenue Bonds. "Net Revenue Bonds"means the City of San Juan Capistrano Water Revenue Refunding Bonds, Series 2014A, and any other bonds issued by the City payable from Net Revenues therewith and with the payment of Net Revenue Installment Payments. "Net Revenue Installment Agreements" means that certain Installment Purchase Agreement, dated as of April 1, 2009,by and between the City and the Financing Authority, and any other agreement providing for the payment by the City of Net Revenue Installment Payments from Net Revenues on a parity therewith and with the payment of principal and interest on Net Revenue Bonds. OHSUSA:754110187.8 5 "Net Revenue Installment Payments" means the installment payments payable by the City from the net revenues of the Water System pursuant to a Net Revenue Installment Agreement. "Net Revenue Obligation Documents" means, collectively, Net Revenue Installment Agreements and Net Revenue Bond Indentures. "Net Revenue Obligations" means the obligations of the City to pay Net Reserve Bonds and Net Reserve Installment Payments. "Net Revenues" means the amounts of Revenues of the Water System remaining after payment therefrom of the Maintenance and Operation Costs. "Operating Lease" means that certain Operating Lease by and between the City and the Authority as amended and supplemented from time to time in accordance with its terms. "Original Lease" means that certain Lease Agreement, dated as of December 1, 2002,by and between the Authority and the City as successor to the Water District, which is being amended and restated by this Lease Agreement. "Original Purchaser" means TPB Investments, Inc., a wholly-owned subsidiary of Western Alliance Bank, an Arizona corporation, the first purchaser of the Bonds upon their delivery by the Trustee. "Parity Obligations" means any obligations secured on a parity with the Lease Payments which are incurred in accordance with the provisions of Section 4.11 hereof. "Permitted Encumbrances" means as of any particular time: (1) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to Section 7.7(c) hereof, permit to remain unpaid; (2) the Trust Agreement as it may be amended from time to time; (3) this Lease Agreement and the Property Lease as they may be amended from time to time; (4) any right or claim of any mechanic, laborer, materialman, supplier or vendor filed or perfected in the manner prescribed by law to the extent permitted under Section 7.8(b) hereof, (5) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record as of the Closing Date; (6) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the Closing Date, to which the Authority and the City consent in writing and which the City certifies will not materially impair the use of the Project or real property substituted for the Project, as the case may be; and(7)liens created in connection with the issuance of Parity Obligations. "Project"means that Property and the improvements thereon. "Property"means the real property described from time to time in Exhibit A hereto. "Property Lease" means the Property Lease between the City, as lessor, and the Authority, as lessee, as amended and supplemented from time to time in accordance with its terms. oHsusAa54110187.8 6 "Purchase Option Price"means the amount to be paid pursuant to this Lease Agreement, as the same may be amended, less the amount of any funds held by the Trustee which arc available for redemption of the Bonds plus interest on such principal to the redemption date and premium,if any. "Revenue Fund"means the enterprise fund of the City currently identified as the"Water Enterprise Fund" of the City, any successor fund or funds, and such other funds as the City Council shall establish as a part of the Revenue Fund which shall constitute the Revenue Fund maintained pursuant to this Lease Agreement and the "Revenue Fund" maintained pursuant to the Net Revenue Obligation Documents. "Revenues" means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Water System, including, without limiting the generality of the foregoing, (1) all income, rents,rates, fees, charges, business interruption insurance proceeds or other moneys derived by the City from the sale, furnishing and supplying of the water or other services, facilities, and commodities sold,furnished or supplied through the facilities of or in the conduct or operation of the business of the Water System; (2) the earnings on and income derived from the investment of amounts described in clause(1) above and from City reserves; (3) the proceeds derived by the City directly or indirectly from the sale, lease or other disposition of a part of the Water System; and (4) payments under Metropolitan Water Agreement; but excluding (a) customers' deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the City; (b) any proceeds of taxes or assessments restricted by law to be used by the City to pay bonds or other obligations heretofore or hereafter issued. "S&P" or "Standard & Poor's" means Standard & Poor's Ratings Group, a municipal bond rating service with offices in New York,New York. "State"means the State of California. "Term" means the duration of this Lease Agreement pursuant to the provisions of Section 4.2 hereof. "Transaction Documents" means, collectively, this Lease Agreement, the Trust Agreement and the Property Lease. OHSUSA:754110187.8 7 "Trust Agreement"means the Trust Agreement relating to the San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project) Issue of 2014, dated as of the date hereof entered into by and among the City, the Authority and the Trustee and any and all Supplemental Trust Agreements. "Trustee"means The Bank of New York Mellon Trust Company,N.A., and its successor or successors which may at any time be substituted in its place pursuant to the provisions of the Trust Agreement. "Water System"means the entire water system of the City, including, without limitation, all real property and buildings, and including all improvements, works or facilities assessed, controlled or operated by the City to provide water, as such improvements, works or facilities now exist, together with all improvements and extensions to said water system later acquired, constructed or organized. Section 1.2 Exhibits. The following Exhibits are attached to, and by reference made a part of,this Lease Agreement: Exhibit A: Description of the Property. Exhibit B: Schedule of Lease Payments. ARTICLE II REPRESENTATIONS,COVENANTS AND WARRANTIES Section 2.1 Representations, Covenants and Warranties of the City. The City represents,covenants and warrants to the Authority as follows: (a) Due Organization and Existence. The City is a municipality duly organized and existing under and by virtue of the laws of the State,with the power and authority to own, lease and acquire real and personal property and equipment and to incur the obligations hereunder. (b) Authorization; Enforceability. The laws of the State authorize the City to enter into this Lease Agreement and to enter into the transactions contemplated by and to carry out its obligations under this Lease Agreement, and the City has duly authorized and executed this Lease Agreement. This Lease Agreement constitutes the legal, valid and binding obligation of the City, enforceable in accordance with its terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. (c) No Conflicts or Default, No Liens or Encumbrances. Neither the execution and delivery of this Lease Agreement, nor the fulfillment of or compliance with the terms and conditions hereof, nor the consummation of the transactions contemplated hereby, conflicts with or results in a breach of the terms, conditions or provisions of any restriction or any agreement or instrument to which the City is now a party or by which the City is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any OHSUSA:754110187.8 8 lien, charge or encumbrance whatsoever upon any of the property or assets of the City or upon the Project,except for Permitted Encumbrances. (d) Execution and Delivery. The City has duly authorized and executed this Lease Agreement in accordance with the laws of the State. (e) No Consent Required. There is no consent, approval, authorization or other order o�or filing with,or certification by, any regulatory authority having jurisdiction over the City required for the consummation by the City of the transactions contemplated by this Lease Agreement. (f) No Litigation. There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public office or body,pending or threatened against the City affecting the existence of the City or the titles of its officers to their respective offices or seeking to prohibit,restrain or enjoin the City's covenant to make Lease Payments or in any way contesting or affecting the validity or enforceability of this Lease Agreement or contesting the powers of the City or its authority to enter into, adopt or perform its obligations under this Lease Agreement. (g) Indemnification of Authority. To the extent permitted by law, the City covenants to defend, indemnify and hold harmless the Authority and its assigns (including specifically the Trustee), directors and employees (collectively,the"Indemnified Parry") against any and all losses, claims, damages or liabilities,joint or several, including fees and expenses incurred in connection therewith, to which such Indemnified Party may become subject under any statute or at law or in equity or otherwise in connection with the transactions contemplated by this Lease Agreement or the Trust Agreement, and shall reimburse any such Indemnified Party for any legal expenses reasonably incurred by it in connection with defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of the transactions contemplated by this Lease Agreement, the Trust Agreement or the Property Lease. In particular, without limitation, to the extent permitted by law,the City shall and hereby agrees to indemnify and save the Indemnified Party harmless from and against all claims, losses and damages, including legal fees and expenses,to the extent arising out of(i)the use, maintenance, condition or management of, or from any work or thing done on,the Project by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under this Lease Agreement or the Trust Agreement, (iii) any act of negligence of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Project, (iv) any act of negligence of any assignee or sublessee of the City with respect to the Project or (v) the acceptance of, and performance of the duties of the Trustee under the Trust Agreement. No indemnification is made under this Section or elsewhere in this Lease Agreement for claims, losses or damages, including legal fees and expenses arising out of the willful misconduct, negligent acts or omissions, or breach of duty under this Lease Agreement,the Property Lease or the Trust Agreement by the Authority, its officers, directors, agents, employees, successors or assigns (including specifically the Trustee). The obligations of the City under Section 4.14 and this Section shall survive the resignation or removal of the Trustee and payment of the Bonds and termination of this Lease. UHSUSA:754110187.8 9 (h) General Tax and Arbitrages Covenant. The City hereby covenants that, notwithstanding any other provision of this Lease Agreement,it shall not take any action., or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest with respect to the Bonds under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"). The City shall not, directly or indirectly, use or permit the use of proceeds of the Bonds or the Project or any portion thereof, by any person other than a governmental unit(as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest on the Bonds. The City shall not take any action, or fail to take any action, if any such action or failure to take action would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code, and in fiwtherance thereof, shall not make any use of the proceeds of the Bonds or the Project, or any portion thereof, or any other funds of the City,that would cause the Bonds to be"private activity bonds"within the meaning of Section 141 of the Code. To that end, so long as any Bonds are outstanding, the City, with respect to such proceeds and the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code,to the extent such requirements are,at the time,applicable and in effect. The City shall not, directly or indirectly, use or permit the use of any proceeds of any Bonds or other funds of the City, or take or omit to take any action, that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time,in effect and applicable to the Bonds. The City shall not make any use of the proceeds of the Bonds or any other funds of the City, or take or omit to take any other action, that would cause the Bonds to be "federally guaranteed"within the meaning of Section 149(6)of the Code. (i) The Lease Payments as due and payable pursuant to Exhibit A hereto, do not in any year exceed the Maintenance and Operations Cap and, except as Lease Payments exceed the Maintenance and Operations Cap in any year due to acceleration thereof, shall constitute Maintenance and Operations Costs. 0) The City reasonably believes that sufficient funds can be obtained to make all Lease Payments and all other amounts required to be paid pursuant to this Lease Agreement. (k) The City has never non-appropriated or defaulted under any of its payment or performance obligations or covenants, either under any financing lease of the same general nature as this Lease Agreement,or under any of its bonds,notes,or other debt obligations. (1) The City is the owner in fee of title to the Property. No lien or encumbrance on the Property materially impairs the City's use of the Property for the purposes for which it is, or may reasonably be expected to be,held. OHSUSA:754110187.8 10 (m) The Property is not located in a 100-year flood zone and has never been subject to material damage from flooding. (n) The Project complies with all applicable restrictive covenants, zoning ordinances, building laws and other Applicable Laws (including without limitation, the Americans with Disabilities Act,as amended). Section 2.2 Representations, Covenants and Warranties of the Authority. The Authority represents,covenants and warrants to the City as follows: (a) Due Organization and Existence, Enforceability. The Authority is a joint powers authority, duly organized, existing and in good standing under and by virtue of the laws of the State, has the power to enter into this Lease Agreement, the Property Lease and the Trust Agreement; is possessed of full power to own and hold real and personal property, and to lease and sell the same; and has duly authorized the execution and delivery of this Lease Agreement, the Property Lease and the Trust Agreement. This Lease Agreement, the Property Lease and the Trust Agreement constitute the legal, valid and binding obligations of the Authority, enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. (b) No Encumbrances. The Authority will not pledge the Lease Payments or Additional Payments or other amounts derived from the Project or from its other rights under this Lease Agreement or the Property Lease, except for Permitted Encumbrances and except as provided under the terms of this Lease Agreement and the Trust Agreement. (c) No Conflicts or Defaults; No Liens or Encumbrances. Neither the execution and delivery of this Lease Agreement, the Property Lease or the Trust Agreement nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of the Joint Exercise of Powers Agreement of the Authority or any restriction or any agreement or instrument to which the Authority is now a party or by which the Authority is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Authority or upon the Project,except for Permitted Encumbrances. (d) No Consent Required. There is no consent, approval, authorization or other order of,or filing with,or certification by,any regulatory authority having jurisdiction over the Authority required for the consummation by the Authority of the transactions contemplated by this Lease Agreement, the Trust Agreement or the Property Lease. (e) No Litigation. There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public office or body,pending or threatened against the Authority affecting the existence of the Authority or the titles of its officers to their respective offices or seeking to prohibit, restrain or enjoin the Authority's receipt of, or assignment to the Trustee of, Lease Payments or in any way contesting or affecting the validity or enforceability of this Lease Agreement, the Trust Agreement or the OHSUSA:754110187.8 11 Property Lease or contesting the powers of the Authority or its authority to enter into, adopt or perform its obligations under this Lease Agreement,the Trust Agreement or the Property Lease or any amendment or supplement thereto, wherein an unfavorable decision, ruling or finding would materially adversely affect the Lease Agreement, the Trust Agreement or the Property Lease,or in which a final adverse decision could materially adversely affect the operations of the Authority. (f) Execution and Delivery. The Authority has duly authorized and executed this Lease Agreement, the Property Lease and the Trust Agreement in accordance with the Constitution and laws of the State. (g) General Tax and Arbitrage Covenant. The Authority covenants that, notwithstanding any other provision of this Lease Agreement,it will make no use of the proceeds of the Bonds or of any other amounts or property,regardless of the source, or take any action or refrain from taking any action that may cause the obligations of the City under this Lease Agreement to be "arbitrage bonds" subject to federal income taxation by reason of Section 148 of the Code. In addition, the Authority covenants that it will not make any use of the proceeds of the obligations provided herein or in the Trust Agreement or of any other funds of the City or the Authority or take or omit to take any other action that would cause such obligations to be "private activity bonds" within the meaning of Section 141 of the Code, or "federally guaranteed"within the meaning of Section 149(b)of the Code. To that end, so long as necessary to maintain the exclusion from gross income for federal income tax purposes of the interest portion of the Lease Payments,the Authority will comply with all requirements of such Sections and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent that such requirements are, at the time, applicable and in effect. (h) Maintenance of Corporate Existence. To the extent permitted by law, the Authority agrees that during the Term it will maintain its existence as a public entity, will not dissolve or otherwise dispose of all or substantially all of its assets. ARTICLE III APPLICATION OF BONDS PROCEEDS Section 3.1 Deposit of Bond Proceeds. On the Closing Date, the Authority agrees to deposit to the Refunding Account created under the Trust Agreement(the"Refunding Account") the proceeds of the Authority's sale of the Bonds in the amount specified in Section 4.1 of the Trust Agreement. Section 3.2 Redemption of 2002 Bonds. On the Closing Date,the Authority agrees to cause the Trustee to transfer amounts in the Refunding Account to the Escrow Agent for application to the redemption of the 2002 Bonds as provided in the Escrow Agreement. OHSUSA:754110187.8 12 ARTICLE IV AGREEMENT OF LEASE; TERM OF LEASE; LEASE PAYMENTS Section 4.1 Lease. The Authority hereby leases the Property to the City upon the terms and conditions set forth herein. Section 4.2 Term. The Term of this Lease Agreement shall commence on the Closing Date and shall end on December 1, 2035, unless extended pursuant to Section 4.3 hereof(as so extended the"End of Term"), or unless terminated prior thereto upon the earlier of the following events: (a) Payment of All Lease Payments. The payment by the City of all Lease Payments required under Section 4.4 hereof and any Additional Payments required under Section 4.14 hereof;or (b) Prepayment. The optional prepayment of all Lease Payments in accordance with Section 10.3 hereof and the payment of all Additional Payments due through such prepayment date. Section 4.3 Extension of Lease Tenn. If on December 1, 2035 the Bonds shall not be fully paid, then the Term shall be extended until all Bonds shall be fully paid, except that the Term shall in no event be extended beyond December 1,2045. Section 4.4 Lease Payments. (a) Time and Amount. Subject to the provisions of Article X hereof (regarding prepayment of Lease Payments), the City agrees to pay to the Authority, its successors and assigns, as annual rental for the use and possession of the Project, the Lease Payments to be due and payable in arrears on the days specified in Exhibit B hereto or if such a day is not a Business Day then on the next preceding Business Day (each such day a "Lease Payment Date"). (b) Priority Pa lent. The City hereby unconditionally pledges the Revenues to the payment of the Lease Payments on a senior basis to its pledge of Net Revenues to the payment of Net Revenue Obligations up to the Maintenance and Operation Cap and unconditionally pledges Net Revenues to the payment of Lease Payments on a parity to its pledge of Net Revenues to the payment of Net Revenue Obligations. The City covenants to make no changes in the Net Revenue Obligation Documents or otherwise that impairs the priority of such pledge and such priority shall survive any partial payment or defeasance of the Net Revenue Obligations. (c) Credits. Any amount held in the Debt Service Payment Account on any Lease Payment Date (other than amounts required for payment of past due principal or interest with respect to any Bonds that have matured or been called for redemption and have not been presented for payment or amounts which have been paid with respect to a prior Lease Payment Date but not yet distributed to Bond Owners) shall be credited toward the Lease Payment then due and payable. No Lease Payment need be made on any Lease Payment Date if the amounts OHSUSA:754110187.8 13 then held in the Debt Service Payment Account (other than those amounts excluded under the prior sentence) are at least equal to the cumulative total of Lease Payments then required to be paid. (d) Rate on Overdue Payments. In the event the City should fail to make any Lease Payment required by this Section 4.4, or any portion of any such Lease Payment, the Lease Payment or portion in default shall continue as an obligation of the City until the amount in default shall have been fully paid,and the City agrees to pay the same with interest thereon,to the extent permitted by law, from the date such amount was originally payable at the rate equal to the highest stated interest rate on any of the Bonds as stated in the Trust Agreement. Section 4.5 No Withholding. Notwithstanding any dispute between the Authority and the City, the City shall make all Lease Payments when due and shall not withhold any Lease Payment pending the final resolution of such dispute. Section 4.6 Obligation Absolute. The obligation of the City to make the Lease Payments is absolute and unconditional and until such time as the Lease Payments shall have been paid in full (or provision for the payment thereof shall have been made pursuant to Article 7), the City will not discontinue or suspend any Lease Payments or Additional Payments required to be made by it under this Lease Agreement when due, whether or not the Water System or any part thereof is operating or operable or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any parry of any agreement for any cause whatsoever. Section 4.7 Budget and Appropriation. The City covenants to take such action as may be necessary to include all Lease Payments and Additional Payments due hereunder in its proposed annual budget and its final adopted annual budget and to make the necessary appropriations for any amount of Lease Payments and Additional Payments to be paid therefor. Section 4.8 Revenue Fund. The City agrees to maintain the Revenue Fund. All Revenues shall be deposited when and as received by the City in the Revenue Fund. The City shall transfer moneys from the Revenue Fund to pay Maintenance and Operation Costs, including without limitation the Lease Payments in accordance with Section 4.4 of this Lease Agreement and lease payments securing Parity Obligations, if any. Any Revenues in excess of the amounts budgeted, as required, for the payment of the Lease Payments and Maintenance and Operation Costs shall constitute surplus revenues in the Revenue Fund. After all covenants contained herein have been duly performed each year, and provided that there are no amounts then owing to Authority or the Trustee by the City, such surplus revenues may be used for: (1)payment of Net Revenue Obligations, (2) extensions and betterments of the Water System; or (3)any lawful purpose of the City. Section 4.9 Rates and Charges. The City shall, to the maximum extent permitted by law, fix,prescribe and collect rates and charges for water service which will be at least sufficient to yield during each Fiscal Year Revenues equal to one hundred percent(100%) of Maintenance and Operation Costs paid in the immediately preceding Fiscal Year, provided that such costs shall include the Lease Payments payable in such Fiscal Year,plus Additional Payments payable OHSUSA:754110187.8 14 in such Fiscal Year. The City may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this rate covenant. Section 4.10 No Priority for Additional Obligations. The City covenants that no additional bonds,notes or obligations shall be issued or incurred by the City which will have any priority in payment out of the Revenues over the Lease Payments. Section 4.11 Limits on Additional Debt. The City covenants that, except for obligations issued to prepay all or a portion of the Lease Payments, it will issue obligations payable from Revenues on a parity basis with the Lease Payments only if the City delivers to the Trustee prior to the issuance of any Parity Obligations a certificate certifying that all of the following additional conditions are met: (a) The City is not in default under the terms of this Lease Agreement; and (b) the Revenues as shown by the books of the City for any twelve (12)consecutive calendar months selected by the City within the twenty-four (24) calendar months ending prior to the incurring of such additional obligations shall have amounted to at least one hundred percent (100%) of Maintenance and Operation Costs, including without limitation Lease Payments, for such twelve (12) calendar month period; for purposes of preparing the certificate or certificates described above, the City may rely upon financial statements prepared by the City, which have not been subject to audit by an Independent Certified Public Accountant if audited financial statements for the Fiscal Year or period are not available; (c) the estimated Revenues for the twelve(12) calendar months following the date of incurring such Parity Obligations will be at least equal to one hundred percent(100%)of all Maintenance and Operation Costs, including without limitation Lease Payments projected to be paid in the next succeeding Fiscal Year and payments in the next succeeding Fiscal Year on Parity Obligations to be outstanding immediately after the incurring of such Parity Obligations, and the Additional. Payments paid in the prior Fiscal Year as of the date of incurring of such Parity Obligations; (d) for so long as any Net Revenue Bonds or Net Revenue Installment Payment obligations are outstanding,the Lease Payments plus lease payments securing all Parity Obligations, including without limitation the Parity Obligations proposed to be issued, do not in the aggregate exceed the Maintenance and Operation Cap. For purposes of the computations to be made as described in(b) above, the determination of the Revenues: (i) may take into account any increases in rates and charges which relate to the Water System and shall take into account any reduction in such rates and charges, which will be effective prior to or at the time of incurring such proposed additional obligations; OHSUSA:754110187.8 15 (ii) may take into account an allowance for any estimated increase in such Revenues from any revenue producing additions to or improvements or extensions of the Water System to be made with the proceeds of such additional obligations or with the proceeds of obligations previously issued, as shown by a certificate of the City; and (iii) for the period contemplated by (c) above, Maintenance and Operation Costs of the Water System shall be deemed to be the same as for the period for which a calculation is done pursuant to (b) above, but adjusted, if deemed necessary by the City, for any increased Maintenance and Operation Costs of the Water System which are,in the judgment of the City,essential to maintaining and operating the Water System. Nothing herein shall preclude the City from issuing obligations which are subordinate to the payment of the Lease Payments. In the event the additional indebtedness bears interest at a variable rate, for purposes of the rate covenant (Section 4.9 above) and determining compliance with the tests for issuance of additional indebtedness under this Section 4.11, debt service payable on variable rate additional indebtedness shall be computed assuming such additional indebtedness bears interest at the rate quoted in The Bond Buyer 25 Revenue Bond Index for the last week of the month preceding the date when the City incurs such additional indebtedness, as published in The Bond Buyer, plus one-half of one percent(0.50%), or if such index is no longer published, another similar index to be selected by the Authority, or if the Authority fails to select a replacement index, an interest rate equal to eighty percent (80%) of the yield for outstanding United States Treasury bonds having a maturity equivalent to that of the additional indebtedness proposed to be incurred, or if there are no such Treasury bonds having equivalent maturities, eighty percent (80%) of the lowest prevailing prime rate of any of the five largest commercial banks in the United States ranked by assets. Section 4.12 Assignment of Lease Payments. Certain of the Authority's rights under this Lease Agreement,including the right to receive and enforce payment of the Lease Payments to be made by the City hereunder,have been absolutely assigned by the Authority to the Trustee, subject to certain exceptions, pursuant to the Trust Agreement, to which assignments the City hereby consents. The Authority hereby directs the City, and the City hereby agrees,to pay to the Trustee at the Trustee's corporate trust office, or to the Trustee at such other place as the Trustee shall direct in writing, all Lease Payments or prepayments thereof payable by the City hereunder. The Authority will not assign or pledge the Lease Payments or other amounts derived from the Project or from its other rights under this Lease Agreement except as provided under the terms of this Lease Agreement and the Trust Agreement, or its duties and obligations except as provided under the Trust Agreement. Section 4.13 Use and Possession. The total Lease Payments and Additional Payments due in any Fiscal Year shall be for the use and possession of the Project for such Fiscal Year. During the Term of this Lease Agreement, the City shall be entitled to the exclusive use of the Project subject only to the Permitted Encumbrances. Section 4.14 Additional Payments. In addition to the Lease Payments, the City shall also pay such amounts ("Additional Payments") as shall be required for the payment of all OHSUSA:754110187.8 16 administrative costs of the Authority relating to the Project, including without limitation all expenses including usual and ordinary legal fees and expenses, assessments, compensation and indemnification of the Authority and the Trustee, any amounts required to be rebated to the federal government in order to comply with the provisions of Section 148 of the Code, any amounts required to be paid to the Trustee to replenish the Reserve Account to the Reserve Requirement pursuant to Section 4.4(f) of the Trust Agreement, fees under any Alternative Reserve Account Security instruments,taxes of any sort whatsoever payable by the Authority as a result of its lease of the Project or undertaking of the transactions contemplated herein or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers, insurance premiums required by Article V hereof, items required by Section 7.7 hereof and all other necessary administrative costs of the Authority or charges required to be paid by it in order to comply with the terms of the Bonds or of the Trust Agreement or to pay or indemnify the Trustee and its officers and directors. All such Additional Payments to be paid hereunder shall be paid when due directly by the City to the respective parties to whom such Additional Payments are owing. Section 4.15 Net-Net-Net Lease. This Lease Agreement shall be deemed and construed to be a "net-net-net lease" and the City hereby agrees that the Lease Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set-offs whatsoever, except as expressly provided herein. Section 4.16 Further Assurances and Corrective Instruments. The Authority and the City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Property hereby leased or intended so to he or for carrying out the expressed intention of this Lease Agreement. Section 4.17 Financial Statements and Budgets. Within nine (9) months following the end of each Fiscal Year of the City during the Term of this Lease,the City shall furnish or cause to be furnished to the Owner of the Bonds, a copy of its audited financial statements for such Fiscal Year. The City shall furnish or cause to be furnished to the Owner of the Bonds a copy of its annual budgets and any then-available interim budget updates or modifications for each Fiscal Year of the City during the Term of this Lease within thirty (90) days of the end of each Fiscal Year. The City shall furnish or cause to be furnished to the Owner of the Bonds a copy of its unaudited financial results for such Fiscal Year within one hundred twenty(120) days following the end of each Fiscal Year. The City hereby agrees to provide the Owner of the Bonds with such other information as may be reasonably requested by the Owner of the Bonds. Any audited financial statements furnished to the Owner of the Bonds shall be prepared in accordance with generally accepted accounting principles, consistently applied, and shall fairly present the City's financial condition as of the date of the statements. Section 4.18 Notices. During the Term of this Lease, the City shall provide to the Owner of the Bonds: (i) immediate notice by telephone,promptly confirmed in writing, of any event, action or failure to take any action which constitutes an event of default under this Lease, together with a detailed statement by a representative of the City of the steps being taken by the City to cure the effect of such Event of Default, (ii) prompt written notice of any Material Litigation or event causing a Material Adverse Effect, or any investigation, inquiry or similar OHSUSA:754110187.8 17 proceeding by any Governmental Authority, and (iii) with reasonable promptness, such other information respecting the City, and the operations, affairs and financial condition of the City as the Owner of the Bonds may from time to time reasonably request. Section 4.19 Litigation. As of the Closing Date, other than as disclosed to the Original Purchaser, there was no action, suit, proceeding or investigation before or by any court, public board or body pending against the City or, to the best knowledge of the City, threatened against the City, (i)in any way questioning the titles of the officers of the City to their respective offices; (ii)seeking to restrain or enjoin the adoption of the resolution of the City Council authorizing the execution by the City of this Lease or the execution and delivery of or in any way contesting or affecting the validity of the Trust Agreement, this Lease or the Property Lease; (iii) wherein an unfavorable decision,ruling or finding would have a material adverse impact upon the ability of the City to perform its obligations under the Trust Agreement, the Lease or the Property Lease, and(iv)questioning the proceedings taken for the issuance of the Bonds, or restraining the power and the authority of the City to collect the Revenues, or affecting or contesting in any material way the City's ability to impose rates and charges for the use of the Water System; nor, to the best knowledge of the City, was there any basis for any such action, suit, proceeding or investigation. Section 4.20 Financial Statements. The consolidated financial statements as of and for the year ended June 30, 2013, of the City, including its balance sheet as of such dates, fairly present the financial position of the Water System as of such date and the results of the operations of the Water System for such period, and have been prepared in accordance with generally accepted accounting principles consistently applied except as stated in the notes thereto. Except as disclosed to the Original Purchaser, since June 30, 2013, as of the Closing Date there had been no material adverse change in such position or in the operations, properties or condition(financial or otherwise)of the Water System. Section 4.21 Accuracy of Information. As of the Closing Date, all information,reports and other papers and data with respect to the City and the Water System furnished to the Original Purchaser were, at the time the same were so furnished, correct in all material respects. Any financial, budget and other projections furnished to the Purchaser as of the Closing Date were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair and reasonable in light of conditions existing at the time of delivery of such financial,budget or other projections, and represented, and as of the Closing Date, represented, the City's best estimate of the future financial performance of the Water System. OIiSUSA:754110187.8 18 ARTICLE V INSURANCE AND CONDEMNATION Section 5.1 Insurance. The City will procure and maintain insurance on the Project with responsible insurers at reasonable cost in such amount and against such risks as are usually covered in connection with facilities similar to the Project, but not less than the lesser of the full replacement cost or the principal amount of Bonds then outstanding, so long as such insurance is available from reputable insurance companies. In the event of any damage to or destruction of the Project caused by the perils covered by such insurance, the Net Insurance Proceeds thereof shall be applied in accordance with Article VI hereof. The City shall provide adequate reserves to cover the amount of any deductible provisions of the insurance required to be maintained pursuant to this Section 5.1. Section 5.2 Cooperation. The Authority shall cooperate fully with the City at the expense of the City in filing any proof of loss with respect to any insurance policy maintained pursuant to this Article and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Project or any portion thereof. OHSUSA:754110187.8 19 ARTICLE VI DAMAGE,DESTRUCTION AND EMINENT DOMAIN;USE OF NET PROCEEDS Section 6.1 Application of Net Insurance Proceeds. (a) Deposit in Insurance and Condemnation Account. The City and/or the Authority shall transfer to the Trustee any Net Insurance Proceeds received by the City and/or Authority in respect of any insurance required by Section 5.1 hereof or in the event of any taking by eminent domain or condemnation with respect to the Project, for deposit in the Insurance and Condemnation Account by the Trustee in accordance with the Trust Agreement. (b) Disbursement for Replacement or Repair of the Proiect. Upon receipt of the certification described in paragraph (i) below and the requisition described in paragraph(ii) below, the parties hereto agree that the Trustee shall disburse moneys in the Insurance and Condemnation Account to the person, firm or corporation named in the requisition. (i) Certification. The Authorized Representative of the City must provide to the Authority and the Trustee a certificate stating that the Net Insurance Proceeds available for such purpose, together with other funds, if any, supplied by the City for such purpose in its sole and absolute discretion, are sufficient to restore the Project to a value greater than or equal to the value thereof prior to the insured event, and (ii) Requisition. An Authorized Representative of the City must state with respect to each payment to be made (1) the requisition number, (2) the name and address of the person, firm or corporation to whom payment is due, (3) the amount to be paid and (4) that each obligation mentioned therein has been properly incurred, is a proper charge against the Insurance and Condemnation Account,has not been the basis of any previous withdrawal therefrom, and specifying in reasonable detail the nature of the obligation. Any balance of the Net Insurance Proceeds remaining after such replacement or repair has been completed as evidenced by a certificate of the City shall be disbursed as provided in subsection(c)below. In the event and to the extent the requirements of subsections (b)(i) and (b)(ii) above are satisfied, the City shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, and shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Insurance Proceeds and funds provided by it (if any) in its sole discretion all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Project shall be free and clear of all claims and liens except as provided in Section 7.8. (c) Disbursement for Prepayment. If the Authorized Representative of the City notifies the Trustee in writing of the City's determination that the certification provided in Section 6.1(b)(i) hereof cannot be made or replacement or repair of any portion of the Project is not economically feasible or in the best interest of the City, Net Insurance Proceeds will be applied to the prepayment of Lease Payments,provided that if available Net Insurance Proceeds OHSUSA:754110187.8 20 exceed the amount necessary to prepay enough Lease Payments and any other amounts due or to become due under the Lease Agreement or the Trust Agreement, such that the value of the remaining portion of the Project is equal to or greater than the value of such portion of the Project prior to the insured event, excess proceeds shall be available to be expended by the City for any lawful purpose. Section 6.2 Eminent Domain Proceeds. If all or any part of the Project shall be taken by eminent domain proceedings rendering the Project substantially unavailable for use by the City,the Net Insurance Proceeds thereof shall be applied by the City to the prepayment of Lease Payments as provided in Article X and to such other fund or account as may be appropriate and used for the retirement of Bonds. ARTICLE VII COVENANTS WITH RESPECT TO THE PROJECT Section 7.1 Use of the Project. The City represents and warrants that it has an immediate need for all of the Project,which need is not expected to be temporary or to diminish in the foreseeable future. Section 7.2 Leasehold Interest in the Project. (a) Authority Holds Leasehold Interest During Term. During the Term, the Authority shall hold a leasehold interest in the Project pursuant to the Property Lease. The Authority shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents, reasonably required to maintain and evidence the Authority's leasehold interest in the Project at all times during the Term. (b) Leasehold Interest Transferred to Authority at End of Term. Upon the expiration of the Term as provided in Section 4.2, the City's leasehold interest in the Project pursuant to this Lease shall terminate, provided that, concurrent with such termination, the leasehold interest of the City pursuant to the terms of the Operating Lease shall become effective without the necessity of any additional document of transfer. Section 7.3 Option to Prepay Lease Payments. The City may exercise an option to prepay all or a portion of the Lease Payments in accordance with Article X hereof and, by prepaying Lease Payments in the amounts necessary to cause the termination of the Term as provided in Section 4.2(b) (the "Purchase Option Price"), terminate the Authority's leasehold interest in the Property under the Property Lease. Section 7.4 Quiet Enjoyment. Subject only to Permitted Encumbrances, during the Term the Authority shall provide the City with quiet use and enjoyment of the Project, and the City shall during such Term peaceably and quietly have and hold and enjoy the Project, without suit, trouble or hindrance from the Authority, or any person or entity claiming under or through the Authority except as expressly set forth in this Lease Agreement. The Authority will, at the request of the City,join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Authority may lawfully do so. Notwithstanding the foregoing, the Authority shall have the right of access to the Project as provided in Section 7.6. OHSUSA:754110187.8 21 Section 7.5 Installation of Ci!y's Personal Property. The City may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon any portion of the Project. All such items shall remain the sole personal property of the City, regardless of the manner in which the same may be affixed to such portion of the Project, in which neither the Authority nor the Trustee shall have any interest, and may be modified or removed by the City at any time; provided that the City shall repair and restore any and all damage to such portion of the Project resulting from the installation,modification or removal of any such items of equipment. Nothing in this Lease Agreement shall prevent the City from purchasing items to be installed pursuant to this Section 7.5, provided that no lien or security interest attaching to such items shall attach to any part of the Project. Section 7.6 Access to the Project. The City agrees that the Authority and the Authority's successors or assigns shall have(1)the right at all reasonable times to enter upon the Project or any portion thereof to examine and inspect the Project, and(2) such rights of access to the Project as may be reasonably necessary to cause the proper maintenance of the Project in the event of failure by the City to perform its obligations hereunder. Section 7.7 Maintenance,Utilities,Taxes and Assessments. (a) Maintenance, Repair and Replacement. Throughout the Term of this Lease Agreement, as part of the consideration for the rental of the Project, all repair and maintenance of the Project shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Project resulting from ordinary wear and tear or want of care on the part of the City or any sublessee thereof. The City shall provide or cause to be provided all security service, custodial service, power, gas, telephone, light, heating and water, and all other public utility services for the Project. In exchange for the Lease Payments herein provided, the Authority agrees to provide only the Project. (b) Tax and Assessments;Utility Charges. The City shall also pay or cause to be paid all taxes and assessments, including but not limited to utility charges of any type or nature charged to the Authority or the City or levied, assessed or charged against any portion of the Project or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the Term of this Lease Agreement as and when the same become due. (c) Contests. The City may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom; provided that prior to such nonpayment it shall furnish the Authority and the Trustee with the opinion of an Independent Counsel to the effect that, by nonpayment of any such items, the interest of the Authority in such portion of the Project will not be materially endangered and that the Project will not be subject to loss or forfeiture or lien. Otherwise, the City shall promptly pay such taxes, assessments or charges or OIiSUSA:754114787.8 22 make provisions for the payment thereof in form satisfactory to the Authority. The Authority will cooperate fully in such contest,upon the request and at the expense of the City. Section 7.8 Modification of the Project. (a) Additions, Modifications and Improvements. The City shall, at its own expense, have the right to make additions, modifications or improvements to any portion of the Project if such additions, modifications or improvements are necessary or beneficial for the use of such portion of the Project. Such additions,modifications and improvements shall not in any way damage any portion of the Project or cause them to be used for purposes other than those authorized under the provisions of state and federal law or in any way which would impair the exclusion from gross income for federal income tax purposes of interest on the Bonds; and the Project, upon completion of any additions, modifications and improvements made pursuant to this Section 7.8, shall be of a value which is not less than the value of the Project immediately prior to the making of such additions,modifications or improvements. (b) No Liens. The City will not create, will use its best efforts to prevent the creation of, and will remove any mortgage or lien upon the Water System or any property essential to the proper operation of the Water System or to the maintenance of the Revenues, provided that, notwithstanding the foregoing, the City may encumber the Water System with mechanic's or materialman's liens, in connection with provision of administration buildings and operational facilities; and provided further, that the foregoing covenant shall not affect the Authority's right to issue Parity Obligations in accordance with the Trust Agreement and this Lease Agreement. Except for Permitted Encumbrances, the City will not permit any mechanic's or other lien to be established or remain against the Project for labor or materials furnished in connection with any additions,modifications or improvements made by the City pursuant to this Section 7.8;provided that if any such lien is established and the City shall first notify or cause to be notified the Authority of the City's intention to do so,the City may in good faith contest any lien filed or established against the Project, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Authority with full security against any loss or forfeiture which might arise from the nonpayment of any such lien, in form satisfactory to the Trustee of the Authority. The Authority will cooperate fully in any such contest, upon the request and at the expense of the City. Section 7.9 Liens. Except as permitted by this Lease Agreement (including without limitation Section 7.8, Section 8.1 or Section 8.2 hereof),the City shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as applicable, on or with respect to the Project, other than Permitted Encumbrances and other than the respective rights of the Authority and the City as herein provided. Except as expressly provided in this Article,the City shall promptly, at its own expense,take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time; provided that the City may contest such lien or claim if it desires to do so, so long as such contest will not materially, adversely affect the rights of the City to the Project or the payment of Lease Payments hereunder. The City shall reimburse the Authority for any expense incurred by it in order to discharge or remove any such mortgage,pledge, lien,charge,encumbrance or claim. OHSUSA:754110187.8 23 Section 7.10 Authority's Disclaimer of Warranties. THE AUTHORITY AND TRUSTEE MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE PROJECT OR ANY PORTION THEREOF. In no event shall the Authority or Trustee be liable for incidental, indirect, special or consequential damages, in connection with or arising out of this Lease Agreement, the Property Lease, or the Trust Agreement for the existence, furnishing, functioning or City's use and possession of the Project. Section 7.11 City's Right to Enforce Warranties of Manufacturers, Vendors or Contractors. The Authority hereby irrevocably appoints the City its agent and attorney-in-fact during the Term, so long as the City shall not be in default hereunder, to assert from time to time whatever claims and rights, including without limitation, warranty claims, claims for indemnification and claims for breach of any representations, with respect to the Project or the improvements to the Project which the Authority may have against any manufacturer, vendor or contractor, or any agents thereof. The City's sole remedy for the breach of any such warranty, indemnification or representation shall be against the manufacturer, vendor or contractor with respect thereto, and not against the Authority, nor shall such matter have any effect whatsoever on the rights and obligations of the Authority with respect to this Lease Agreement,including the right to receive full and timely Lease Payments and to cause the City to make all other payments due hereunder. The City shall be entitled to retain any and all amounts recovered as a result of the assertion of any such claims and rights. The Authority shall,upon the City's request and at the City's expense, do all things and take all such actions as the City may request in connection with the assertion of any such claims and rights. The City expressly acknowledges that neither the Authority nor the Trustee makes, or has made, any representation or warranty whatsoever as to the existence or availability of such warranties of the manufacturer,vendor or contractor with respect to any of the improvements on the Project. Section 7.12 Reconstruction: Application of Net Insurance Proceeds. If any useful portion of the Project shall be destroyed or is damaged by fire or other casualty, or title to, or the temporary use of, such portion shall be taken under the exercise of the power of eminent domain, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair, reconstruction, restoration or replacement thereof, unless it is determined under the provisions of Section 6.1(c) hereof that such repair, reconstruction, restoration or replacement is not to be undertaken. Section 7.13 Against Encumbrances. The City will not make any pledge of or place any lien on the Revenues except as provided herein. The City may expend at any time, or from time to time, general fund revenues or may issue evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of and lien on general fund revenues. Section 7.14 Against Sale or Other Disposition of Project. The City will not enter into any agreement or lease which impairs the operation of the Project or any part thereof necessary OHSUSA:754110187.8 24 to secure adequate water services for the community. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the improvements on the Project, or any material or equipment which has become worn out,may be sold if such sale will not impair the ability of the City to pay Lease Payments and if the proceeds of such sale are deposited in the Lease Payment Fund. Section 7.15 Payment of Claims. The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the funds or accounts created hereunder or on any funds in the hands of the City pledged to pay the Bonds prior or superior to the lien of the Trust Agreement or which might impair the security of the Bonds. Notwithstanding the foregoing, the City may pledge, encumber or otherwise secure its obligations with the Net Revenues;provided,that in all instances any such pledge, lien or security is wholly subordinate and junior to the obligations of the City contained in the Trust Agreement and this Lease Agreement. Section 7.16 Compliance with Lease. The City will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or adversely affect the ability of the City to pay Lease Payments; and the City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Project, to the extent that the City is a party thereto. Section 7.17 Compliance with Governmental Regulations. The City will duly observe and comply with all valid regulations and requirements of any governmental authority relative to the operation of the improvements on the Project, or any part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. ARTICLE VIII ASSIGNMENT,SUBLEASING AND AMENDMENT Section 8.1 Assignment by the Authority. Except as provided herein and in the Trust Agreement, the Authority will not assign this Lease Agreement, or any right, title or interest of the Authority in and to this Lease Agreement, to any other person, firm or corporation so as to impair or violate the representations,covenants and warranties contained in Section 2.2 hereof. Section 8.2 Assignment and Subleasing by the City. (a) Assignment. This Lease Agreement may not be assigned by the City unless the City receives (i)the written consent of the Owners of 100%of the outstanding Bonds and (ii) an opinion of Bond Counsel, stating that such assignment does not adversely affect the exclusion from gross income for federal income tax purposes or from State of California personal income taxes of interest on the Bonds. In the event that this Lease Agreement is assigned by the City, the obligation to make Lease Payments and perform the other covenants of the City hereunder shall remain the obligation of the City. OHSUSA:754110187.8 25 (b) Sublease. The City may sublease any portion of the Project,with the prior written consent of the Authority,which consent shall not be unreasonably withheld,subject to all of the following conditions: (i) This Lease Agreement and the obligation of the City to make Lease Payments and perform the other covenants of the City hereunder shall remain obligations of the City; (ii) The City shall,within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; (iii) No sublease by the City shall cause the Project to be used for a purpose other than a governmental or proprietary function authorized under the provisions of the laws of the State; and (iv) No sublease shall cause the interest on the Bonds to become subject to federal income taxes or State of California personal income taxes. Section 8.3 Amendments and Modifications. The terms of this Lease Agreement shall not be waived, altered,modified, supplemented or amended in any manner whatsoever except by written instrument signed by the Authority and the City, with the written consent of the Trustee subject to the same conditions as set forth in Sections 7.2,7.3 and 7.4 of the Trust Agreement. ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1 Events of Default Defined. The following shall be "Events of Default" under this Lease Agreement and the terms "Events of Default" and "default" mean, whenever they are used in this Lease Agreement, any one or more of the following events: (a) Payment Default. Failure by the City to pay any Lease Payment or Additional Payment required to be paid hereunder on the date such payment is due hereunder. (b) Covenant Default. Failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed herein or otherwise with respect hereto or in the Property Lease, other than as referred to in clause(a) of this Section, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority or the Trustee; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, then no Event of Default shall have occurred for a period of 60 days after such applicable period so long as corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected. Notwithstanding the foregoing, an Event of Default shall have occurred concurrent with any failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed in Section 4.9, 4.10, 4.12, 5.1,7.9, 7.13 or 7.14 hereof. OHSUSA:754110187,8 26 (c) Bankruptcy or Insolvency. The filing by the City of a case in bankruptcy, or the subjection of any right or interest of the City under this Lease Agreement to any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act which may hereafter be enacted. (d) Breach of Representation. A material breach of any representation of the City or the Authority hereunder after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority or the Trustee. (e) Abandonment of Property. The City shall abandon any part of the Property or the Property. (f) Assignment of Lease. The assignment or transfer of the City's interest in this Lease or any part thereof without the written consent of the Owners of 100% of the outstanding Bonds, either voluntarily or by operation of law or otherwise. (g) Invalidity of Lease. Any court of competent jurisdiction shall find or rule that this Lease is not a valid or binding agreement of the City. Section 9.2 Remedies on Default; No Acceleration. Whenever any Event of Default referred to in Section 9.1 hereof shall have happened and be continuing, it shall be lawful for the Authority to exercise any and all remedies available pursuant to law or equity or granted pursuant to this Lease Agreement,including (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the City or any director, officer or employee thereof,and to compel the City or any such director, officer or employee to perform and carry out its or his duties under the agreements and covenants required to be performed by it or him contained herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority; or (c) by suit in equity upon the happening of an Event of Default to require the City and its City Council members, officers and employees to account as the trustee of an express trust. Notwithstanding the above, the Authority shall have no right to declare the unpaid Lease Payments to be due and payable immediately. Notwithstanding anything to the contrary contained in this Lease Agreement or any Transaction Document, none of the Authority, the Trustee or the Bondholders shall have the right hereunder to re-enter or re-let the Project under any circumstances unless otherwise permitted under the Transaction Documents. OHSUSA:754110187.8 27 Notwithstanding anything contained herein, the Authority shall have no security interest in or mortgage on the Project, the Water System or other assets of the City and no default hereunder shall result in the loss of the Project,the Water System,or other assets of the City. Section 9.3 No Remedy Exclusive. Subject to the express limitation on remedies described in the last paragraph of Section 9.2 above, no remedy conferred herein upon or reserved to the Authority is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof,but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in this Article it shall not be necessary to give any notice, other than such notice as may be required in this Article or by law. Section 9.4 Agreement to Pay Attorneys Fees and Expenses. In the event either party to this Lease Agreement should default under any of the provisions hereof and the nondefaulting party should commence legal action or arbitration for the collection of moneys or the enforcement of performance or observance of any obligation or agreement on the part of the defaulting party contained herein, the defaulting party agrees that it will pay on demand to the nondefaulting party the reasonable attorneys' fees, court costs and legal expenses incurred by the nondefaulting party in such action or arbitration after payment of all fees and expenses of the Trustee. Section 9.5 No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Lease Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 9.6 Trustee to Exercise Rights. Such rights and remedies as are given to the Authority under this Lease Agreement have been assigned by the Authority to the Trustee, to which assignment the City hereby consents. Such rights and remedies shall be exercised by the Trustee subject to the terms of the Trust Agreement and this Lease Agreement. ARTICLE X PREPAYMENT OF LEASE PAYMENTS Section 10.1 Security Deposit. Notwithstanding any other provision of this Lease Agreement, the City may, on any date, secure the payment of all unpaid Lease Payments as set forth in Exhibit B hereto by an irrevocable deposit by it with the Trustee of sufficient moneys and non-callable Investment Securities, issued by the United States of America and described in clause(A) of the definition thereof, the principal of and interest on which when due will provide money sufficient to pay all principal, prepayment premium, if any, and interest of such Lease Payments to and including their respective Lease Payment Dates or prepayment date or dates as the case may be. In such event, and provided that the City has made arrangements acceptable to the Trustee to pay any Additional Payments, all. obligations of the City under this Lease oBsysA:754110187.s 28 Agreement, and all security provided by this Lease Agreement for said obligations, shall cease and terminate, excepting only the obligation of the City to make, or cause to be made, Lease Payments from such deposit. On the date of said deposit the leasehold interest in the Project shall vest in the City automatically and without further action by the City or the Authority (except as provided herein); provided that the leasehold interest with respect to the Project shall be subject to the subsequent payment of all Lease Payments made from said deposit in full in accordance with the provisions hereof. Said deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the provisions of this Lease Agreement. The Authority shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the leasehold interest transfer of the Project. Section 10.2 Mandatory Prepayment From Net Insurance Proceeds. The City shall be obligated to prepay the Lease Payments in whole or in part on any date, from and to the extent of any Net Insurance Proceeds theretofore transferred to the Insurance and Condemnation Account and not otherwise applied to the Project in accordance with Article VI. The City and the Authority hereby agree that such proceeds shall be credited towards the City's obligations hereunder with respect to the portion of the Project from which such proceeds were derived (except in the case of such prepayment of the Lease Payments in whole)such that approximately equal annual Lease Payments will prevail with respect to the Project following such prepayment. Section 10.3 Optional Prepayment. Subject to the terms and conditions of this Section, the Authority hereby grants an option to the City to prepay in whole or in part a principal portion of Lease Payments, in whole or in part in increments of $1.00 on any date on or after November 15, 2024 hereafter at a prepayment price equal to the principal portion to be redeemed. The City shall execute said option by giving written notice to the Trustee thereof at least 60 days prior to the date of redemption of Bonds from such prepayment and depositing with said notice cash in the minimum amount of (1) accrued interest on the principal portion of Lease Payments to be prepaid to the date of redemption of Bonds with the proceeds of such prepayment, plus (2)the principal portion of any Lease Payments to be prepaid, plus (3)the applicable prepayment premium described herein. Section 10.4 Effect of Prepayment. (a) In Whole. In the event that the City prepays all remaining Lease Payments pursuant to Section 10.3 or Section 10.2 hereof and has paid all Additional Payments due hereunder, the City's obligations under this Lease Agreement shall thereupon cease and terminate, including but not limited to the City's obligation to continue to pay Lease Payments hereunder. (b) In Part. In the event the City prepays less than all of the remaining principal portion of the Lease Payments pursuant to Section 10.2 or 10.3 hereof, the amount of such prepayment shall be applied to reduce the principal portion of the remaining Lease Payments corresponding to the resulting prepayment of the principal portion with respect to the Bonds. OHSUSA:754110187.8 29 ARTICLE XI MISCELLANEOUS Section 11.1 Liability of City Limited. Notwithstanding anything contained herein, the City shall not be required to advance any money derived from any source of income other than the Revenues and the other funds provided herein for the payment of the Lease Payments or for the observance or performance of any agreements, conditions, covenants or terms contained herein; rop vided, that the City may advance funds for any such payment as long as such funds are derived from a source legally available for such purpose. The obligation of the City to make Lease Payments is a limited obligation of the City payable solely from the Revenues. Section 11.2 Waiver of Personal Liability. No City Council member, officer, agent or employee of the City or the City shall be individually or personally liable for the payment of Lease Payments hereunder or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by the Trust Agreement. Section 11.3 Notices. All notices, certificates or other communications hereunder to the Authority and City shall be sufficiently given and shall be deemed to have been received five (5)business days after deposit in the United States mail in certified form,postage prepaid,to the City or the Authority, as the case may be,at the following addresses: If to the City: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano,CA 92675 Attention: City Manager and Chief Financial Officer/City Treasurer If to the Authority: San Juan Basin Authority 2611 Antonio Parkway Rancho Santa Margarita, CA 92688 Attention: Administrator If to the Trustee: The Bank of New York Mellon Trust Company,N.A. 400 S.Hope Street,Ste 400 Los Angeles, CA 90071 Attention: Corporate Trust Department OHSUSA:754110187.8 30 All notices, certificates and other communications to the Trustee shall be sufficiently given and shall be deemed to have been received five (5) days after deposit in the United States mail in registered or certified form,postage prepaid. Notices to the Trustee may be given initially either telephonically or by written telecommunication and shall then be confirmed in writing delivered by certified mail, return receipt requested. The Authority, the City and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent. Section 11.4 Binding Effect. This Lease Agreement shall inure to the benefit of and shall be binding upon the Authority and the City and their respective successors and assigns (including without limitation the Trustee). Section 11.5 Severability. In the event any provision of this Lease Agreement shall be held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 11.6 Execution in Countelparts. This Lease Agreement may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 11.7 Applicable Law. This Lease Agreement shall be governed by and construed in accordance with the laws of the State. Section 11.8 Captions. The captions or headings in this Lease Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Lease Agreement. Section 11.9 No Merger. The leasing by the Authority to the City of the Property shall not effect or result in a merger of the City's leasehold estate pursuant to this Lease Agreement and pursuant to the Operating Lease and its fee estate as lessor under the Property Lease, and the Authority shall continue to have and hold a leasehold estate in said Property pursuant to the Property Lease throughout the term thereof and the term of this Lease Agreement. As to said Property,this Lease shall be deemed and constitute a sublease. Section 11.10 Amendment of Original Lease. This Lease Agreement amends the Original Lease as of November 1,2014. OHSUSA:754110187.8 31 IN WITNESS WHEREOF, the Authority has caused this Lease Agreement to be executed in its name by its duly authorized officers, and the City has caused this lease Agreement to be executed in its name by its duly authorized officers, as of the date first above written. SAN JUAN BASIN AUTHO TY,as Lessor Cha' of the Board of Directors ATTEST: r l� Secretary of the Boa d of Directors CITY OF SANJU N CAPISTRANO,as Lessee By: Vw� Mayor ATTEST: N t i City 1 k OHSUSA;754110187 ,Sj_I EXHIBIT A DESCRIPTION OF THE PROPERTY OHSUSA:754110187.8 A-1 EXHIBIT A DESCRIPTION OF THE PROPERTY ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA,COUNTY OF ORANGE,CITY OF SAN JUAN CAPISTRANO,DESCRIBED AS FOLLOWS: PARCEL A(DANCE HALL): LOT 1 THAT PORTION OF LOT 60 OF TRACT NO. 103, AS SHOWN ON A MAP RECORDED IN BOOK 11, PAGES. 29 THROUGH 33 INCLUSIVE, OF MISCELLANEOUS MAPS, RECORDS OF ORANGE COUNTY,CALIFORNIA,DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE SOUTHERLY LINE OF SAID LAND SOUTH 87055'30"EAST 92.80 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID SOUTHERLY LINE SOUTH 87055'30" EAST 169.49 FEET; THENCE NORTH 2°26'44" EAST 111.24 FEET; THENCE NORTH 87°33'16" WEST 108.59 FEET; THENCE NORTH 2°30'44" EAST 127.34 FEET; THENCE NORTH 87°29'16" WEST 60.77 FEET; THENCE SOUTH 2030'44"VYEST 239.75 FEET TO THE TRUE POINT OF BEGINNING. LOT 2 THAT PORTION OF LOT 60 OF TRACT NO. 103,AS SHOWN ON A MAP RECORDED IN BOOK 11, PAGES 29 THROUGH 33 INCLUSIVE, OF MISCELLANEOUS MAPS, RECORDS OF ORANGE COUNTY,CALIFORNIA,DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE WESTERLY LINE OF SAID LAND NORTH 2°04'30"EAST 174.43 FEET;- THENCE SOUTH 87055'30" EAST 40.01 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING SOUTH 87°55'30" EAST 30.00 FEET; THENCE NORTH 2004'30" EAST 30.00 FEET; THENCE NORTH 87°55'30" WEST 30.00 FEET; THENCE SOUTH 204'30"WEST 30.00 FEET TO THE TRUE POINT OF BEGINNING. PARCEL B(MARINER WELL SITE): THAT PORTION OF LOT 1 OF FRACTIONAL SECTION 14, TOWNSHIP 8 SOUTH, RANGE 8 WEST,SAN BERNARDINO MERIDIAN,DESCRIBED AS FOLLOWS: A 40.00 FOOT WIDE STRIP OF LAND, THE WESTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEAST CORNER OF LOT F OF TRACT NO. 7616 AS PER MAP FILED IN BOOK 350, PAGES 1 THROUGH 5 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID,COUNTY; THENCE ALONG THE A-1 DOCSM9D9571 v20\22658.0017 EASTERLY LINE OF SAID LOT F SOUTH 6046'00" WEST 61.06 FEET TO THE TRUE POINT OF BEGINNING;THENCE CONTINUING ALONG SAID EASTERLY LINE SOUTH 6046'00"WEST 40.00 FEET. PARCEL C(WELL NO.1): PARCEL B,AS SHOWN ON EXHIBIT"B" ATTACHED TO LOT LINE ADJUSTMENT NO. 02-15858-13 RECORDED NOVEMBER 15,2002 AS INSTRUMENT NO.2002001029016 OF OFFICIAL RECORDS OF ORANGE COUNTY,CALIFORNIA. EXCEPTING THEREFROM ALL OIL RIGHTS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND RIGHTS TO ALL OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN TO ALL GEOTHERMAL HEAT AND TO ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING AND THE PERPETUAL RIGHT OF DRILL., MINE, EXPLORE AND OPERATE FOR AND TO PRODUCE, STORE AND REMOVE ANY OF THE SUBSURFACE RESOURCES ON OR FROM THE LAND INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAT THE LAND, WELLS, TUNNELS AND SHAFTS INTO THROUGH OR ACROSS THE SUBSURFACE OF THE LAND AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS WITHIN OR BEYOND THE EXTERIOR LIM[l TS OF THE PROPERTY AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES BUT WITHOUT THE RIGHT TO DRILL,MINES,EXPLORE,OPERATE,PRODUCE,STORE OR REMOVE ANY OF THE SUBSURFACE RESOURCES THROUGH OR IN THE SURFACE OR THE UPPER FIVE HUNDRED FEET(500')OF THE SUBSURFACE OF THE LAND AS RESERVED BY KB HOME COASTAL INC., A CALIFORNIA CORPORATION IN THE DEED RECORDED JULY 9, 2002 AS INSTRUMENT NO. 20020569988 OF OFFICIAL RECORDS, PARCEL D(WELL NO.2): THOSE PORTIONS OF LOT B OF TRACT NO. 15998, IN THE CITY OF SAN JUAN CAPISTRANO,COUNTY OF ORANGE,STATE OF CALIFORNIA,AS PER MAP FILED IN BOOK 820, PAGES 42 THROUGH 47 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND THE LAND SHOWN AS "NOT A PART" WITHIN SAID LOT B ON SAID MAP, BEING A STRIP OF LAND, 20.00 FEET WIDE,THE EASTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEAST CORNER OF SAID LOT B; THENCE ALONG THE EASTERLY LINE OF SAID LOT B SOUTH 00020'50" WEST 95.00 FEET TO THE SOUTHEAST CORNER OF SAID LOT B. THE WESTERLY LINE OF SAID STRIP SHALL BE PROLONGED OR SHORTENED SO AS TO COMMENCE AND TERMINATE IN THE NORTHERLY AND SOUTHERLY LINES OF SAID LOT B. A-2 DOCSM909571 v20122658.0017 PARCEL E(WELL NO.4): LOT E OF TRACT NO. 15998 IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 820, PAGES.42 THROUGH 47 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM,THE SOUTHEASTERLY 15.00 FEET OF SAID LOT. PARCEL F(KINOSHITA): BEGINNING AT THE NORTHEAST CORNER OF TRACT_ NO. 11086,AS PER MAP FILED IN BOOK 479,PAGES 26 TO 31 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE CENTERLINE OF CAMINO DEL AVION NORTH 88045'27"WEST 28.52 FEET; THENCE NORTH 00°48'04" WEST TO A POINT WHICH IS 1.00 FOOT NORTHERLY OF THE CENTERLINE OF CAMINO DEL ANION, MEASURED AT RIGHT ANGLES AND 28.50 FEET WESTERLY OF THE EASTERLY CENTERLINE OF ALIPAZ STREET MEASURED AT RIGHT ANGLES, AS SHOWN ON SAID MAP, SAID POINT BEING THE TRUE POINT OF BEGINNING; THENCE PARALLEL WITH THE CENTERLINE OF SAID CAMINO DEL AVION NORTH 88045'27" WEST 40.00 FEET; THENCE NORTH 25°52'46" EAST 89.03 FEET TO A POINT WHICH IS 28.50 FEET WESTERLY OF THE EASTERLY CENTERLINE OF SAID ALIPAZ STREET, MEASURED AT RIGHT ANGLES; THENCE PARALLEL EL WITH SAID EASTERLY CENTERLINE SOUTH 00048'04" EAST 80.97 FEET TO THE TRUE POINT OF BEGINNING. PARCEL G:(TIRADOR): THAT PORTION OF LOT 31 OF TRACT NO. 103 IN THE CITY OF SAN JUAN CAPISTRANO,COUNTY OF ORANGE,STATE OF CALIFORNIA,AS PER MAP FILED IN BOOK 11, PAGES 29 THROUGH 33 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY,DESCRIBED AS FOLLOWS: BEGINNING AT THE MOST EASTERLY CORNER OF SAID LOT 31; THENCE ALONG THE NORTHERLY LINE OF SAID LOT NORTH 8902'56" WEST 127.69 FEET TO A POINT THAT IS 40.00 FEET SOUTHEASTERLY MEASURED AT RIGHT ANGLES FROM THE CENTERLINE OF PASEO TIRADOR AS SHOWN ON THE AMENDED DIAGRAM OF ASSESSMENT DISTRICT NO.78-3 FILED IN BOOK 19,PAGES 14 THROUGH 22 OF ASSESSMENT MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE PARALLEL WITH SAID CENTERLINE SOUTH 47054'43"WEST 43.95 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING SOUTH 47°54'43" WEST 40.00 FEET; THENCE SOUTH 42°05'17" EAST 40.00 FEET; THENCE NORTH 47°54'43" EAST 40.00 FEET;THENCE NORTH 42°05'I7"WEST 40.00 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING TOM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN THAT MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF A-3 DOCS DCV 09571 v20\22659.0017 DRILLING, MINING, EXPLORING, AND OPUPATING THEREFOR, AND REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED,AND TO BOTTOM SUCH WfIIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE TROUGH THE SURFACE OR THE UPPER 100 FEET OF THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED OR OTHERWISE IN SUCH MANNER AS TO ENDANGER THE SAFETY OF ANY HIGHWAY THAT MAY BE CONSTRUCTED ON SAID LAND, AS RESERVED IN THE DEED FROM CARL L. STROSCHEIN AND OTHERS, RECORDED FEBRUARY 15, 1955 IN BOOK 2959, PAGE 307 OF OFFICIAL RECORDS. A-4 DOCS OC1909571 v20122658.0017 EXHIBIT B SCHEDULE OF LEASE PAYMENTS Lease Payment hate Principal Payment Interest Payment Total Lease Payment 5/15/2015 $ 428,968.58 $ 428,968.58 11/15/2015 $ 1,109,882 391,950.98 1,501,832.98 5/15/2016 370,585.75 370,585.75 11/15/2016 1,187,143 370,585.75 1,557,728.75 5/15/2017 347,733.25 347,733.25 11/15/2017 1,232,473 347,733.25 1,580,206.25 5/15/2018 324,008.15 324,008.15 11/15/2018 1,281,398 324,008.15 1,605,406.15 5/15/2019 299,341.23 299,341.23 11/15/2019 1,328,794 299,341.23 1,628,135.23 5/15/2020 273,761.95 273,761.95 11/15/2020 1,384,603 273,761.95 1,658,364.95 5/15/2021 247,108.34 247,108.34 11/15/2021 1,433,622 247,108.34 1,680,730.34 5/15/2022 219,511.12 219,511.12 11/15/2022 1,489,567 219,511.12 1,709,078.12 5/15/2023 190,836.95 190,836.95 11/15/2023 1,548,915 190,836.95 1,739,751.95 5/15/2024 161,020.34 161,020.34 11/15/2024 1,606,548 161,020.34 1,767,568.34 5/15/2025 130,094.29 130,094.29 11/15/2025 567,401 130,094.29 697,495.29 5/15/2026 119,171.82 119,171.82 11/15/2026 588,996 119,171.82 708,167.82 5/15/2027 107,833.65 107,833.65 11/15/2027 609,672 107,833.65 717,505.65 5/15/2028 96,097.46 96,097.46 11/15/2028 634,394 96,097.46 730,491.46 5/15/2029 83,885.38 83,885.38 11/15/2029 658,068 83,885.38 741,953.38 5/15/2030 71,217.57 71,217.57 11/15/2030 685,654 71,217.57 756,871.57 5/15/2031 58,018.73 58,018.73 11/15/2031 712,052 58,018.73 770,070.73 5/15/2032 44,311.73 44,311.73 11/15/2032 737,216 44,311.73 781,527.73 5/15/2033 30,120.32 30,120.32 11/15/2033 766,099 30,120.32 796,219.32 5/15/2034 15,372.92 15,372.92 11/15/2034 798,593 15,372.92 813,965.92 $ 20,361,090 $7,200,981.48 $ 27,562,071.48 OHSUSA:754110187.8 B-1 EXHIBIT 3d TRUST AGREEMENT among CAPISTRANO VALLEY WATER DISTRICT, as Water District and SAN JUAN BASIN AUTHORITY, as Authority and BNY WESTERN TRUST COMPANY, as Trustee Dated as of December 1,2002 RELATING TO $31,555,000 SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2002 DOCS00909619v 19122658.0017 Table of Contents Page ARTICLE I DEFINITIONS Section1.1. Definitions.............................................................................................................. Section 1.2. Rules of Construction....................................................................................................8 ARTICLE H ASSIGNMENT;DECLARATION OF TRUST;REPRESENTATIONS AND RECITALS Section 2.1. Assignment of Lease Agreement..................................................................................8 Section 2.2. Assignment of Property Lease......................................................................................8 Section 2.3. Declaration of Trust by Trustee....................................................................................9 Section 2.4. Deposit of Moneys........................................................................................................9 Section 2.5. Description of the Project..............................................................................................9 Section 2.6. Conditions Precedent Satisfied............................................................. ..................9 ARTICLE III BONDS,TERMS AND PROVISIONS Section 3.1. Preparation of Bonds.................................. .•...............................................................9 Section 3.2. Payments from Trust Estate Only;Distribution of Trust Estate...................................9 Section3.3. The Bonds. ..................................................................................................................10 Section3.4. Medium of Payment....................................................................................................13 Section3.5. Execution....................................................................................................•.........,......13 Section 3.6. Negotiability,Transfer and Registry...........................................................................13 Section 3.7. Regulations with Respect to Exchanges and Transfers...............................................13 Section 3.8. Bonds Mutilated,Destroyed,Stolen or Lost...............................................................14 Section3.9. Temporary Bonds........................................................................................................14 Section 3.10. Privilege of Redemption .............................................................................................14 Section 3.11. Selection of Bonds to be Redeemed............................................................................14 Section 3.12. Notice of Redemption.................................................................................................14 Section 3.13. Payment of Redeemed Bonds.....................................................................................15 Section 3.14. Cancellation of Bonds.......................... ..................................................................15 Section3.15. Book-Entry System.....................................................................................................16 ARTICLE IV ESTABLISHMENT AND ADMMSTRATION OF FUNDS AND ACCOUNTS Section 4.1. Establishment of Project Trust Fund...........................................................................17 Section 4.2. Project Account................................................................................................,,.........18 Section4.3. Debt Service Payment Account. .................................................................................18 i DOCS00909619v 19\226580017 Table of Contents (continued) Page Section 4.4. Reserve Account.................................................................................................. ..19 Section 4.5. Redemption Account...................................................................................................21 Section 4.6. Insurance and Condemnation Account.......................................................................21 Section 4.7. Deposits of Money;Payment Procedure.....................................................................21 Section 4.8. Investment of Certain Accounts and Subaccounts......................................................21 Section 4.9. Valuation and Sale of Investments..............................................................................23 Section 4.10. Costs of Issuance Account..........................................................................................24 Section4.11. Rebate Fund. ...............................................................................................................24 ARTICLE V COVENANTS,EVENTS OF DEFAULT,REMEDIES OF BONDOWNERS AND LIMITATIONS OF LIABILITY Section 5.1. Trustee to Enforce Lease Agreement and Property Lease..........................................26 Section 5.2. Against Amendment or Termination of Property Lease.............................................26 Section 5.3. Notice of Non-Payment...............................................................................................26 Section5.4. Letter of Credit................................................................................. ..........................26 Section 5.5. Assignment of Rights..................................................................................................26 Section 5.6. Events of Default.........................................................................................................27 Section 5.7. Application of Funds...................................................................................................28 Section 5.8. Institution of Legal Proceedings.................................................................................28 Section5.9. Non-Waiver.................................................................................................................28 Section 5.10. Remedies Not Exclusive.............................................................................................28 Section 5.11. Power of Trustee to Control Proceedings....................... .28 ........................................... Section 5.12. Limitation on Bondowners'Right to Sue...................................................................29 Section 5.13. Amendment of Lease Agreement................................................................................29 Section 5.14. Reconstruction;Application of Insurance Proceeds. ..................................................29 Section 5.15. Accounts and Reports.................................................................................................30 Section 5.16. No Obligation by the Water District to Bondowners..................................................30 Section 5.17. No Obligation with Respect to Performance by Trustee.............................................30 Section 5.18. No Liability to Bondowners for Payment...................................................................30 Section 5.19. Possession and Enjoyment..........................................................................................30 Section 5.20. Tax Covenants.............................................................................................................31 Section 5.21. Parity Obligations........................ Section 5.22. Continuing Disclosure.................................................................................................31 ARTICLE VI CONCERNING THE TRUSTEE Section 6.1. Employment of Trustee...............................................................................................32 Section 6.2. Trustee Acceptance of Duties.................................................................. ....32 ............... Section 6.3. Evidence on Which Trustee May Act.........................................................................32 Section 6.4. Obligations of Trustee.................................................................................................33 ii DOCSOC1909619v l 9122658.0017 Table of Contents (continued) Page Section6.5. Compensation..............................................................................................................33 Section 6.6. Resignation of Trustee................................................................................................33 Section6.7. Removal of Trustee.....................................................................................................33 Section 6.8. Appointment of Successor Trustee.................................._..........................................33 Section 6.9. Transfer of Rights and Project to Successor Trustee..................................................34 Section6.10. Merger or Consolidation.............................................................................................34 Section 6.11. Adoption of Authorized Signature..............................................................................34 Section 6.12. Liability of the Trustee................................................................................................34 ARTICLE VII AMENDMENTS Section7.1. Mailing........................................................................................................................36 Section7.2. Powers of Amendment....... .......................................................................................36 Section7.3. Consent of Bondowners.................................................................................. .......37 Section 7.4. Modifications by Unanimous Consent........................................................................38 Section 7.5. Exclusion of Bonds.....................................................................................................38 Section7.6. Notation on Bonds—.........................................................................................•..........38 ARTICLE VIII MISCELLANEOUS Section8.1. Defeasance..................................................................................................................39 Section 8.2. Evidence of Signatures of Bondowners and Ownership of Bonds.............................40 Section 8.3. Moneys Held for Particular Bonds..............................................................................40 Section 8.4. Preservation and Inspection of Documents.................................................................40 Section 8.5. Parties Interested Herein.............................................................................................41 Section 8.6. Severability of Invalid Provisions...............................................................................41 Section 8.7. Recording and Filing...................................................................................................41 Section8.8. Notices.........................................................................................................................41 Section 8.9. Notices to the Bond Insurer.........................................................................................42 Section 8.10. California LaW............................................................................................................43 Section8.11. Binding on Successors ................................................................................................43 Section8.12. Headings......................................................................................................................43 Section 8.13. Execution in Counterparts...........................................................................................43 Section 8.14. Actions Due on Saturdays,Sundays and Holidays.....................................................43 Section 8.15. Payment Procedure Pursuant to the Insurance Policy.................................................43 Section 8.16. Bond Insurer as Third Party Beneficiary.....................................................................45 Section8.17. Force Majeure.............................................................................................................45 Section 8.18. Facsimile Instructions.................................................................................................45 DOCSOC\909619v 19\22658.0017 Table of Contents (continued) Page Signatures .................................,.................................................................................................S-1 EXHIBIT A PROJECT DESCRllMON.......................................................................................A-1 EXHIBITFORM OF BOND.....................................................................................................B-1 EXHIBIT C FORM OF PROJECT COST REQUISMON..........................................................C-1 EXHIBITI) FORM OF COSTS OF ISSUANCE REQUISITION...............................................D-1 iv DOCSOC1909619v19\22658.0017 TRUST AGREEMENT RELATING TO THE SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2002 THIS TRUST AGREEMENT RELATING TO THE SAN JUAN BASIN AUTHORITY, LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT)ISSUE OF 2002, dated as of December 1, 2002 (the "Trust Agreement"), by and among the CAPISTRANO VALLEY WATER DISTRICT, a county water district of the State of California (the "Water District"), and BNY WESTERN TRUST COMPANY, a banking corporation organized under the laws of the State of California, as trustee (the "Trustee"), and the SAN JUAN BASIN AUTHORITY, a joint powers authority(the"Autbority"), WITNESSETH : In consideration of the mutual agreements and covenants herein contained and for other valuable consideration,the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1. Definitions (A) The terms set forth in this section shall have the meanings ascribed to them for all purposes of this Trust Agreement unless the context clearly indicates some other meaning. Acceptance means acceptance of the Service Contract Project Improvements by the Water District pursuant to the terms of the Service Contract. Additional Payrnents means any amounts payable by the Water District under the terms of the Lease Agreement,other than the Lease Payments. Alternative Reserve Account Security means one or more letters of credit, surety bonds or bond insurance policies, for the benefit of the Trustee in substitution for or in place of all or any portion of the Reserve Requirement. Annual Debt Service means, for each Bond Year, the sum of(a)the interest payable on the Outstanding Bonds in such Bond Year, assuming that any Outstanding term Bonds are redeemed from mandatory sinking fund payments as scheduled and(b)the principal amount of the Outstanding Bonds scheduled to be paid or redeemed in such Bond Year. Authori means the San Juan Basin Authority,a joint powers authority. Authorized Representative of the Authority means the Chairman or Executive Director of the Authority and any person or persons designated by the Chairman or Executive Director of the Authority and authorized to act on behalf of the Authority as certified by a written certificate signed DOCSOC19096190 9\22659.0017 on behalf of the Authority by the Chairman or Executive Director of the Authority and containing the specimen signature of each such person. Authorized Representative of the Water District means the General Manager of the Water District or Administrative Services Director, City Public Works Director or any person or persons designated by the General Manager and authorized to act on behalf of the Water District by a written certificate signed on behalf of the Water District by the General Manager and containing the specimen signature of each such person. Averaee Annual Debt Service means the amount determined by dividing the sum of all Annual Debt Service amounts due in each of the Bond Years following the date of such calculation by the number of such Bond Years. Bond or Bonds means any of the San Juan Basin Authority, Lease Revenue Bonds (Ground Water Recovery Project),Issue of 2002 issued pursuant to this Trust Agreement. Bond Counsel means a nationally-recognized firm of attorneys experienced in the issuance of tax-exempt obligations the interest on which is excludable from gross income under Section 103 of the Code. Bond Insurer means Ambac Assurance Corporation,a Wisconsin stock insurance corporation or any successor thereto. Bondowner or Owner of Bonds or Owner means the registered owner of any Bond or Bonds. Bond Purchase Agreement means the Bond Purchase Agreement by and among the Authority,the Water District and Lehman Brothers relating to the sale of the Bonds. Bond Year means the twelve month period which commences on November 2 in every year and ends on November 1 of the succeeding year. The first Bond Year shall commence on the Delivery Date and end on November 1,2003. Business Day means any day other than(i)a Saturday or Sunday or legal holiday or a day on which banking institutions in the city in which the principal office of the Trustee is located are authorized to close or(ii)a day on which the New York Stock Exchange is closed. Certificate of Authorized Representative of the Authority means a certificate executed by an Authorized Representative of the Authority. Certificate of Authorized Representative of the Water District means a certificate executed by an Authorized Representative of the Water District. Cily means the City of San Juan Capistrano,California. Code means the Internal Revenue Code of 1986, as amended,and the United States Treasury Regulations proposed or in effect with respect thereto. Costs of Issuance means all expenses and costs of the Authority or the Water District incident to the performance of its obligations in connection with the authorization,issuance, sale and delivery of the Bonds, including, but not limited to,printing costs, initial Trustee fees and expenses and fees 2 DOCS OC1909619v 19\22658.0017 and expenses of its counsel, fees and expenses of consultants and fees and expenses of bond counsel to the Authority or the Water District,credit enhancement fees and bond insurance costs. Costs of Issuance Account means the account by that name created pursuant to Section 4.1 hereof. Debt Service Payment Account means the Debt Service Payment Account established in Section 4.1 hereof. Delivery Date means the date of the initial issuance of the Bonds. Denository means (a) initially, DTC, and (b) any other securities depository acting as Depository pursuant to the Trust Agreement. DTC means The Depository Trust Company, New York,New York, and its successors and assigns. Events of Default means events of default as set forth in Section 9.1 of the Lease Agreement, Fiscal Year means the twelve month fiscal period of the Water District which commences on July 1 in every year and ends on June 30 of the succeeding year. GAAP means generally accepted accounting principles. Independent Engineer means the engineer so designated from time to time pursuant to the ternis of the Service Contract and that certain Consultant Services Agreement dated as of January 1, 2003 by and between Psomas, a California corporation, and the Water District, which Independent Engineer shall initially be Psomas,a California corporation. Insurance Policy means the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal of and interest on the Bonds as provided therein. Interest Payment Date means June 1 and December 1 of each year commencing June 1,2003. Investment Securities means and includes any of the following securities,if and to the extent the same are at the time legal for investment of Authority funds (the Trustee is entitled to rely upon investment direction of the Water District as a determination that such investment is a legal investment): A. For all purposes including defeasance investments. (1) Cash(insured at all times by the Federal Deposit Insurance Corporation), (2) Direct obligations of(including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America,or (3) Senior debt obligations of other Government Sponsored Agencies approved by the Bond Insurer. 3 DOCSOC19096191 19\22658.0017 B. For all purposes other than defeasance investments in refunding escrow accounts. (1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America,including: -Export-Import Bank -Rural Economic Community Development Administration -U.S.Maritime Administration -Small Business Administration -U.S.Department of Housing&Urban Development(PHAs) -Federal Housing Administration -Federal Financing Bank (2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: -Senior debt obligations issued by the Federal National Mortgage Association (FNMA)or Federal Home Loan Mortgage Corporation(FHLMC). -Obligations of the Resolution Funding Corporation(REFCORP) -Senior debt obligations of the Federal Home Loan Bank System -Senior debt obligations of other Government Sponsored Agencies approved by the Bond Insurer (3) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of "P-1"by Moody's and"A-1"or"A-1+"by S&P and maturing not more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank); (4) Commercial paper which is rated at the time of purchase in the single highest classification,"P-1"by Moody's and"A-1+"by S&P and which matures not more than 270 calendar days after the date of purchase; (5) Investments in a money market fund rated"AAAm" or"AAAm-G" or better by S&P including funds for which the Trustee or an affiliate provides investment advice or other services; (6) Pre-refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (A) which are rated,based on an irrevocable escrow account or fund (the "escrow"),in the highest rating category of Moody's or S&P or any successors thereto;or 4 DOCSOC190961909122658.0017 (B) (i)which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium,if any,on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and(ii)which escrow is sufficient,as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above,as appropriate; (7) Municipal obligations rated"Aaa/AAA"or general obligations of States with a rating of"AVA"or higher by both Moody's and S&P; (8) Investment agreements approved in writing by the Bond Insurer (supported by appropriate opinions of counsel); (9) The Local Agency Investment Fund established by the State of California, including investments in the name of the Water District, provided the Independent Engineer shall approve all withdrawals therefrom;and (10) Other forms of investments (including repurchase agreements) approved in writing by the Bond Insurer. C. The value of the above investments shall be determined as follows: (a) For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at fair market value. The Trustee shall determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers shall include but are not limited to pricing services provided by Financial Times Interactive Data Corporation, Merrill Lynch, Salomon Smith Barney, Bear Stearns, or Lehman Brothers. (b) As to certificates of deposit and bankers' acceptances: the face amount thereof,plus. accrued interest thereon;and (c) As to any investment not specified above: the value thereof established by prior agreement among the Issuer,the Trustee,and the Bond Insurer. Lease Agreement means the Lease Agreement, dated as of the date hereof, between the Authority and the Water District, and any and all modifications, alterations, amendments and supplements thereto made in accordance with the provisions of the Lease Agreement and the Trust Agreement. Lease Payment means the amount to be paid by the Water District for the lease of the Project corresponding to the Lease Payment Date set forth in Section 4.4 and Exhibit B of the Lease Agreement. Lease PaMent Date means the 15th day of the month preceding each Interest Payment Date (or if the 15th day of the month is not a Business Day,on the next succeeding Business Day). 5 DOCSOC1909619v 19122658.0017 Lease Tenn means the period during which the Lease Agreement is in effect as specified in the Lease Agreement. Letter of Credit means the Service Contract Letter of Credit (as defined in the Service Contract)initially issued by Bank of America,N.A.as required pursuant to the Service Contract. Letter of Credit Provider means,initially,Bank of America,N.A. Maximum Annual Debt Service means, as of the date of any calculation, the maximum amount of principal, interest and mandatory sinking fund deposits required to be paid with respect to the Bonds in the current or any future Bond Year. MoodL's means Moody's Investors Service, a municipal bond rating service with offices in New York,New York. Net Insurance Proceeds means any insurance or condemnation proceeds paid with respect to the Property and the Service Contract Project Improvements and remaining after payment therefrom of all expenses incurred in the collection thereof. Net Revenues means the amounts of Revenues (as defined in the Lease Agreement) remaining after payment therefrom of the Maintenance and Operation Costs. Original inal Proceeds means proceeds from the sale of the Bonds. Original Purchaser means the first purchaser of the Bonds upon their delivery by the Trustee. Outstanding,when used with reference to Bonds,means,as of any date,Bonds theretofore or thereupon being issued under this Trust Agreement, including Bonds that are "Outstanding" in accordance with Section 8.1(c),except: (a) Bonds canceled or delivered for cancellation by the Trustee on or prior to such date (but excluding Bonds paid by the Bond Insurer); (b) Bonds (or portions of Bonds) defeased as provided in Section 8.1 of this Trust Agreement;and (c) Bonds in lieu of or in substitution for which other Bonds shall have been issued pursuant to Article III of this Trust Agreement. Project means, collectively, the Property and the Service Contract Project Improvements thereon, and any and all additions or modifications thereto made as provided in Section 7.8 of the Lease. Project Account means the account by that name established pursuant to Section 4.1 hereof. Project Trust Fund means the fund so designated which is established in Section 4.1 hereof. Prope means the real property described in the Lease Agreement. 6 DOCSOC1909619 v 19122658.0017 Property Lease means the Property Lease, dated as of the date hereof, between the City, as lessor, and the Authority, as lessee, as amended and supplemented from time to time in accordance with its terms. Rating A encies means Moody's and S&P, any successors thereto or any other nationally recognized rating service to the extent such rating agencies are maintaining a rating in connection with the Bonds as requested by or on behalf of the Water District. Rebatable Arbitrage shall have the meaning attributed to such term in Section 4.1 l(b). Rebate Fund means the account so designated established pursuant to Section 4.1 hereof. Rebate Regulations means the Regulations issued under Section 148(f)of the Code. Record Date means the fifteenth day of the calendar month preceding an Interest Payment Date. Redemption Account means the Redemption Account established in Section 4.1 hereof. Requisition means the Requisition as set out in either Exhibit C or Exhibit D attached hereto, as applicable. Reserve Account means the Reserve Account established in Section 4.1 hereof. Reserve Requirement means, as of any date of calculation, an amount equal to the lesser of (i)Maximum Annual Debt Service; (ii) 10% of the proceeds of the Bonds; or(iii) 125% of Average Annual Debt Service. Revenue Fund means the fund by that name described in Section 4.8 of the Lease Agreement. S&P or Standard & Poor's means Standard & Poor's Ratings Services, a municipal bond rating service with offices in New York,New York. Service Contract means that certain Service Contract by and between the Water District and the Company dated as of September 3,2002,as amended from time to time. Service Contract Project Improvements means those certain Project Improvements, Project Structures and Project Equipment (as defined in the Service Contract) each to be completed and located on the Sites(as defined in the Service Contract)pursuant to the terms of the Service Contract. State means the State of California. Supplemental Trust Agreement means any agreement supplemental or amendatory of this Trust Agreement. Tax Certificate means the certificate by that name to be executed by the Authority and the Water District on the Delivery Date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code. 7 DOCSOC\90961909V2658.0017 Trust Agreement means this Trust Agreement relating to the San Juan Basin Authority,Lease Revenue Bonds (Ground Water Recovery Project) Issue of 2002, dated as of December 1, 2002 entered into by and among the Water District, the Authority and the Trustee and any and all Supplemental Trust Agreements. Trust Estate means all right, title and interest of the Trustee in and to the Trustee benefit provisions pursuant to Section 13.3 of the Service Contract, all amounts received by the Trustee for the account of the Water District pursuant to or with respect to the Letter of Credit and the Lease Agreement including, without limitation, the Lease Payments and all amounts from time to time deposited in the funds,accounts and subaccounts created pursuant to this Trust Agreement, including all investments and investment earnings thereon, excluding, however, all moneys deposited or required to be deposited in the Rebate Fund. Trustee means BNY Western Trust Company, a banking corporation, duly organized and existing under and by virtue of the laws of the State of California having a corporate trust office in Los Angeles, California, or such other offices as the Trustee may designate, or its successor as Trustee hereunder. Water District means the Capistrano Valley Water District,a county water district,located in the County of Orange,State of California,and any successor or assignee thereof. Water System means the entire water system of the Water District, including, without limitation, all real property and buildings and, including all improvements, works or facilities assessed,controlled or operated by the Water District to provide water, as such improvements,works or facilities now exist, together with all improvements and extensions to said water system later acquired,constructed or organized. Section 1.2. Rules of Construction. Except where the context otherwise requires, words importing the singular number shall include the plural number and vice versa, and words importing persons shall include firms,associations,corporations and other entities. ARTICLE II ASSIGNMENT;DECLARATION OF TRUST; REPRESENTATIONS AND RECITALS Section 2.1. Assignment of Lease Agreement. The Authority hereby absolutely assigns all of its rights, title and interest in the Lease Agreement to the Trustee for the benefit of the Bondowners,and the Authority retains no right,title or interest therein(other than its right to certain Additional Payments under Section 4.14 of the Lease Agreement). The Water District hereby consents to such assignment. Section 2.2. Assignment of PMeM Lease. The Authority hereby absolutely assigns, for so long as any Bond is Outstanding, all of its rights, title and interest in the Property Lease to the Trustee for the benefit of the Bondowners, and the Authority retains no right,title or interest therein (other than such right,title and interest as may exist from and after the payment in full,or defeasance pursuant to Section 8.1 hereof,of the Bonds). 8 DOCSOC1909619v19\22659.0017 Section 2.3. Declaration of Trust by Trustee. The Trustee hereby declares that it holds and will hold the Trust Estate upon the trusts hereinafter set forth and for the use and benefit of the Bondowners. Section 2.4. Deposit of Moneys. In order to induce the Water District to proceed with the lease of the Project from the Authority and to assure the Water District that the funding of the Service Contract Project Improvements will be paid as contemplated by the Lease Agreement, the Authority has executed the Lease Agreement and caused the Trustee to authenticate and deliver the Bonds and from the proceeds of the sale of the Bonds, the Trustee shall deposit into the various accounts in the Project Trust Fund the amounts provided for in Section 4.1 hereof. Section 2.5. Description of the Project. The description of the Project to be leased to the Water District,as lessee,from the Authority,as lessor pursuant to the Lease Agreement is set forth in Exhibit A attached hereto and incorporated herein by reference. Section 2.6. Conditions Precedent Satisfied. The Water District and the Authority hereby declare that all acts,conditions and things required by law to exist,happen and be performed on their parts precedent to and in connection with the execution and entering into of this Trust Agreement have happened and have been performed in regular and due time, form and manner as required by law,and the parties hereto are now duly empowered to execute and enter into this Trust Agreement. ARTICLE III BONDS,TERMS AND PROVISIONS Section 3.1. Preparation of Bonds. (a) The Authority hereby directs the Trustee to authenticate and deliver to the Original Purchaser thereof pursuant to the Bond Purchase Agreement, the Bonds in an aggregate principal amount of$31,555,000. The Bonds shall be and are special obligations of the Authority and are secured by an irrevocable pledge of, and are payable as to principal and interest from the Trust Estate. (b) The Trustee shall not at any time while any Bond is Outstanding authenticate and deliver additional bonds payable from the Lease Payments except as provided in Sections 3.5, 3.6,3.7,3.8,3.9 and 3.13 hereof. Section 3.2. Payments from Trust Estate Only:Distribution of Trust Estate. (a) All amounts payable by the Trustee with respect to the Bonds pursuant to this Trust Agreement shall be paid only from the income of and proceeds from the Trust Estate and only to the extent that the Trustee shall have actually received sufficient income or proceeds from the Trust Estate to make such payments in accordance with the terms of Article IV hereof. Each Bondowner agrees to look solely to the income of and the proceeds from the Trust Estate to the extent available for distribution to such holder as herein provided, and each Bondowner agrees that the Trustee is not personally liable to any Bondowner for any amounts payable under this Trust Agreement or subject to any liability under this Trust Agreement except liability under this Trust Agreement as a result of negligence or willful misconduct by the Trustee. 9 DOCSOC190961 WNU2658.0017 (b) So long as the Bonds shall be Outstanding, all amounts of Lease Payments (including without limitation prepayments),Additional Payments,payments received by the Trustee pursuant to or with respect to the Letter of Credit, indemnity payments and other payments of any kind constituting a part of the Trust Estate payable to the Trustee,shall be paid directly to the Trustee for distribution,in accordance with Article IV of this Trust Agreement,to or for the Bondowners. Section 3.3. The Bonds. (a) Interest on the Bonds shall be payable from the preceding Interest Payment Date to which interest was paid,provided, Bonds registered on or prior to May 15, 2003 shall have interest payable with respect thereto from the Delivery Date, and Bonds registered after a Record Date and on or prior to an Interest Payment Date shall have interest payable with respect thereto from such Interest Payment Date. (b) The Bonds shall mature on December 1 in the years and principal amounts, and interest with respect thereto shall be computed at the rates,as shown below: Year of Year of Maturi 1?rinciyal Amount Interest Rate Maturity Principal Amount Interest Rate 2005 $ 755,000 3.00% 2015 $ 1,095,000. 5.25% 2006 780,000 3.00 2016 1,150,000 5.25 2007 805,000 3.00 2017 1,210,000 5.25 2008 825,000 3.00 2018 1,275,000 5.25 2009 850,000 4.00 2019 1,340,000 5.25 2010 885,000 4.00 2020 1,415,000 5.25 2011 920,000 3.60 2022 3,045,000 5.00 2012 955,000 3.70 2034 12,220,000 5.00 2013 990,000 5.00 2014 1,040,000 5.25 (c) Interest due with respect to the Bonds shall be payable on each Interest Payment Date to and including the date of maturity or redemption,whichever is earlier. The interest to be paid to Bondowners on each Interest Payment Date shall be calculated on the basis of the rates per annum set forth in subsection (b) above. Interest shall be calculated on the basis of a 360 day year of twelve 30 day months. Interest with respect to any Bond shall be payable to the person appearing on the registration books of the Trustee as the Owner thereof;such interest to be paid by check mailed to such Owner on the Interest Payment Date by first class mail at his address as it appears on such registration books at the close of business on the Record Date. Payment of interest with respect to the Bonds may, at the option of any Owner of at least $1,000,000 in aggregate principal amount of Bonds, be transmitted by wire transfer to an account specified in writing to the Trustee on or before the applicable Record Date by said Owner. Any such written request shall remain in effect until rescinded in writing by the Owner. (d) The Bonds shall be delivered in fully registered form in the denomination of $5,000 or any integral multiple thereof. Unless the Authority shall otherwise direct, in writing, the Bonds shall be lettered and numbered in such manner as the Trustee shall deem adequate and 10 DOCS00909619v19122656.0017 appropriate for record keeping purposes. Subject to the provisions of this Trust Agreement, the Bonds shall be substantially in the form set forth in Exhibit B hereof. The Trustee shall maintain,or cause to be maintained at its corporate trust office a system by which a record of the names and addresses of Bondowners as of any particular time can be kept,and the Trustee shall,upon request of the Authority or the Water District,furnish such information to the Authority or the Water District. (e) The principal of the Bonds shall be payable at the corporate trust office of the Trustee,or such other location as so designated by the Trustee. (f) The Bonds are subject to redemption as follows: (i) Extraordinary Redemption. The Bonds are subject to redemption in whole or in part, without premium, on any date in the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, upon the occurrence of(a)a termination of the Lease Agreement prior to End of Tenn (as defined in the Lease Agreement) pursuant to Section 4.17 of the Lease Agreement, or (b)damage, destruction or condemnation of the Service Contract Project Improvements, or any portion thereof, which results in Net Insurance Proceeds to the extent required or permitted by the Lease Agreement to be applied to prepayment of Lease Payments. (ii) Optional Redemption. The Bonds maturing on December 1,2013 are subject to optional redemption prior to maturity, at the option of the Water District pursuant to the Lease Agreement,as a whole or in part on any date on or after December 1,2012 from available funds in the Redemption Account including the amount of the Purchase Option Price in the event the Water District exercises its option to purchase the Project, at a redemption price equal to the principal amount to be redeemed plus accrued interest to the redemption date. (iii) Mandatory Term_ Bond Redemption. The Bonds maturing on December 1, 2022 are subject to mandatory redemption, by lot, in the principal amounts hereinafter set forth, without premium, on December I of each year, commencing on December 12021 from the principal portion of the Lease Payments required to be on deposit in the Debt Service Payment Account on the Lease Payment Date immediately prior to December 1 of each of the years and in the amounts as follows: Year Principal Amount 2021 $ 1,485,000 2022 1,560,000 The Bonds maturing on December 1,2034 are subject to mandatory redemption,by lot,in the principal amounts hereinafter set forth,without premium,on December 1 of each year,commencing on December 1,2023,from the principal portion of the Lease Payments required to be on deposit in the Debt Service Payment Account on the Lease Payment Date immediately prior to December I of each of the years and in the amounts as follows: 11 DOCS009096190 9\22658.0017 Year Principal Amount 2023 $ 1,640,000 2024 1,720,000 2025 705,000 2026 740,000 2027 775,000 2028 815,000 2029 855,000 2030 900,000 2031 945,000 2032 990,000 2033 1,040,000 2034 1,095,000 (iv) Mandatory Redemption from Unexpended Proceeds. The Bonds are subject to redemption, in whole or in part, without premium, on any date in the principal amount thereof to be redeemed together with accrued interest to the date fixed for redemption, from unexpended proceeds of the Bonds, if any, remaining in the Project Account of the Project Trust Fund following Acceptance. (g) In the event redemption is made pursuant to Section 3.3.(f)hereof, all Bonds called for redemption shall be paid in the following manner: (i) In the event of a redemption of Bonds pursuant to Section 3.3(f)(i) hereof,the Trustee shall deposit in the Redemption Account to be applied to the redemption on any date of Bonds and the payment of accrued interest on the Bonds to be redeemed, to the extent such interest is not paid out of the Debt Service Payment Account as provided in Section 4.3(b)hereof,the balance,if any, of Net Insurance Proceeds received by the Trustee pursuant to Section 5.3(b)of the Lease Agreement; (ii) In the event the Water District terminates the Lease Agreement prior to the End of Term as provided in Section 4.17 of the Lease Agreement, the Trustee shall transfer all amounts then on deposit in all funds and accounts hereunder (excepting only the Rebate Fund) to the Redemption Account to be applied to the redemption of the Bonds pursuant to Section 3.3(f)(i)above; (iii) In the event the Water District exercises its option to purchase the Project as provided in Section 7.3 of the Lease Agreement and there is a redemption of Bonds pursuant to Section 3.3(0(ii) hereof, the Trustee shall transfer and deposit in the Redemption Account the amount received by Trustee which represents the Purchase Option Price and all amounts then on deposit in all funds and accounts hereunder(excepting only the Rebate Fund)pursuant to Section 7.3 of the Lease Agreement which amount shall be applied to the redemption of Bonds on the earliest redemption date on which Bonds can be redeemed; (iv) In the event sinking fund payments are due and payable, the Trustee shall transfer an amount equal to each such payment on or prior to the respective sinking fund payment date and deposit such amount into the Redemption Account,which amount shall be applied to the redemption of term Bonds pursuant to Section 3.3(f)(iii)hereof,and 12 DOCSOC\909619v 1 9\22658.0017 (v) In the event excess proceeds remain on deposit in the Project Account following receipt by the Trustee of a certificate of the Water District stating that Acceptance has occurred, the Trustee shall transfer and deposit such amounts into the Redemption Account and apply such amounts to the redemption of Bonds pursuant to Section 3.3(f)(iv) above. Section 3.4. Medium of Payment. The Bonds shall be payable,with respect to interest and principal,and premium,if any,in lawful money of the United States of America. Section 3.5. Execution. (a) The Bonds shall be executed by the Executive Director and Secretary of the Authority by facsimile signature and authenticated in the name of, and by, the Trustee, as trustee under this Trust Agreement,by the manual signature of an authorized signatory of the Trustee. (b) Upon surrender of a Bond at the corporate trust office of the Trustee with a written instrument of transfer satisfactory to the Trustee,duly executed by the Bondowner or his duly authorized attorney, the Trustee shall, at the option of the Bondowner and upon payment by such Bondowner of any charges which the Trustee may make as provided in Section 3.7, exchange such Bond for an equal aggregate principal amount of Bonds of the same aggregate principal amount and maturity and interest rate. Section 3.6. Negotiability.Transfer and Registry. (a) Each Bond shall be transferable only upon the books of the Trustee which shall be kept for that purpose at the corporate trust office of the Trustee,by the Bondowner in person or by his attorney duly authorized in writing, upon surrender thereof together with a written instrument of transfer satisfactory to the Trustee duly executed by the Bondowner or his duly authorized attorney. Upon the transfer of any such Bond the Trustee shall deliver in the name of the transferee a new Bond or Bonds of the same aggregate principal amount and maturity and interest rate as the surrendered Bond. (b) The Trustee may deem and treat the person in whose name any Bond shall be registered upon the books of the Trustee as the absolute owner of such Bond, whether such Bond shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal, if any, of and interest with respect to such Bond and for all other purposes; and all such payments so made to any such Bondowner 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 the Trustee shall not be affected by any notice to the contrary. Section 3.7. Regglations with Respect to Exchanges and Transfers. In all cases in which the privilege of exchanging Bonds or transferring Bonds is exercised, the Trustee shall authenticate and deliver Bonds in accordance with the provisions of this Trust Agreement. All Bonds surrendered in any such exchanges or transfers shall forthwith be canceled by the Trustee pursuant to Section 3.14 hereof. For every such exchange or transfer of Bonds,except an exchange of a temporary Bond for a definitive Bond, the Trustee 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. The cost of printing any new Bonds and any services rendered or any expenses incurred by the Trustee in connection with any exchange or transfer shall be paid by the Water District (except governmental 13 DOCSOC\909619v 19122658.0017 taxes and charges and the costs of replacing lost, stolen or mutilated Bonds which shall be paid by the Owner). The Trustee shall not be required to transfer or exchange any Bonds selected for redemption or within the 15 days before the selection of Bonds for redemption. Section 3.8. Bonds Mutilated,Destroyed, Stolen or Lost. In case any Bond shall become mutilated or be destroyed,stolen or lost,the Trustee shall authenticate and deliver a new Bond of like maturity and principal amount as the Bond so mutilated, destroyed, stolen or lost, in exchange and substitution for such mutilated Bond, upon surrender and cancellation of such mutilated Bond, or in lieu of and substitution for the Bond, destroyed, stolen or lost, upon receipt by the Trustee of evidence satisfactory to the Trustee that such Bond has been destroyed, stolen or lost and proof of ownership thereof, and upon furnishing the Trustee with indemnity satisfactory to the Trustee and complying with such other regulations as the Trustee may prescribe and paying such expenses as the Trustee may incur. All Bonds so surrendered to the Trustee shall be canceled by it pursuant to Section 3.14 hereof. Any such new Bonds issued pursuant to this Section in substitution for Bonds mutilated or alleged to be destroyed, stolen or lost shall be equally secured by and entitled to equal and proportionate benefits of, with all other Bonds delivered under this Trust Agreement, any moneys or securities held by the Trustee for the benefit of the Bondowners. Section 3.9. Temporary Bonds. Until the definitive Bonds are prepared, the Trustee may authenticate and deliver,in the same manner as is provided in Section 3.5,in lieu of definitive Bonds, one or more temporary Bonds substantially of the tenor of the definitive Bonds in lieu of which such temporary Bond or Bonds are issued, in any authorized denomination, and with such omissions, insertions and variations as may be appropriate to temporary Bonds. The Trustee at the expense of the Water District shall authenticate and, upon the surrender of such temporary Bonds and the cancellation of such surrendered temporary Bonds, shall, without charge to the Owners thereof, in exchange therefor, deliver definitive Bonds, of the same aggregate principal amount and maturity as the temporary Bonds. Section 3.10. Privilege of Redemption. The Bonds shall be redeemable at such times, in such amount,upon such terms and upon such notice as are provided in this Article III. Section 3.11. Selection of Bonds to be Redeemed. If less than all of the Bonds of a single maturity shall be called for redemption,the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair. The portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of$5,000 or an integral multiple thereof, and, in selecting portions of such Bonds for redemption, the Trustee shall treat each such Bond as representing that number of Bonds of$5,000 denomination which is obtained by dividing the principal amount of such Bond to be redeemed in part by$5,000. Unless the Water District directs the Trustee in writing as to any other method of redemption,whenever provisions are made for the redemption of Bonds in part, the Bonds to be redeemed will be redeemed from each maturity, with the mandatory redemption schedule set forth above to be adjusted accordingly. Section 3.12. Notice of Redemption. When redemption of Bonds is required, the Trustee shall, at the expense of the Water District, give notice of the redemption of such Bonds, the redemption date and the place or places where amounts due upon such redemption will be payable and, if less than all of the Bonds are to be redeemed,the letters and numbers of such Bonds so to be redeemed, and, in the case of Bonds to be redeemed in part only, such notice shall also specify the respective portions of the principal amount thereof to be redeemed. Such notice shall further state 14 DOCSOCN909619Y l 9\22658.0017 that on such date there shall become due and payable upon each Bond to be redeemed the principal amount to be redeemed,together with interest accrued to the redemption date,and that from and after such date interest on the principal amount redeemed shall cease to accrue and be payable. The Trustee shall mail a copy of such notice, postage prepaid,first class United States mail,not less than 30 days and not more than 60 days before the redemption date, to the Bondowners of any Bonds or portions of Bonds which are to be redeemed, at their addresses as the same appear upon the registry books, but neither the failure of a Bondowner to receive such notice nor any immaterial defect therein shall affect the validity of the proceedings for the redemption of Bonds. In addition to the foregoing official notice, further notice shall be given by the Trustee as set out below,but no defect in said further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as above prescribed: (a) Each further notice of redemption given hereunder shall contain the information required above for an official notice of redemption plus (i) the CUSIP numbers of all Bonds being redeemed; (ii)the date of original delivery of the Bonds as originally delivered; (iii)the rate of interest calculated with respect to each Bond being redeemed; and (iv) the maturity date of each Bond being redeemed. (b) Each further notice of redemption shall be sent at least thirty(30) days before the redemption date by facsimile and postage prepaid,first class United States mail to the following registered securities depository: The Depository Trust Company,New York,New York. Section 3.13. PayMent of Redeemed Bonds. Notice having been given in the manner provided in Section 3.12, and payment having been provided for, the Bonds or portions thereof so called for redemption shall become due and payable on the redemption date so designated at the principal amount to be redeemed plus interest accrued and unpaid to the redemption date, and, upon presentation and surrender thereof at the office specified in such notice, such Bonds, or portions thereof, the principal amount and interest shall be paid as provided in Section 3.3. If there shall be called for redemption less than all of a Bond, the Trustee shall execute and deliver, upon the surrender of such Bond, without charge to the Owner thereof, for the unredeemed balance of the principal amount of the Bond so surrendered, Bonds of like maturity in any of the authorized denominations, at the option of the Owner thereof. If, on the redemption date, moneys for the redemption of all the Bonds or portions thereof to be redeemed together with interest to the redemption date shall be held by the Trustee so as to be available therefor on said date; and if notice of redemption shall have been given to the Owners as aforesaid, then from and after the redemption date interest on the Bonds or portions thereof so called for redemption shall cease to accrue and become payable. Upon the payment of the redemption price of the Bonds being redeemed, each check or other transfer of funds issued for such purpose shall to the extent practicable by the Trustee bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. Section 3.14. Cancellation of Bonds. All Bonds paid or redeemed, either at or before maturity, shall be delivered to the Trustee when such payment or redemption is made, and such Bonds shall thereupon be promptly canceled. Bonds so canceled shall be destroyed by the Trustee and upon written request of the Water District a certificate of destruction shall be provided to the Water District. 15 DOCSOM909619v 1 9\22658.0017 Section 3.15, Book-Entry System (a) The Bonds shall be initially delivered in the form of a separate single certificated fully registered Bond for each of the series and maturities set forth in Section 3.1 hereof. Upon initial delivery,the ownership of each Bond shall be registered in the registration books kept by the Trustee in the name of Cede&Co.,as nominee of DTC. Except as provided in paragraph(d) of this Section 3.15, all of the Outstanding Bonds shall be registered in the registration books kept by the Trustee in the name of Cede&Co.,as nominee of DTC. (b) With respect to Bonds registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee of DTC, the Authority and the Trustee shall have no responsibility or obligation with respect to(i)the accuracy of the records of DTC,Cede&Co.or any direct or indirect participant in the DTC book entry system(each,a"Participant")with respect to any ownership interest in the Bonds,(ii)the delivery to any Participant or any other person, other than an Owner of a Bond, as shown in the registration books kept by the Trustee, of any notice with respect to the Bonds,including any notice of redemption,or(iii)the payment to any Participant or any other person,other than an Owner of a Bond,as shown in the registration books kept by the Trustee,of any amount with respect to principal of,premium,if any,or interest on the Bonds. The Authority and the Trustee may treat and consider the person in whose name each Bond is registered in the registration books kept by the Trustee as the holder and absolute Owner of such Bond for the purpose of payment of principal, premium, if any, and interest with respect to such Bond, for the purpose of giving notices of redemption, for the purpose of registering transfers with respect to such Bond,and for all other purposes whatsoever. The Trustee shall pay all principal of, premium, if any, and interest on the Bonds only to or upon the order of the respective Owners of the Bonds, as shown in the registration books kept by the Trustee, as provided in Section 3.6 of this Trust Agreement, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Authority's obligations with respect to payment of principal of, premium,if any,and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner of a Bond, as shown in the registration books kept by the Trustee, shall receive a certificated Bond evidencing the obligation of the Authority to make payments of principal, premium, if any, and interest pursuant to this Trust Agreement. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede &Co., and subject to the provisions herein with respect to Record Dates, the word "Cede &Co."in this Trust Agreement shall refer to such new nominee of DTC. (c) In order to qualify the Bonds for the DTC's book-entry system,an Authorized Officer of the Authority is hereby authorized to execute and deliver to DTC the Representation Letter. The execution and delivery of the Representation Letter shall not in any way impose upon the Authority any obligation whatsoever with respect to persons having interests in the Bonds other than the Owners, as shown on the registration books kept by the Trustee. The Trustee agrees to take all action necessary to continuously comply with all representations made by it in the Representation Letter to the extent that such action is not inconsistent with this Trust Agreement. In addition to the execution and delivery of the Representation Letter, an Authorized Officer of the Authority, is hereby authorized to take any other actions,not inconsistent with this Trust Agreement,to qualify the Bonds for DTC's book-entry program. (d) (i) DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving written notice to the Authority and the Trustee and discharging its responsibilities with respect thereto under applicable law. 16 DOCS OM096190 9\22658.0017 (ii) The Authority, in its sole discretion and without the consent of any other person, may terminate the services of DTC with respect to the Bonds if the Authority determines that: (a) DTC is unable to discharge its responsibilities with respect to the Bonds,or (b) a continuation of the requirement that all of the Outstanding Bonds be registered in the registration books kept by the Trustee in the name of Cede &Co., or any other nominee of DTC, is not in the best interest of the beneficial owners of the Bonds. (iii) Upon the termination of the services of DTC with respect to the Bonds pursuant to subsection 3.15(d)(ii)(b)hereof,or upon the discontinuance or termination of the services of DTC with respect to the Bonds pursuant to subsection 3.15(d)(i) or subsection 3.15(d)(ii)(a) hereof after which no substitute securities depository willing to undertake the functions of DTC hereunder can be found which, in the opinion of the Authority, is willing and able to undertake such functions upon reasonable and customary terms,the Authority is obligated to deliver the Bonds at the expense of the beneficial owners of the Bonds, as described in this Trust Agreement and the Bonds shall no longer be restricted to being registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee of DTC, but may be registered in whatever name or names of Owners of Bonds transferring or exchanging Bonds shall designate, in accordance with the provisions of this Trust Agreement. (e) Notwithstanding any other provisions of this Trust Agreement to the contrary, so long as any Bond is registered in the name of Cede&Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Bond and all notices with respect to such Bond shall be made and given, respectively, in the manner provided in the Representation Letter. ARTICLE IV ESTABLISHMENT AND ADMINISTRATION OF FUNDS AND ACCOUNTS Section 4.1. Establishment of Prosect Trust Fund. There is hereby established with the Trustee a special trust fund to be designated as the"Project Trust Fund';which shall be held in trust by the Trustee for the benefit of the Bondholders pending application of the funds on deposit therein as provided in this Trust Agreement. The Trustee shall keep the Project Trust Fund separate and apart from all other funds and moneys held by it. Within the Project Trust Fund there are hereby established the following accounts (the "Accounts"): (i)Debt Service Payment Account, and a Capitalized Interest Subaccount therein; (ii) Reserve Account; (iii) Costs of Issuance Account; (iv)Project Account; (vi)Redemption Account; and (vii)Insurance and Condemnation Account. There is established by Section 4.11 hereof with the Trustee a special trust fund to be designated as the "Rebate Fund", which the Trustee shall maintain and manage pursuant to the provisions of Section 4.11 hereof. On the date of delivery of the Bonds the Underwriter shall transfer (i)$1,719,685.74 from the proceeds of the sale of the Bonds to the Bond Insurer as payment in full of the premium for the Insurance Policy, and (ii) $29,849,419.30 from the proceeds of the sale of the 17 DOCSOM909619v19\22658.0017 Bonds to the Trustee, which amount the Trustee agrees to receive and deposit in the Project Trust Fund as follows. The Trustee shall deposit in the Accounts the following amounts: Debt Service Payment Account: an amount equal to $2,086,216.95 representing into the Capitalized Interest Subaccount thereof to pay capitalized interest to June 1,2004. Reserve Account: an amount equal to $2,252,537.50 (the initial Reserve Requirement.) Costs of Issuance Account: an amount equal to $684,881.02 for the payment of Costs of Issuance. Project Account: an amount equal to$24,825,783.83 for the payment of costs of the Service Contract Project Improvements. Section 4.2. Project Account. (a) There shall be credited to the Project Account any funds from time to time deposited with Trustee for such purpose. The Trustee shall keep the Project Account separate and apart from all other funds and accounts held by it and shall administer the Project Account as provided in this Section and in other applicable provisions of this Trust Agreement and the Lease Agreement. (b) Except as hereinafter provided, the Trustee shall disburse funds from the Project Account in the manner and at the times described in executed Requisitions in substantially the form attached as Exhibit C hereto. The Trustee shall disburse funds from the Costs of Issuance Account upon receipt by the Trustee of an executed Requisition in the form of Exhibit D hereto; additionally, the Trustee shall transfer all amounts on deposit in the Costs of Issuance Account on August 1, 2003 to the Project Account and thereafter,upon receipt of a Requisition in substantially the form attached hereto as Exhibit D,the Trustee shall pay Costs of Issuance from the Project Account. (c) Upon receipt by the Trustee of a certificate of the Water District that the Service Contract Project Improvements have been completed and that all costs thereof and Cost of Issuance have been paid any amounts then remaining in the Project Account not encumbered or needed to pay costs of the Service Contract Project Improvements and Cost of Issuance, as evidenced by a certificate of Water District co-signed by the Independent Engineer, shall be deposited by Trustee in the Rebate Fund if the Water District has notified the Trustee such funds are needed to pay arbitrage rebate payments to the federal government and the balance shall be deposited in the Debt Service Payment Fund and be applied from time to time on behalf of the Water District as a credit against the next subsequent Lease Payments. In no event will amounts in the Project Account after the date three years from the Delivery Date be invested at a yield in excess of the yield on the Bonds within the meaning of Section 148 of the Code and the regulations thereunder. Section 4.3. Debt Service PayMent Account. (a) In addition to the moneys required to be deposited in the Debt Service Payment Account pursuant to Sections 4.1, 4.4 and 4.7 hereof, all Lease Payments received by the Trustee shall be deposited by the Trustee in the Debt Service Payment Account immediately upon 18 DOCS0090961909122658.0017 their receipt. On or about October 1 of each year the Trustee shall give written notice to the Water District of the amount of Lease Payments for the next following Bond Year. The Trustee shall pay from the Debt Service Payment Account on each Interest Payment Date,the amount required for the interest payable on such date and the amount required for the principal payable,if any, on such date. Such amounts shall be applied by the Trustee on the due dates thereof. The Trustee shall apply amounts on deposit in the Capitalized Interest Subaccount to the payment of interest on the Bonds as it becomes due and payable prior to the application of any other amounts in the Debt Service Payment Account therefor. (b) Upon receipt of any proceeds of a draw on the Letter of Credit, the Trustee shall promptly deposit all such amounts in the Debt Service Payment Account. The Trustee shall thereafter apply such amounts received, together with interest earnings thereon, to pay, on the next succeeding Interest Payment Date,interest and principal, if any,then due and payable on the Bonds. The Trustee shall notify the Water District and the Bond Insurer that Lease Payments next coming due are permitted to be reduced by such draw amounts received, together with interest earning thereon. The Water District shall not have any liability to any party for any failure to draw on the Letter of Credit or for any delay in so drawing. (c) The Trustee shall also transfer to the Redemption Account from the Debt Service Payment Account any amount available therein to pay principal, premium, if any, and the accrued interest on the Bonds redeemed pursuant to Section 3.3(f). Section 4.4. Reserve Account. (a) The Reserve Requirement shall be maintained by the Trustee in the Reserve Account until the Lease Payments are paid in full pursuant to the terms of the Lease Agreement, or the Bonds have been redeemed in full, or this Trust Agreement is terminated. The Reserve Requirement may be recalculated at any time upon the request of the Water District,and the Trustee shall maintain the Reserve Account thereafter at a level equal to the recalculated Reserve Requirement. The Trustee shall apply moneys in the Reserve Account as provided in this Section 4.4 and Section 4.7 hereof. The Trustee shall value the investments of monies in the Reserve Account pursuant to Section 4.9 hereof. (b) If on any Interest Payment Date the amount in the Debt Service Payment Account shall be less than the amount required for the interest payable with respect to the Bonds on said date, the Trustee shall withdraw from the Reserve Account and deposit in the Debt Service Payment Account the amount necessary to make good the deficiency. Any amounts transferred from the Reserve Account pursuant to this subsection(b)shall not be considered payment in full or in part of any Lease Payment and shall, upon receipt of the delinquent Lease Payment,be repaid from such Lease Payment to the Reserve Account. (c) If on an Interest Payment Date the amount in the Debt Service Payment Account shall be less than the amount required for the principal payable with respect to the Bonds on such date, the Trustee shall withdraw from the Reserve Account and deposit in the Debt Service Payment Account the amount necessary to make good the deficiency. Any amounts transferred from the Reserve Account pursuant to this subsection(c) shall not be considered payment in full or in part of a Lease Payment and shall, upon receipt of the delinquent Lease Payment, be repaid from such Lease Payment to the Reserve Account. 19 DOCSOCU09619v 19\22658.0017 (d) Whenever the amount in the Reserve Account, together with the amount in the Debt Service Payment Account, is sufficient to pay in full all Outstanding Bonds in accordance with their terms, the funds on deposit in said Reserve Account shall be transferred to the Debt Service Payment Account and applied to the payment of Bonds. Any provision of this Trust Agreement to the contrary notwithstanding, so long as there shall be held in the Debt Service Payment Account an amount sufficient to pay in full all Outstanding Bonds in accordance with their terms,no deposits shall be required to be made into the Reserve Account. (e) Moneys in the Reserve Account shall be used solely for the purpose of: (i) making up deficiencies in the Debt Service Payment Account as provided in Section 4.4(b)hereof;or (ii) making up deficiencies in the Debt Service Payment Account as provided in Section 4.4(c)hereof; (iii) providing for the payment of the final Lease Payment in which event the Trustee shall transfer all amounts on deposit in the Reserve Account to the Debt Service Payment Account to be applied as a credit against said final Lease Payment;or (iv) providing for the redemption in full of all Outstanding Bonds as provided in Section 3.3(g)hereof. (f) If ten(10) days prior to any Lease Payment Date the amount on deposit in the Reserve Account is less than the Reserve Requirement,the Trustee shall notify the Authority and the Water District and the Water District shall include the amount necessary to meet the Reserve Requirement with its Lease Payment on such Lease Payment Date as an Additional Payment. (g) The Authority reserves the right to substitute, at any time and from time to time, one or more letters of credit, Alternative Reserve Account Security,bond insurance policies or other form of guaranty, in any case approved in writing by the Bond Insurer from a financial institution the long-term unsecured obligations of which are rated to the Bond Insurer's satisfaction in substitution for or in place of all or any portion of the Reserve Requirement, under the terms of which the Trustee is unconditionally entitled to draw amounts when required for the purposes thereof. Upon deposit by the Authority with the Trustee of any such letter of credit, surety bond, bond insurance policy or other form of guaranty, the Trustee shall withdraw from the Reserve Account and transfer to the Water District an amount equal to the principal amount of such letter of credit,Alternative Reserve Account Security,bond insurance policy or other form of guaranty. If and to the extent that the Reserve Account has been funded with a combination of cash(or Investment Securities)and a Alternative Reserve Account Security,then all such cash(or Investment Securities) shall be completely used before any demand is made on such Alternative Reserve Account Security, and replenishment of the Alternative Reserve Account Security shall be made prior to any replenishment of any such cash (or Investment Securities). If the Reserve Fund is funded, in whole or in part, with more than one Alternative Reserve Account Security, then any draws made against such Alternative Reserve Account Security shall be made pro-rata. 20 DOCSOC1909619v 19\22658.0017 Section 4.5. Redemption Account. (a) The Trustee shall apply moneys in the Redemption Account as provided in this Section 4.5 and Section 4.7. Amounts in the Redemption Account shall be applied to the redemption of Bonds in accordance with Section 3.3(1). Interest on Bonds so redeemed shall be paid from the Debt Service Payment Account,except to the extent Net Insurance Proceeds are used to pay such interest,and all expenses in connection with such redemption shall be paid by the Water District as Additional Payments. (b) The Trustee shall deposit in the Redemption Account as received,all moneys, if any,paid to it by the Water District for prepayment of Lease Payments pursuant to Sections 6.1(c) and 7.3 and Article X of the Lease Agreement. All of said moneys shall be set aside in the Redemption Account for the purpose of redeeming the Bonds in advance of their maturity and shall be applied on or after the date of redemption designated pursuant to Section 3.3(f)and Section 3.3(g) hereof to the payment of principal, redemption premium, if any, and accrued interest, if any, with respect to the Bonds to be redeemed upon presentation and surrender of such Bonds. Section 4.6. Insurance and Condemnation Account. Subject to the provisions of Section 6.1(a) of the Lease Agreement, the proceeds of insurance maintained pursuant to the Lease Agreement against physical loss of or damage to the Project or any portion thereof shall be deposited in the Insurance and Condemnation Account immediately upon receipt and applied as provided in Article VI of the Lease Agreement. Section 4.7. Deposits of Money,Payment Procedure. (a) All moneys required to be held by the Trustee under the provisions of this Trust Agreement shall be deposited with the Trustee. All moneys deposited under the provisions of this Trust Agreement with the Trustee shall be held in trust and applied only in accordance with the provisions of this Trust Agreement, and the Project Trust Fund shall be a trust fund for the purposes thereof. (b) All moneys deposited with the Trustee shall be credited to the particular account to which such moneys belong. Section 4.8. Investment of Certain Accounts and Subaccounts. Subject to the requirements of Section 4.9 hereof, all moneys in the funds, accounts and subaccounts held by the Trustee hereunder shall be invested as follows: (a) Moneys held in the Debt Service Payment Account and the Reserve Account shall be invested and reinvested by the Trustee pursuant to this Section. Moneys held in the Insurance and Condemnation Account may be invested and reinvested in Investment Securities which mature not later than such times as shall be necessary to provide moneys when needed for payments to be made from such Account. Moneys in the Redemption Account shall be invested only in Investment Securities which have a maturity no longer than 30 days. The Trustee shall make all. such investments of moneys held by it in accordance with written instructions received from an Authorized Representative of the Water District at least two Business Days in advance of the investment. The Authorized Representative of the Water District may instruct the Trustee,in making any investment in any Investment Securities with moneys in any Account established under this Trust Agreement, to combine such moneys with moneys in any other Account, but solely for 21 DOCSOC1909619v 19\22658.0017 purposes of making such investment in such Investment Securities. In the absence of instructions from the Water District,the Trustee shall invest solely in Investment Securities set forth in(B)(5)of the definition thereof and shall provide notice to the Water District of such investment by means of its customary statements; provided, however, the Trustee shall incur no liability for its failure to so notify the Water District. Absent negligence or willful misconduct on its part,the Trustee shall have no liability or responsibility for any loss resulting from any investment made in accordance with the provisions of this Section 4.8. The Trustee shall have no obligation to pay additional interest or maximize investment income on any funds held by it and neither the Authority,nor the Bond Owners shall have any claim of any kind against the Trustee in connection with such Investments. (b) Any income or interest earned by the Debt Service Payment Account due to the investment thereof shall be retained in the Debt Service Payment Account and applied as a credit against the Lease Payments due on the next occurring Lease Payment Date and deemed to be the payment of the interest portion thereof to the extent thereof and then to principal, provided that all income or interest earned by the Capitalized Interest Subaccount of the Debt Service Payment Account shall be transferred to the Project Account on or before each June 2 and December 2, until Acceptance,and shall thereafter be applied as provided in the first sentence of this subsection(b), (c) Any income or interest earned by the Reserve Account due to the investment thereof shall be paid into the Project Account until Acceptance and shall thereafter be paid into the Debt Service Payment Account to the extent that it would cause the amount in the Reserve Account to exceed the Reserve Requirement. Such amount shall be applied as a credit against the Lease Payments due on the next occurring Lease Payment Date and deemed to be the payment of the interest portion thereof to the extent thereof and then to principal. (d) Moneys held in the Project Account shall be invested and reinvested by the Trustee in Investment Securities maturing as required to make timely Project payments pursuant to the Service Contract. Any income or interest earned by the Project Account due to the investment thereof shall be retained in the Project Account and used for purposes of the Project Account until Acceptance,and after Acceptance shall be transferred to the Debt Service Payment Account. (e) Nothing herein shall prevent any Investment Securities acquired as investments of funds held hereunder from being issued or held in book-entry form on the books of the Department of the Treasury of the United States of America. (f) The Trustee or an affiliate may act as principal or agent in the acquisition or disposition of an investment and shall be entitled to its customary fees therefor pursuant to a prior written fee agreement with the Authority and the Water District. (g) If at any time after investment therein an investment ceases to meet the criteria set forth in the definition of Investment Securities as determined by a valuation of such investment and such obligation, aggregated with other non-conforming investments, exceeds ten percent (10%) of invested funds, such investment shall be sold or liquidated unless otherwise approved by the Water District and the Bond Insurer. (h) Investments (except investment agreements) in Trust Agreement funds and accounts and subaccounts shall be valued by the Trustee as frequently as deemed necessary by the Authority,but not less often than semi-annually nor more often than monthly,at the fair market value thereof, exclusive of accrued interest. Deficiencies in the amount on deposit in any fund or account 22 DOCSOC\909619v 19\22658.0017 resulting from a decline in market value shall be restored not later than the next succeeding semi- annual valuation date which is at least six months after the valuation date. Investments purchased with funds on deposit in the Reserve Account shall have an average aggregate weighted term to maturity not greater than five years. The Trustee shall terminate any repurchase agreement upon a failure of the counterparty thereto to maintain the requisite collateral percentage after the restoration period and, if not paid by the counterparty in federal funds against transfer of the repo securities,liquidate the collateral. The Trustee shall give notice to any provider of an investment agreement in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid. The Trustee shall, upon actual knowledge of the withdrawal or suspension of either of the ratings of an investment agreement provider or a drop in the ratings thereon below"A,"so notify the Authority and,if so directed by the Authority,shall demand further collateralization of the agreement or liquidation thereof. The Water District acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Water District the right to receive brokerage confirmations of security transactions as they occur, the Water District will not receive such confirmations to the extent permitted by law. The Trustee will furnish the Water District periodic cash transaction statements which the Trustee may make any investments hereunder through its own bond or investment department or trust investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. Section 4.9. Valuation and Sale of Investments. Obligations purchased as an investment of moneys in any fund,account or subaccount created under the provisions hereof shall be deemed at all times to be a part of such fund, account or subaccount and any profit realized from the liquidation of such investment shall be credited to,and any loss resulting from the liquidation of such investment shall be charged to, the computation of net interest earned on the moneys and investments of such fund,account or subaccount. The value of the above investments shall be determined as provided in "Value" below. "Value," which shall be determined as of the 10th day of March and September of each year unless otherwise directed in writing by the Authority, means that the value of any investments shall be calculated as follows: (a) as to investments the bid and asked prices of which are published on a regular basis in The Wall Street Journal (or, if not there, then in The New York Times): the average of the bid and asked prices for such investments so published on or most recently prior to such time of determination; (b) as to investments the bid and asked prices of which are not published on a regular basis in The Wall Street Journal or The New York Times: the average bid price at such time of determination for such investments by any two nationally recognized government securities dealers (selected by the Trustee in its absolute discretion) at the time making a market in such investments or the bid price published by a nationally recognized pricing service; 23 DOCSOC1909619v 1922658.0017 (c) as to certificates of deposit and bankers acceptances: the face amount thereof, plus accrued interest; (d) as to any investment not specified above: the value thereof established by prior agreement between the Authority,the Trustee and the Water District;and (e) alternatively,by any reasonable method used by the Trustee and approved by the Water District,including without limitation,computer pricing services. Except as otherwise provided herein, the Trustee shall sell or present for redemption or transfer as provided in the next sentence any obligation so purchased as an investment whenever it shall be requested in writing by an Authorized Representative of the Water District so to do or whenever it shall be necessary in order to provide moneys to meet any payment or transfer from any fund, account or subaccount held by it. In lieu of such sale or presentment for redemption, the Trustee may,in making the payment or transfer from any fund, account or subaccount mentioned in the preceding sentence, transfer such investment obligations or interest appertaining thereto if such investment obligations shall mature or be collectable at or prior to the time the proceeds thereof shall be needed and such transfer of investment obligations may be made in book entry form. Absent bad faith or willful misconduct or negligence on its part,the Trustee shall not be liable or responsible for making or liquidating any such investment in the manner provided above or for any loss resulting from any such investment. Section 4.10. Costs of Issuance Account. The Trustee shall deposit to the Costs of Issuance Account the amount required by Section 4.1 hereof. Moneys on deposit in the Costs of Issuance Account shall be applied to pay Costs of Issuance upon submission of a written request from an Authorized Representative of the Authority to the Trustee stating that the amount is justly due and owing,has not been the subject of any other written request which has been paid by the Trustee and is a proper Costs of Issuance. Any moneys remaining in the Costs of Issuance Account on August 1, 2003 shall be transferred to the Project Account. Section 4.11. Rebate Fund. (a) Establishment. The Trustee shall establish a special fund designated the "Rebate Fund" (the"Rebate Fund"). All amounts at any time on deposit in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the requirement to make rebate payments to the United States pursuant to Section 148 of the Code and the Treasury Regulations promulgated thereunder. Such amounts shall be free and clear of any lien under this Trust Agreement and shall be governed by this Section and Section 5.17 of this Trust Agreement and by the Tax Certificate executed by the Water District and Authority. The Trustee shall have no independent responsibility to, or liability resulting from its failure to, enforce compliance by the Authority with the Rebate Requirement. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the Bonds shall be governed by this Section and the Tax Certificate for the Bonds, unless and to the extent that the Authority delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the Bonds will not be adversely affected if such requirements are not satisfied. (i) Computation of Rebate Amount. Within 55 days of the end of the fifth Bond Year(as such term is defined in the Tax Certificate)and each five years thereafter, 24 DOCS00909619v 19\22658.0017 the Authority shall calculate or cause to be calculated the amount of"rebate amount," in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations(taking into account any applicable exceptions with respect to the computation of the `rebate amount," described, if applicable, in the Tax Certificate (e.g., the temporary investment exceptions of Section 148(f)(4)(B) of the Code, the expenditure exception of Section 148(f)(4)(C) of the Code or Section 1.148-7(c) and (d) of the Treasury Regulations, the exception for certain"small governmental issuers" as set forth in Section 148(f)(4)(D)of the Code, and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the"1-1/2%Penalty")has been made)), for this purpose treating the last day of the applicable Bond Year as a computation date,within the meaning of Section 1.148-1(b)of the Treasury Regulations. The Authority shall obtain expert advice as to the calculation of the"rebate amount"to comply with this Section. (ii) Transfer of Moner+s. Within 55 days of the end of the fifth Bond Year and each five years thereafter, upon the written request of the Authority, an amount shall be deposited to the Rebate Fund by the Trustee from any legally available moneys for such purpose (as specified by the Authority in the aforesaid written request), if and to the extent required so that the balance in the Rebate Fund shall equal the "rebate amount" so calculated in accordance with this Section. In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein,upon written request of the Authority,the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Debt Service Payment Fund. (iii) Timing of Rebate Payment to the Treasury. The Trustee shall pay,as directed by request of the Authority, to the United States Treasury, out of amounts in the Rebate Fund, (1) not later than 60 days after the end of(A)the fifth Bond Year,and(B)each applicable fifth Bond Year thereafter,an amount that,together with all previous rebate payments,is equal to at least 90%of the"rebate amount"calculated as of the end of such Bond Year;and (2) not later than 60 days after the payment of the 2002 Bonds or Parity Obligations of any series,as applicable,an amount equal to 100%of the`rebate amount"calculated as of the date of such payment(and any income attributable to the"rebate amount"determined to be due and payable)in accordance with Section 1.148-3 of the Treasury Regulations. Each payment required to be made pursuant to this Section shall be made to the Internal Revenue Service Center,Ogden,Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T prepared by the Authority, or shall be made in such other manner as provided under the Code. (b) Deficiencies in the Rebate Fund. In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the Authority shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. 25 DOCS OC\909619v 19122658.0017 (c) Disposition of Unexpended Moneys. Any moneys remaining in the Rebate Fund after redemption and payment of the Bonds and the payments described in this Section being made may be withdrawn by the Authority and utilized in any lawful manner by the Authority. (d) Record Keening. The Authority shall retain records of all determinations made hereunder until six years after the complete retirement of the Bonds. (e) Survival of Defeasance. Notwithstanding anything in this Trust Agreement to the contrary,the obligation to comply with the requirements of this Section shall survive the payment in full or defeasance of the Bonds. ARTICLE V COVENANTS,EVENTS OF DEFAULT,REMEDIES OF BONDOWNERS AND LIMITATIONS OF LIABILITY Section 5.1. Trustee to Enforce Lease Agreement and Property Lease. The Trustee covenants and agrees with the Bondowners and the Bond Insurer, subject to the provisions of the Trust Agreement to exercise the rights assigned to it under the Lease Agreement and the Property Lease as assignee of the Authority, and to enforce the Property Lease against the City as provided therein and the Lease Agreement against the Water District as provided hereunder, all subject to the provisions of Section 6.12 hereof. Section 5.2. Against Amendment or Termination of Property Lease. The Authority and the Water District hereby covenant and agree not to amend the Property Lease in a manner that is adverse to the Bond Insurer, or to terminate the Property Lease,without the prior written consent of the Bond Insurer, so long as the Insurance Policy is still in effect and the Bond Insurer is not in default thereunder. Section 5.3. Notice of Non-Payment. In the event of delinquency in the payment of Lease Payments due by the Water District pursuant to the Lease Agreement, the Trustee shall promptly give written notice of the delinquency and the amount thereof to the Water District and the Company. Section 5.4. Letter of Credit. The Water District covenants and agrees to hold the Letter of Credit and shall be entitled to, and shall take all actions, steps and proceedings reasonably necessary in its judgment to enforce the terms,covenants and conditions of the Letter of Credit, and further covenants to transfer to the Trustee, for deposit into the Debt Service Payment Account,no later than three Business Days following receipt thereof by the Water District, all proceeds of any drawing on the Letter of Credit received by the Water District. - Section 5.5. AssigLiment of Rights. Pursuant to this Trust Agreement, the Authority has transferred, assigned and set over to the Trustee all of the Authority's rights in and to the Property Lease and the Lease Agreement including without limitation all of the Authority's right to receive Lease Payments from the Water District under the Lease Agreement,its right to receive the proceeds of insurance or of an eminent domain award on the Service Contract Project Improvements,its right to pursue the remedies to which it is entitled in the event of default by the Water District under the Lease Agreement (a "Lease Default Event"), its right to enforce payment of such Lease Payments when due,or otherwise protect its interests and enforce its rights under the Lease Agreement. 26 DOCSOC\909619v 19\22658.0017 Section 5.6. Events of Default.The following events shall be Events of Default hereunder: (a) Default in the due and punctual payment of the principal on any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption,by acceleration,or otherwise. (b) Default in the due and punctual payment of any installment of interest on any Bonds when and as the same shall become due and payable. (c) Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in this Trust Agreement or in the Bonds contained, if such default shall have continued for a period of thirty(30) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee;provided,however,that if in the reasonable opinion of the Authority the default stated in the notice can be corrected,but not within such thirty(30)day period,such default shall not constitute an Event of Default hereunder if the Authority shall commence to cure such default within such thirty (30) day period and thereafter diligently and in good faith cure such failure in a reasonable period of time (provided that in the event such breach is not cured within 60 days, the Water District shall obtain the prior written consent of the Bond Insurer to pursue the same to completion beyond the grace period provided herein). (d) The occurrence and continuation of a Lease Default Event. Notwithstanding the foregoing, no effect shall be given to payments made under the Insurance Policy in determining whether an Event of Default exists under this Section 5.05. Any reorganization or liquidation plan with respect to the Water District (excepting only a merger of the Water District with the City,as to which none of the Bond Insurer,the Authority or the Trustee have any approval or consent rights)must be acceptable to the Bond Insurer. In the event of any reorganization or liquidation, the Bond Insurer shall have the right to vote on behalf of all Owners who hold Bond Insurer-insured Bonds absent a default by the Bond Insurer under the Insurance Policy insuring such Bonds. Anything in this Trust Agreement to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default as defined herein, the Bond Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Owners or the Trustee for the benefit of the Owners under this Trust Agreement or otherwise available to the Owners or Trustee, including,without limitation: (i)the right to accelerate the principal of the Bonds as described in this Trust Agreement, and(ii)the right to annul any declaration of acceleration. The Bond Insurer shall also be entitled to approve all waivers of Events of Default. Upon the occurrence of an Event of Default, the Trustee may, with the consent of the Bond Insurer, and shall,at the direction of the Bond Insurer or 60%of the Owners with the consent of the Bond Insurer,by written notice to the Authority and Water District and the Bond Insurer,declare the principal of the Bonds to be immediately due and payable,whereupon that portion of the principal of the Bonds thereby coming due and the interest thereon accrued to the date of payment shall,without further action, become and be immediately due and payable, anything in this Trust Agreement or in the Bonds to the contrary notwithstanding. 27 DOCSOC1909619v 19\22658.0017 Section 5.7. Aolication of Funds. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article V or Article IX of the Lease Agreement shall be applied by the Trustee in the order following upon presentation of the several Bonds,and the stamping thereon of the payment if only partially paid,or upon the surrender thereof if fully paid- First, to the payment of the costs and expenses of the Trustee and of the Bondowners in declaring such Event of Default, including reasonable compensation to its or their agents, attorneys, consultants and counsel and any fees and expenses due or owing the Trustee; Second, to the payment of the whole amount then owing and unpaid with respect to the Bonds for principal and interest and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid with respect to the Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or of interest over principal, or of any installment over any other installment of interest,ratably to the aggregate of such principal and interest. Section 5.8. Institution of Legal Proceedings. If one or more Events of Default shall happen and be continuing, the Trustee in its discretion may, and upon the written request of the Owners of a majority in principal amount of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall,proceed to protect or enforce its rights or the rights of the Owners of Bonds as provided in the Lease Agreement or in this Trust Agreement. Section 5.9. Non-Waiver. Nothing in this Article V or in any other provision of this Trust Agreement or in the Bonds, shall affect or impair the obligation of Water District to pay or prepay the Lease Payments in accordance with and subject to the terms and provisions of the Lease Agreement, or affect or impair the right of action, which is also absolute and unconditional, of the Bondowners to institute suit to enforce and collect such payment. No delay or omission of the Trustee or of any Bondowners to institute suit to enforce and collect such payment and no delay or omission of the Trustee or of any Bondowner of any of the Bonds to exercise any right or power arising upon the happening of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by this Article V to the Trustee or to the Bondowner may be exercised from time to time and as often as shall be deemed expedient by the Trustee or the Bondowner. Section 5.10. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or the Bondowners is intended to be exclusive of any other remedy, and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing,at law or in equity or by statute or otherwise. Section 5.11. Power of Trustee to Control Proceeding . Except as provided in Section 5.3, in the event that the Trustee,upon the happening of an Event of Default,shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Bondowners of a majority in principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action;provided,however,that the Trustee shall not discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, without the consent of a majority in aggregate principal amount of the Bonds Outstanding. 28 DOCS00909619v 19122658.0017 Section 5.12. Limitation on Bondowners' Right to Sue. Except as provided in Section 5.3, no Bondowner shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Trust Agreement,unless (a) such Bondowner shall have previously given to the Trustee written notice of the occurrence of an Event of Default;(b)the Bondowners of at least twenty-five percent (25%) in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted to the Trustee as assignee of the Authority or to institute such action, suit or proceeding in its own name; (c) said Bondowner shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by,and said tender of indemnity shall have been made to,the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case,to be conditions precedent to the exercise by any Bondowner of any remedy hereunder; it being understood and intended that no one or more Bondowners shall have any right in any manner whatever by his or their action to enforce any right under this Trust Agreement,except in the manner herein provided, and that all proceedings at law or in equity with respect to an Event of Default shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all Bondowners of the Outstanding Bonds. The right of any Bondowner of any Bond to receive payment of said Bondowner's interest in the Lease Payments as the same become due,or to institute suit for the enforcement of such payment, shall not be impaired or affected without the consent of such Bondowner, notwithstanding the foregoing provisions of this Section or any other provision of this Trust Agreement. Section 5.13. Amendment of Lease Agreement. The terns of the Lease Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever except by written instrument signed by the Authority and the Water District, with the written consent of the Bond Insurer and the Trustee subject to the same conditions as set forth in Section 7.2 hereof. Section 5.14. Reconstruction,Application of Insurance Proceeds. (a) If any useful portion of the Service Contract Project Improvements shall be destroyed or is damaged by fire or other casualty, or title to, or the temporary use of, such portion shall be taken under the exercise of the power of eminent domain, the Water District shall as expeditiously as possible,continuously and diligently prosecute or cause to be prosecuted the repair, reconstruction,restoration or replacement thereof,unless it is determined under the provisions of the Lease Agreement that such repair,reconstruction,restoration or replacement is not to be undertaken. The proceeds of any insurance paid on account of such damage or destruction, shall be held by the Trustee in the Insurance and Condemnation Account and made available for, and to the extent necessary be applied to, the cost of such repair, reconstruction, restoration or replacement. Such moneys deposited in the Insurance and Condemnation Account shall be applied and paid out by the Trustee as provided in the Lease Agreement. Pending such application, such proceeds shall be invested, upon direction of an Authorized Representative of the Water District, by the Trustee in Investment Securities which mature not later than such times as shall be necessary to provide moneys when needed to pay such cost of repair, reconstruction, restoration or replacement. The interest, as well as the gain, if any, on such investments shall remain a part of any such Insurance and Condemnation Account to be applied as provided in this Section. The proceeds of any insurance not applied within six months after receipt thereof by Trustee to repairing, reconstructing, restoring or 29 DOCSOM909619v 19122658.0017 replacing damaged or destroyed property, or in respect of which notice in writing of intention to apply the same to the work of repairing,reconstruction,restoring or replacing the property damaged or destroyed shall not have been given to the Trustee by Water District within such six months, or which Water District shall at any time notify the Trustee are not to be so applied, shall be deposited in the Redemption Account and applied to the redemption of Bonds pursuant to Section 3.3(f)(i). After the completion of any repair, reconstruction, restoration, any remaining insurance proceeds shall be deposited in the Redemption Account and applied to the redemption of Bonds pursuant to Section 3.3. Section 5.15. Accounts and Reports. (a) The Trustee shall keep proper books of record and account in which complete and correct entries shall be made of its transactions relating to each fund and account established under this Trust Agreement and the principal amount of the Bonds and which shall at all reasonable times upon reasonable prior notice be subject to the inspection of the Water District and Bondowners. (b) The Trustee shall provide the Water District, promptly after the end of each calendar month a statement of its transactions during such month relating to each fund, account or subaccount held by it under the Trust Agreement. Section 5.16. No Obligation by the Water District to Bondowners. Except for the payment of Lease Payments when due in accordance with the Lease Agreement and any other payment due and owing by the Water District under the Lease Agreement and the performance of the other covenants and agreements of the Water District contained in the Lease Agreement or hereunder, the Water District shall have no obligation or liability to any of the other parties or to the Bondowners with respect to this Trust Agreement or the terms, execution,delivery or transfer of the Bonds,or the distribution of Lease Payments to the Bondowners by the Trustee. Section 5.17. No Obligation with Respect to Performance by Trustee. The Water District or the Authority shall not have any obligation or liability to any of the other parties or to the Bondowners with respect to the performance by the Trustee of any duty imposed upon it under this Trust Agreement. Section 5.18. No Liability to Bondowners for Payment. Except as provided in this Trust Agreement, neither the Trustee nor the Authority shall have any obligation or liability to the Bondowners with respect to the payment of the Lease Payments by the Water District when due, or with respect to the performance by the Water District of any other covenant by it in the Lease Agreement. Section 5.19. Possession and Eniovment. So long as no Lease Termination shall have occurred, from and after the acquisition, construction and installation by the Water District of the Service Contract Project Improvements in accordance with the terms of the Lease Agreement, the Water District shall during such Lease Tenn peaceably and quietly have and hold and enjoy the Project,without suit,trouble or hindrance from the Trustee,except as expressly set forth in the Lease Agreement. The Trustee will, at the written request of the Water District and at the Water District's cost, join in any legal action in which the Water District asserts its right to such possession and enjoyment,to the extent Trustee lawfully may do so; provided,however, the Trustee may decline to 30 DOCSOCW09619v]9\22659.0017 join in such action if it believes it will be exposed to liability for which it has not been satisfactorily indemnified against. Section 5.20. Tax Covenants. Notwithstanding any other provision of this Trust Agreement,absent an opinion of Bond Counsel that the exclusion from gross income of interest on the Bonds will not be adversely affected for federal income tax purposes, the Authority and the Water District covenant to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income and specifically covenant,without limiting the generality of the foregoing,as follows: (a) Private Activity. The Authority and the Water District will not take or omit to take any action or make any use of the proceeds of the Bonds, the Service Contract Project Improvements or of any other moneys or property which would cause the Bonds to be "private activity bonds"within the meaning of Section 141 of the Code. (b) Arbitrage. The Authority and the Water District will make no use of the proceeds of the Bonds,the Project or of any other amounts or property,regardless of the sources, or take or omit to take any action which would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code; (c) Federal Guarantee. The Authority and the Water District will make no use of the proceeds of the Bonds,the Project, or take or omit to take any action that would cause the Bonds to be"federally guaranteed"within the meaning of Section 149(b)of the Code; (d) Information Reporting. The Authority and the Water District will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e)of the Code; (e) Hedge Bonds. The Authority and the Water District will make no use of the proceeds of the Bonds,the Project,or any other amounts or property,regardless of the source,or take or omit to take any action that would cause the Bonds to be considered "hedge bonds" within the meaning of Section 149(8)of the Code unless the Authority and the Water District take all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the Bonds for federal income tax purposes;and (f) Miscellaneous. The Authority and the Water District will take no action inconsistent with their expectations stated in the Tax Certificate and will comply with the covenants and requirements stated therein and incorporated by reference herein. Section 5.21. Parit+y Obligations. Neither the Authority nor the Water District shall issue or incur evidences of indebtedness or other obligations payable from the Lease Payments having any priority in payment over the Bonds. The Water District may at any time issue obligations secured on a parity with the Lease Payments which are incurred in accordance with Section 4.11 of the Lease. Section 5.22. Continuing Disclosure. The Water District hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement dated the date of issuance of the Bonds. Notwithstanding any other provision of this Trust Agreement, failure of the Water District to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, any participating underwriter, holder or beneficial owner 31 DOCSOC1909619v19\22658.0017 of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. ARTICLE VI CONCERNING THE TRUSTEE Section 6.1. Employment of Trustee. The Authority hereby appoints BNY Western Trust Company as Trustee. The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in this Trust Agreement, and no implied covenants or obligations shall be read into this Trust Agreement against the Trustee. The Trustee shall, during the existence of any Event of Default(which has not been cured in accordance herewith),exercise such of the rights and powers vested in it by this Trust Agreement,and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Section 6.2. Trustee Acceptance of Duties. The Trustee shall signify its acceptance of the duties and obligations imposed upon it hereby by executing and delivering this Trust Agreement;and by executing such acceptance the Trustee shall be deemed to have accepted such duties and obligations with respect to all the Bonds thereafter delivered,but only,however,upon the terms and conditions set forth herein. Section 6.3. Evidence on Which Trustee Mgy Act. (a) The Trustee, upon receipt of any notice, resolution, request, consent, order, certificate,report,opinion,bond,or other paper or document famished to it pursuant to any provision hereof, shall examine such instrument to determine whether it conforms to the requirements hereof and shall not be liable for acting upon any such instrument believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel,who may or may not be counsel to the Water District, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee may rely on and shall not be liable for acting upon the written instructions of the Authority and the Water District and such employees and representatives of the Water District as the Water District may hereinafter designate in writing. (b) Whenever the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be therein specifically prescribed) may be deemed to be conclusively proved and established by a certificate of an Authorized Representative of the Water District, and such certificate shall be full warrant for any action taken or suffered in good faith under the provisions hereof upon the terms hereof; but in its discretion the Trustee may in lieu thereof accept other evidence of such fact or matter or may require such further or additional evidence as to it may seem reasonable. (c) Except as otherwise expressly provided herein, any request, order, notice or other direction required or permitted to be furnished pursuant to any provision hereof by the Authority or the Water District to the Trustee shall be sufficiently executed in the name of the 32 DOCS00909619v 19122658.0017 Authority or the Water District by an Authorized Representative of the Authority or the Water District,as appropriate. (d) Notwithstanding any other provision of this Trust Agreement, in determining whether the rights of the Bondholders will be adversely affected by any action taken pursuant to the terms and provisions of this Trust Agreement, the Trustee shall consider the effect on the Bondholders as if there were no Insurance Policy. Section 6.4. Obligations of Trustee. Upon receipt of written notice of the termination of the Lease Agreement,the Trustee shall at the written request of the Water District convey any right, title or interest in the Project created by this Trust Agreement free and clear of all liens thereon which Trustee may have. Section 6.5. Compensation. The Water District has agreed in the Lease Agreement to pay to the Trustee compensation for all services rendered hereunder and also all expenses, charges, counsel fees and other disbursements, including those of its attorneys, agents, and employees, incurred in and about the performance of its powers and duties hereunder, at the rates and charges specified in a separate written fee agreement among the Authority, the Water District and the Trustee. The Water District shall reimburse the Trustee for any advances of its own funds to make payments for which the Water District and Authority is obligated hereunder, with interest at the maximum rate allowed by law. Section 6.6. Resignation of Trustee. The Trustee may at any time resign and be discharged of the duties and obligations created hereby by giving not less than 60 day's written notice to the Water District,the Bond Insurer, and the Bondowners, specifying the date when such resignation shall take effect, and such resignation shall take effect upon the day specified in such notice unless previously a successor shall have been appointed by the Water District and the Authority or the Bondowners as provided in Section 6.8, in which event such resignation shall take effect immediately on the appointment of such successor; provided that in the event the Water District and the Authority are unable to appoint a successor on or before the date specified, the resigning Trustee shall continue to serve hereunder until a successor is appointed pursuant to Section 6.8. Section 6.7. Removal of Trustee. The Trustee may be removed upon 60 days' written notice by an instrument or concurrent instruments in writing, filed with the Trustee, and signed by the Owners of a majority in principal amount of the Bonds then Outstanding or their attorneys-in-fact duly authorized. The Trustee may be removed at any time,at the request of the Bond Insurer,for any breach of the trust set forth herein. Section 6.8. Appointment of Successor Trustee. (a) In case at any time the Trustee shall resign or shall be removed or shall become incapable of acting,or shall be adjudged as bankrupt or insolvent,or if a receiver,liquidator or conservator of the Trustee,or of its property,shall be appointed, or if any public officer shall take charge or control of the Trustee or of its property or affairs, a successor may be appointed by the Authority and the Water District. (b) If in a proper case no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Section within 45 days after the Trustee shall have given 33 DOCSM909619v19122658.0017 to the Water District and Bond Insurer written notice as provided in Section 6.6 or after a vacancy in the office of the Trustee shall have occurred by reason of its inability to act,the Trustee may petition at the expense of the Water District a court to appoint a successor Trustee. (c) Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a commercial bank or trust company or national banking association, having capital stock and surplus aggregating at least $75,000,000, acceptable to the Bond Insurer, and authorized to exercise trust powers. (d) Notwithstanding any other provision of this Trust Agreement, no removal, resignation or termination of the Trustee shall take effect until a successor shall be appointed. Section 6.9. Transfer of Rights and Project to Successor Trustee. Any successor Trustee appointed under the Trust Agreement shall execute, acknowledge and deliver to its predecessor Trustee an instrument accepting such appointment, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become fully vested with all moneys, estates, properties, rights, powers, duties and obligations of such predecessor Trustee, with like effect as if originally named as Trustee; but the Trustee ceasing to act shall nevertheless, on the written request of the successor Trustee, execute, acknowledge and deliver such instrument of conveyance and further assurance and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor Trustee all the right, title and interest of the predecessor Trustee in and to any property held by it under the Trust Agreement, and shall pay over, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Should any deed,conveyance or instrument in writing from the Water District or the Authority be required by such successor Trustee for more fully and certainly vesting in and confirming to such successor Trustee any such estates, rights, power and duties, any and all such deeds, conveyances and instruments in writing shall, on request, and so far as may be authorized by law,be executed,acknowledged and delivered by the Water District or the Authority. Section 6.10. Mercer or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger,conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be a bank or trustee company organized under the laws of any state of the United States or a national banking association, shall meet the other requirements of Section 6.8(c), and shall be authorized by law to perform all the duties imposed upon it hereby, shall be the successor to the Trustee without the execution or filing of any paper or the performance of any further act. Section 6.11. Adoption of Authorized Signature. In case any of the Bonds contemplated to be delivered hereunder shall have been executed but not delivered,any successor Trustee may adopt the authorized signature of any predecessor Trustee so authenticating such Bonds and deliver such Bonds so executed; and in case any of the said Bonds shall not have been executed, any successor Trustee may authenticate such Bonds in the name of the successor Trustee,and in all such cases such authentication shall have the full force which it is anywhere in said Bonds or herein provided that the authentication of the Trustee shall have. Section 6.12. Liability of the Trustee. The recitals, statements and representations by the Water District or the Authority contained in this Trust Agreement or in the Bonds shall be taken and construed as made by and on the part of the Water District and Authority and not by the Trustee and 34 DOCSOC190961909\22658.0017 the Trustee does not assume,and shall not have, any responsibility or obligations for the correctness of any thereof The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder either directly or by or through attorneys or agents and shall be entitled to advice of counsel concerning all matters of trust and its duties hereunder and shall be absolutely protected in relying thereon. The Trustee shall not be responsible for the misconduct of such persons selected by it with reasonable care. No provision in this Trust Agreement shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. The Trustee shall not be liable in connection with the performance of its duties hereunder except for its own negligence or willful misconduct. In accepting the trust hereby created, the Trustee acts solely as Trustee for the Owners and not in its individual capacity and all persons, including without limitation the Owners and the Water District or the Authority, having any claim against the Trustee arising from this Trust Agreement shall look only to the funds and accounts held by the Trustee hereunder for payment except as otherwise provided herein. Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Bonds. The Trustee makes no representation or warranty, express or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition,merchantability or fitness for any particular purpose or fitness for the use contemplated by the Water District or the Authority of the Project. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection with or arising from the Lease Agreement or this Trust Agreement for the existence, furnishing or use of the Service Contract Project Improvements. The Trustee shall not be responsible for the sufficiency or enforceability of the Property Lease or the Lease Agreement or the assignment under the Trust Agreement of its rights to receive Lease Payments. The Trustee shall not be deemed to have knowledge of any Event of Default hereunder or under the Lease Agreement unless and until it shall have actual knowledge thereof. The Trustee shall not be accountable for the use or application by the Water District or the Authority or any other party of any funds which the Trustee has released under this Trust Agreement. The Trustee shall not be responsible for accounting for, or paying to, any party to this transaction, including but not limited to the Water District, the Authority, and the Bondowners, any return on or benefit from funds held for payment of unredeemed Bonds or outstanding checks and no calculation of the same shall affect, or result in any offset against, fees due to the Trustee under this Trust Agreement. The Trustee's rights to immunities and protection from liability hereunder and its rights to payment of its fees and expenses shall survive its resignation or removal and the final payment or the 35 DOCSOC\909619v l 9122658.0017 defeasance of the Bonds (or the discharge of the Bonds or the defeasance of the lien of this Trust Agreement). All indemnification and releases from liability granted to the Trustee herein or in the Lease Agreement shall extend to the directors,officers,employees,attorneys and agents of the Trustee. The Trustee shall have no responsibility,opinion,or liability with respect to any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds except for information provided by the Trustee. Before taking any action under Article V hereof or this section at the request of Owners, the Trustee may require that a satisfactory indemnity bond be furnished by the Owners for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any action so taken. ARTICLE VII AMENDMENTS Section 7.1. Mailin . Any provision in this Article for the mailing of a notice or other paper to Bondowners shall be fully complied with if it is mailed first class United States mail, postage prepaid only(i) to each Owner of Bonds then Outstanding at his address, if any, appearing upon the registry books of the Trustee,and(ii)to the Trustee. Section 7.2. Powers of Amendment. This Trust Agreement and the rights and obligations provided may be modified or amended at any time by a Supplemental Trust Agreement, entered into among the Trustee,the Authority and the Water District but without the consent of any Bondowners, but only(a)to cure any ambiguity,supply any omission, or cure or correct any defect or inconsistent provision in this Trust Agreement,(b)to insert such provisions clarifying matters or questions arising hereunder as are necessary or desirable and are not contrary to or inconsistent herewith as theretofore in effect,(c)to provide for the authorization, execution and delivery of Parity Obligations, or(d)in regard to matters arising hereunder or thereunder, as the parties hereto or thereto may deem necessary or desirable which shall not in the opinion of Bond Counsel which may be supported by a certificate of an independent financial consultant materially adversely affect the interest of the Bondowners or the Bond Insurer. Any other modification or amendment hereof and of the rights and obligations of the Trustee or of the Owners of the Bonds hereunder, in any particular, may be made by a Supplemental Trust Agreement, entered into among the Trustee, the Authority and the Water District with the written consent, given as provided in Section 7.3, of the Owners of at least sixty percent(60%)in principal amount of the Bonds Outstanding at the time such consent is given. No such modification or amendment shall permit a change in the terms of redemption or maturity of the principal with respect to any Outstanding Bonds or of any installment of interest with respect thereto or a reduction in the principal amount or the redemption price with respect thereto or in the rate of interest with respect thereto or which will have an adverse effect on the security interest of the Owner without the consent of the Owner of such Bond, or shall reduce the percentages or otherwise affect the classes of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or shall change or modify any of the rights or obligations of the Trustee without the written assent of the Trustee. The Trustee may in its discretion determine whether or not, in accordance with the foregoing powers of amendment, Bonds of any particular maturity would be 36 DOCSOC\909619v19122658.0017 affected by any modification or amendment hereof,and any such determination shall be binding and conclusive on the Authority,the Water District and all Owners of Bonds. The Trustee may obtain an opinion of counsel that any such Supplemental Trust Agreement entered into by the Authority, the Water District and the Trustee complies with the previsions of this Section 7.2 and the Trustee may conclusively rely upon such opinion. The Authority shall be provided with a full original transcript of all proceedings relating to the execution of any amendatory or Supplemental Trust Agreement or Lease Agreement. Any provision of this Trust Agreement expressly recognizing or granting rights in or to Bond Insurer may not be amended in any manner which affects the rights of Bond Insurer hereunder without the prior written consent of Bond Insurer. Section 7.3. Consent of Bondowners, The Trustee, the Authority and the Water District may at any time enter into a Supplemental Trust Agreement making a modification or amendment permitted by the provisions of Section 7.2 to take effect when and as provided in this Section. A copy of such Supplemental Trust Agreement(or brief summary thereof), together with a request to Bondowners to approve the same shall be mailed to each Bondowner(but failure to mail such copy and request shall not affect the validity of the Supplemental Trust Agreement when consented to as in this Section provided). Such Supplemental Trust Agreement shall not be effective unless and until (i) there shall have been filed with the Trustee (a) the written consents of Owners of the percentage of Outstanding Bonds specified in Section 7.2 and(b)an opinion of Bond Counsel stating that such Supplemental Trust Agreement has been duly and lawfully entered into by the parties thereto and filed with the Water District and the Trustee in accordance with the provisions hereof, is authorized or permitted hereby, and is valid and binding upon the parties thereto in accordance with its terms. Each such consent shall be effective only if accompanied by proof of the Owner, at the date of such consent, of the Bonds with respect to which such consent is given, which proof shall be such as is permitted by Section 8.2. The request for consent of Bondowners pursuant to this Section may provide a date by which such consents must be received to be effective. A certificate or certificates executed by the Trustee and filed with the Water District stating that it has examined such proof and that such proof is sufficient in accordance with Section 8.2 shall be conclusive that the consents have been given by the Owners of the Bonds described in such certificate or certificates of the Trustee. Any such consent shall be binding upon the holder of the Bonds giving such consent and,anything in Section 8.2 to the contrary notwithstanding, upon any subsequent Owner of such Bonds and of any Bonds issued in exchange therefor (whether or not such subsequent Owner thereof has notice thereof) unless such consent is revoked in writing by the Owner of such Bonds giving such consent or a subsequent Owner thereof by filing with the Trustee, prior to the time when the written statement of the Trustee hereinafter in this Section provided for is filed. Such revocation and,if such Bonds are held by the signer of such revocation,proof of ownership shall be evidenced in the manner permitted by Section 8.2. The fact that a consent has not been revoked may likewise be proved by a certificate of the Trustee filed with the Water District to the effect that no revocation thereof is on file with the Trustee. At any time after the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Trust Agreement, the Trustee shall make and file with the Water District a written statement that the Owners of such required percentage of Bonds have filed such consents. Such written statements shall be conclusive that such consents have been so filed. At any time thereafter notice, stating in substance that the Supplemental Trust Agreement (which may be referred to as a Supplemental Trust Agreement entered into by the parties thereto on a stated date, a copy of which is on file with the Trustee) has been consented to by the Owners of the required percentages of Bonds and will be effective as provided in this Section,may be given to Bondowners by the Water District or the Trustee at the direction of the Water District, by mailing such notice pursuant to Section 7.1 hereof to Bondowners (but failure to receive such notice shall not prevent such Supplemental Trust Agreement from becoming effective and binding as in this Section 37 DOCSOC1909619v]9\22659.0017 provided). The Water District shall file with the Trustee proof of the mailing of such notice. A record,consisting of the certificates or statements required or permitted by this Section to be made by the Trustee,shall be proof of the matters therein stated. Such Supplemental Trust Agreement making such amendment or modification shall be deemed conclusively binding upon the Water District, the Trustee,the Authority and the Owners of all Bonds at the expiration of 40 days after the filing with the Trustee of the proof of the mailing of such last mentioned notice, except in the event of a final decree of a court of competent jurisdiction setting aside such Supplemental Trust Agreement in a legal action or equitable proceeding for such purpose commenced within such 40 day period; provider], however, that the Trustee, the Authority or the Water District during such 40 day period and any such further period during which any such action or proceeding may be pending shall be entitled in their absolute discretion to take such action, or to refrain from taking such action, with respect to such Supplemental Trust Agreement as they may deem expedient. Unless otherwise provided in this Section, Bond Insurer's consent shall be required in addition to Owner consent, when required, for the following purposes: (i)execution and delivery of any supplemental Trust Agreement or any amendment, supplement or change to or modification of the Lease Agreement; (ii)removal of the Trustee or selection and appointment of any successor trustee; and (iii)initiation or approval of any action not described in(i)or(ii)above which requires Owner consent. Section 7.4. Modifications by Unanimous Consent. The terms and provisions hereof and the rights and obligations of the Trustee and of the Owners of the Bonds hereunder may be modified or amended in any respect upon entering into by the parties hereto of a Supplemental Trust Agreement with the unanimous consent of the Owners of all the Bonds then Outstanding and the Bond Insurer, such consent to be given as provided in Section 7.3 except that no notice to Bondowners by mailing shall be provided and to the extent any such Supplemental Trust Agreement alters the rights and obligations of the Trustee the Trustee's approval shall be required. Section 7.5. Exclusion of Bonds. Bonds owned or held by or for the account of the Water District shall not be deemed Outstanding for the purpose of consent or other action or any calculation of Outstanding Bonds provided for in this Article or Section 6.7, and the Water District shall not be entitled with respect to such Bonds to give any consent or take any other action provided for in this Article or Section 6.7. At the time of any consent or other action taken under this Article or Section 6.7, the Water District shall furnish the Trustee a Certificate of Authorized Representative of the Water District,upon which the Trustee may rely,describing all Bonds so to be excluded. Section 7.6. Notation on Bonds. Bonds issued after the effective date of any action taken as provided in Article V or this Article provided may, and if the Water District so determines shall, bear a notation by endorsement or otherwise in form approved by the Water District and the Trustee as to such action, and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of the Bond or Bonds for the purpose at the principal corporate trust office of the Trustee or upon any transfer or exchange of any Bond Outstanding at such effective date, suitable notation shall be made on such Bond or upon any Bonds issued upon any such transfer or exchange by the Trustee as to any such action. If the Water District and the Trustee shall so determine, new Bonds so modified as in the opinion of the Trustee and the Water District may be necessary to conform to such action shall be prepared,issued,and upon demand of the Owner of any Bond then Outstanding shall be exchanged,without cost to such Bondowner, for Bonds of the same maturity then Outstanding,upon surrender of such Bonds. 38 DOCSOC\909619 v 19\22658.0017 ARTICLE VIII MISCELLANEOUS Section 8.1. Defeasance. (a) Outstanding Bonds shall be paid and discharged in any one or more of the following ways- (i) by paying or causing to be paid the principal of and interest with respect to said Outstanding Bonds,as and when the same become due and payable;or (ii) by depositing with the Trustee, in trust, cash or Investment Securities of the type set forth in part(A) of the definition thereof in such amount, including without limitation cash or Investment Securities of the type set forth in part (A) of the definition thereof then on deposit in the Debt Service Payment Account and Reserve Account applicable to the Outstanding Bonds,together with the interest to accrue with respect thereto, as will be sufficient, as shown on a certificate of a nationally recognized certified public accountant or firm of certified public accountants, to pay and discharge the Outstanding Bonds to be paid and discharged(including all principal, interest and premium, if any) at or before their respective maturity dates. In the event of a refunding, the Water District shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants ("Accountant") verifying the sufficiency of the escrow established to pay the Bonds in full and (ii) an opinion of nationally recognized Bond Counsel to the effect that the Bonds are no longer "Outstanding" under the Trust Agreement,each of which shall be addressed to the Water District,the Trustee,the Authority and the Bond Insurer. Notwithstanding that any Bonds shall not have been surrendered for payment, all obligations of Authority, the Trustee and the Water District under this Trust Agreement with respect to those Bonds paid, as provided in the above subsections (i) (ii) or (iii), and the trust created by this Trust Agreement shall cease and terminate, except only the obligation of the Trustee to pay or cause to be paid to the Owner of the Bonds not so surrendered and paid all sums due thereon,to transfer title to the Water District as provided in Section 7.3 of the Lease Agreement, and the obligation of Water District to cause rebates pursuant to Section 4.11 and the obligation of the Trustee to make transfers and exchanges of Bonds pursuant to Section 3.7. Notice of defeasance of the Bonds and the obligations under this Trust Agreement as provided in this Section shall be given by the Trustee in the manner provided in Section 3.12. The fees and charges of the Trustee (including reasonable counsel fees and expenses) must be paid in order to effect such discharge. The satisfaction and discharge of this Trust Agreement shall be without prejudice of the rights, if any, of the Trustee to charge and be reimbursed by the Water District for any expenditures which it may thereafter incur in connection therewith. Any funds held by the Trustee, at the time of one of the events described above in paragraphs(i), (ii) or(iii), shall have occurred, which are not required for the payment to be made to Owners, or for payments to be made to the Trustee by the Water District, or for payment to the United States under Section 4.11,shall be paid over to the Water District. 39 DOCSOM909619 v 19\22659.0017 (b) Anything in this Trust Agreement to the contrary notwithstanding, any moneys held by the Trustee in trust for the payment of any of the Bonds which remain unclaimed for two years after the date when such Bonds have become due and payable, either at their stated maturity dates or by call for earlier redemption,if such moneys were held by the Trustee at such date, or for two years after the date of deposit of such moneys if deposited with the Trustee after the said date when such Bonds became due and payable, shall be repaid by the Trustee to the Water District, as its absolute property and free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Bondowners shall look only to the Water District for the payment of such Bonds. (c) Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by Bond Insurer pursuant to the Insurance Policy, the Bonds shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the Water District or the Authority,and the assignment and pledge of the Trust Estate and all covenants, agreements and other obligations of the Water District and Authority to the registered owners shall continue to exist and shall run to the benefit of the Bond Insurer and the Bond Insurer shall be subrogated to the rights of such registered owners. Section 8.2. Evidence of Signatures of Bondowners and Ownership of Bonds. (a) Any request, consent, revocation of consent or other instrument which this Trust Agreement may require or permit to be signed and executed by the Bondowners may be in one or more instruments of similar tenor,and shall be signed or executed by such Bondowners in person or by their attorneys appointed in writing. Proof of(i)the execution of any such instrument,or of an instrument appointing any such attorney, or(ii) the ownership by any person of the Bonds, shall be sufficient for any purpose hereof(except as otherwise therein expressly provided) if made in the following manner,or in any other manner satisfactory to the Trustee, which may nevertheless in its discretion require further or other proof in cases where it deems the same desirable: the fact and date of the execution by any Bondowner or his attorney of such instruments may be proved by a guaranty of the signature thereon by a commercial bank or trust company or member firm of the New York Stock Exchange or by the certificate of any notary public or other officer authorized to take acknowledgments of deeds,that the person signing such request or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. Where such execution is by an officer of a corporation or association or a member of a partnership, on behalf of such corporation, association or partnership, such signature guaranty,certificate or affidavit shall also constitute sufficient proof of his authority. (b) The ownership of Bonds and the amount, numbers and other identification, and date of owning the same shall be proved by the registry books of the Trustee. Section 8.3. Moneys Held for Particular Bonds. The amounts held by the Trustee for the payment of the interest,principal or premium due on any date with respect to particular Bonds shall, on and after such date and pending such payment,be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto. Section 8.4. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Trust Agreement shall be retained in its possession and shall be subject at all reasonable times to the inspection of the Water District,the Authority,the Bond Insurer or any Bondowner and their agents and representatives,any of whom may make copies thereof. 40 DOCSOCM9619v 19\22658.0017 Section 8.5. Parties Interested Herein. Nothing in this Trust Agreement expressed or implied is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Water District,the Authority,the Trustee,the Bond Insurer and the registered Owners of the Bonds,any right,remedy or claim under or by reason of this Trust Agreement or any covenant, condition or stipulation hereof,and all covenants,stipulations,promises and agreements in this Trust Agreement contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Water District, the Authority, the Trustee, the Bond Insurer and the registered Owners of the Bonds. Section 8.6. Severability of Invalid Provisions. If any one or more of the covenants or agreements provided herein should be contrary to law,then such covenant or covenants or agreement or agreements shall be deemed severable from the remaining covenants and agreements, and shall in no way affect the validity of the other provisions hereof. Section 8.7. Recording and Filing. The Water District shall be responsible for the recording and filing of the Property Lease, Lease Agreement and financing statements (or continuation statements in connection therewith)or of any supplemental instruments or documents of further assurance as may be required by law in order to perfect the security interests created by the Property Lease or the Lease Agreement. The Water District and the Authority shall take such further actions as may be necessary to effectuate the transactions contemplated by this Trust Agreement,the Property Lease and the Lease Agreement. Section 8.8. Notices. All notices, certificates, requests or other communications (other than payments by Water District) hereunder shall be in writing and shall be sufficiently given and shall be deemed given when delivered or mailed by certified or first class mail, postage prepaid, to the parties at their respective places of business as follows: If to the Water District: Capistrano Valley Water District c/o City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano,California 92675 Attn: Treasurer Telephone: 949-443-6301 Telecopier: 949-493-1053 If to the Authority: San Juan Basin Authority Moulton Niguel Water District 27500 La Paz Road Laguna Niguel,CA 92688 Attn: General Manager If to the Trustee: BNY Western Trust Company 700 South Flower Street, Suite 500 Los Angeles,California 90017 Attn: Corporate Trust Department 41 DOCSOC\909619v19\22658.0017 If to the Bond Insurer: Ambac Assurance Corporation One State Street Plaza New York,NY 10004 Attn: Surveillance Department or, if specified in Section 8.9(b), General Counsel Office, For Section 8.15(a)Notice: Ambac Assurance Corporation One State Street Plaza New York,NY 10004 Attn: Corporate Trust Division Tel:212.668.0340 Fax:212. 509.9190 For Section 8.15(d)Notice: Bank of New York 100 Church St.,8th Floor New York,NY 10286 Attn: Corporate Trust Division Tel:212-437-3103 Fax: 212-437-6167 Section 8.9. Notices to the Bond Insurer. (a) Notices to be sent to the attention of the SURVEILLANCE DEPARTMENT: (i) While the Insurance Policy is in effect, the Authority, the Water District or the Trustee,as appropriate,shall furnish to the Bond Insurer: (A) as soon as practicable after the filing thereof, a copy of any financial statement of the Water District and a copy of any audit and annual report of the Water District; (B) such additional information it may reasonably request. (ii) A copy of any notice to be given to the registered owners of the Bonds, including, without limitation, notice of any redemption of or defeasance of Bonds, and any certificate rendered pursuant to this Trust Agreement relating to the security of the Bonds. (iii) To the extent that the Water District has entered into a continuing disclosure agreement with respect to the Bonds,the Bond Insurer shall be included as party to be notified. 42 DOCSOC\909619v 19\22658.0017 (b) Notices to be sent to the attention of the GENERAL COUNSEL OFFICE: (i) The Trustee or Water District, as appropriate, shall notify the Bond Insurer of any failure of the Water District to provide relevant notices,certificates,etc. (ii) Notwithstanding any other provision of this Trust Agreement, the Trustee or Water District shall immediately notify the Bond Insurer if at any time there are insufficient moneys to make any payments of principal and interest as required and immediately upon the occurrence of(i) any event of default hereunder or (ii) any payment default under any related security agreement. The Water District will permit the Bond Insurer to discuss the affairs, finances and accounts of the Water District or any information the Bond Insurer may reasonably request regarding the security for the Bonds with appropriate officers of the Bonds. The Trustee or Water District, as appropriate, will permit the Bond Insurer to have access to the Project and have access to and to make copies of all books and records relating to the Bonds at any reasonable time. Section 8.10. California I.aw. This Trust Agreement shall be construed and governed in accordance with the laws of the State of California. Section 8.11. Binding on Successors. This Trust Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Section 8.12. Headings. Headings preceding the text of the several Articles and Sections hereof, and the table of contents, are solely for convenience of reference and shall not constitute a part of this Trust Agreement or affect its meaning,construction or effect. Section 8.13. Execution in Counterparts. This Trust Agreement may be executed in several counterparts, each of which shall be deemed an original,and all of which shall constitute but one and the same instrument. Section 8.14. Actions Due on Saturdays, Sundays and Holidays. If any date on which a payment,notice or other action required by this Trust Agreement falls on other than a Business Day, then that action or payment need not be taken or made on such date,but may be taken or made on the next succeeding Business Day with the same force and effect as if made on such date. Section 8.15. Payment Procedure Pursuant to the Insurance Policy. As long as the Insurance Policy shall be in full force and effect,the Authority and the Trustee agree to comply with the following provisions: (a) At least one (1)day prior to all Interest Payment Dates the Trustee will determine whether there will be sufficient funds in the funds and accounts established hereunder for such purpose to pay the principal of or interest on the Bonds on such Interest Payment Date. If the Trustee determines that there will be insufficient funds in such funds or accounts,the Trustee shall so notify the Bond Insurer. Such notice shall specify the amount of the anticipated deficiency as to principal or interest,or both. If the Trustee has not so notified the Bond Insurer at least one (1)day prior to the Interest Payment Date,the Bond Insurer will make payments of principal or interest due on the Bonds on or before the first (1')day next following the date on which the Bond Insurer shall have received notice of nonpayment from the Trustee. 43 DOCS00909619v 19122658A017 (b) The Trustee shall, after giving notice to the Bond Insurer as provided in (a) above,make available to the Bond Insurer and, at the Bond Insurer's direction,to The Bank of New York, in New York, New York, as insurance trustee for Ambac Assurance or any successor insurance trustee(the"Insurance Trustee"),the registration books of the Authority maintained by the Trustee and all records relating to the Funds and Accounts maintained under this Trust Agreement. (c) The Trustee shall provide the Bond Insurer and the Insurance Trustee with a list of registered owners of Bonds entitled to receive principal or interest payments from the Bond Insurer under the terms of the Insurance Policy, and shall make arrangements with the Insurance Trustee(i)to mail checks or drafts to the registered owners of Bonds entitled to receive full or partial interest payments from the Bond Insurer and (ii)to pay principal upon Bonds surrendered to the Insurance Trustee by the registered owners of Bonds entitled to receive full or partial payments from the Bond Insurer. (d) The Trustee shall,at the time it provides notice to the Bond Insurer pursuant to(a)above,notify registered owners of Bonds entitled to receive the payment of principal or interest thereon from the Bond Insurer (i)as to the fact of such entitlement, (ii)that the Bond Insurer will remit to them all or a part of the interest payments next coming due upon proof of Owner entitlement to interest payments and delivery to the Insurance Trustee, in form satisfactory to the Insurance Trustee, of an appropriate assignment of the registered owner's right to payment, (iii)that should they be entitled to receive full payment of principal from the Bond Insurer,they must surrender their Bonds (along with an appropriate instrument of assignment in form satisfactory to the Insurance "Trustee to permit ownership of such Bonds to be registered in the name of the Bond Insurer for payment to the Insurance Trustee,and not the Trustee,and(iv)that should they be entitled to receive partial payment of principal from the Bond Insurer they must surrender their Bonds for payment thereon first to the Trustee who shall note on such Bonds the portion of the principal paid by the Trustee and then, along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee,to the Insurance Trustee,which will then pay the unpaid portion of principal. (e) In the event the Trustee has notice any payment of principal of or interest on Bonds which has become due for payment and which is made to an Owner by or on behalf of the Authority has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final,nonappealable order of a court having competent jurisdiction, the Trustee shall,at the time the Bond Insurer is notified pursuant to (a) above, notify all registered owners that in the event that any registered owner's payment is so recovered, such registered owner will be entitled to payment from the Bond Insurer to the extent of such recovery if sufficient funds are not otherwise available,and the Trustee shall furnish to the Bond Insurer its records evidencing the payments of principal of and interest on the Bonds which have been made by the Trustee and subsequently recovered form the registered owners and the dates on which such payments were made. (f) In addition to those rights granted the Bond Insurer under this Trust Agreement, the Bond Insurer shall, to the extent it makes payment of principal of or interest on Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Insurance Policy, and to evidence such subrogation (i)in the case of subrogation as to claims for past due interest, the Trustee shall note the Bond Insurer's rights as subrogee on the registration books of the Authority maintained by the Trustee upon receipt from the Bond Insurer of proof of the payment of interest thereon to the registered owners of the Bonds and(ii)in the case of subrogation as to claims for past due principal, the Trustee shall note the Bond Insurer's rights as 44 DOCS 009096190 9\22658.0017 subrogee on the registration books of the Authority maintained by the Trustee upon surrender of the Bonds by the registered owners thereof together with proof of the payment of principal thereof. (g) In connection with the issuance of additional Bonds, the Authority shall deliver to the Bond Insurer a copy of the disclosure document, if any, circulated with respect to such additional Bonds. (h) Copies of any amendments made to the documents executed in connection with the issuance of the Bonds which are consented to by the Bond Insurer shall be sent to S&P. (i) The Bond Insurer shall receive notice of the resignation or removal of the Trustee and the appointment of a successor thereto. (i) The Bond Insurer shall receive copies of all notices required to be delivered to the Owners of the Bonds and, on an annual basis, copies of the Water District's audited financial statements and Annual Budget. Section 8.16. Bond Insurer as Third Party BeneficiM. To the extent that this Trust Agreement confers upon or gives or grants to the Bond Insurer any right, remedy or claim under or by reason of the Trust Agreement,the Bond Insurer is hereby explicitly recognized as being a third- party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder. Section 8.17. Force Majeure. From the effective date of this Trust Agreement,the Trustee, or any successor in interest, shall not be considered in breach of or in default in its obligations with respect to any obligations created hereunder or progress in respect thereto, in the event of enforced delay ("unavoidable delay") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence,including,but not limited to,acts of God,or of the public enemy, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor,equipment,facilities,sources of energy,material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. Section 8.18. Facsimile Instructions. The Trustee agrees to accept and act upon facsimile transmission of written instructions and/or directions pursuant to this Trust Agreement provided, however that: (a) the Water District, subsequent to such facsimile transmission of written instructions, shall provide the originally executed instructions and/or directions to the Trustee in a timely manner, (b) such originally executed instructions and/or directions shall be signed by a person as may be designated and authorized to sign for the Water District by an Authorized Representative of the Water District and, (c) the Water District shall provide to the Trustee an incumbency certificate listing such designated persons which such incumbency certificate shall be amended whenever a person is to be added or deleted from the listing. 45 DOCSOC\909619 v 19\22658.0017 IN WITNESS WHEREOF, the parties have executed and attested this Trust Agreement by their officers thereunto duly authorized as of the date and year first written above. CAPISTRANO VALLEY WATER DISTRICT By: " ?alk& Chairperson of the Board of Directors ATTEST: S Mary of the Board of Directors SAN JUAN BASIN AUTHORITY By: President of the Board of Directors ATTEST: Secretary of the Board of Directors BNY WESTERN TRUST COMPANY,as Trustee By: Authorized Officer S-1 DOCS00909619A 5122658.0017 IN WITNESS WHEREOF, the parties have executed and attested this Trust Agreement by their officers thereunto duly authorized as of the date and year first written above. CAPISTRANO VALLEY WATER DISTRICT By: Chairperson of the Board of Directors ATTEST: Secretary of the Board of Directors SAN JUAN BASIN AUTHORITY By: sident of the oard of Directors ATTEST: Secretaty of&Board of Directors BNY WESTERN TRUST COMPANY, as Trustee By: Authorized Officer S-1 DOCSOCt909619v 1522658.0017 IN WITNESS WHEREOF, the parties have executed and attested this Trust Agreement by their officers thereunto duly authorized as of the date and year first written above. CAPISTRANO VALLEY WATER DISTRICT By: _ Chairperson of the Board of Directors ATTEST: Secretary of the Board of Directors SAN JUAN BASIN AUTHORITY By: President of the Board of Directors ATTEST: Secretary of the Board of Directors BNY WESTERN TRUST COMPANY,as Trustee r By: c 1L . ;�0 Authori4 d Ohicer S-1 DOCS00909619v 17\22656.0017 EXIIIBIT A PROJECT DESCRIPTION Construction of the San Juan Basin Authority Phase I Ground Water Recovery Plant, including all pipelines,well and other facilities relating to the Plant. These costs included but are not limited to: Project development fees and expenses of the District, estimated administrative, legal, engineering and other professional fees and expenses of the District, the Issuer and the Trustee relating to the Project and the Bonds during the Construction Period, acquisition of property and/or access rights, demolition of any existing facilities, relocation of any existing operations on the Plant site, construction of the Plant and installation of all necessary equipment. A-1 DOCSOCN909619V 19\22658.0017 EJOiIBIT B FORM OF BOND R- $ UNITED STATES OF AMERICA STATE OF CALIFORNIA (COUNTY OF ORANGE) SAN JUAN BASIN AUTHORITY LEASE REVENUE BOND (GROUND WATER RECOVERY PROJECT) ISSUE OF 2002 INTEREST RATE MATURITY DATE DATED DATE CUSIP % December 1, REGISTERED OWNER: CEDE&CO. PRINCIPAL SUM: AND NO/100 DOLLARS The SAN JUAN BASIN AUTHORITY, a public body, corporate and politic, duly organized and existing under and by virtue of the laws of the State of California (the "Authority"), for value received hereby promises to pay to the Registered Owner stated above, or registered assigns, on the Maturity Date stated above (subject to any right of prior redemption hereinafter provided for), the Principal Sum stated above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the preceding Interest Payment Date to which interest was paid, provided, Bonds registered on or prior to May 15, 2003 shall have interest payable with respect thereto from the Delivery Date, and Bonds registered after a Record Date (the fifteenth day of the calendar month preceding an Interest Payment Date) and on or prior to an Interest Payment Date shall have interest payable with respect thereto from such Interest Payment Date;provided,however, that if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on this Bond, until payment of such Principal Sum in full, at the rate per annum stated above,payable semiannually on June 1 and December 1 in each year(each,an"Interest Payment Date"), commencing June 1, 2003, calculated on the basis of a 360-day year composed of twelve 30-day months. Principal hereof is payable upon presentation and surrender of this Bond at the corporate trust office of BNY Western Trust Company, as trustee (the "Trustee"), in Los Angeles, California or such other location as designated by the Trustee. Interest hereon (including the final interest payment upon maturity or earlier redemption)is payable by check of the Trustee mailed on the Interest Payment Date by first class mail to the Registered Owner hereof at the Registered Owner's address as it appears on the registration books maintained by the Trustee at the close of business on the Record Date next preceding such Interest Payment Date;provided,however, that upon the written request of any Registered Owner of at least$1,000,000 in principal amount of Bonds received by the Trustee on or before such Record Date, payment shall be made by wire transfer in immediately available funds to an account designated by such Owner. B-1 DOCS OC\909619v 19122658.0017 This Bond is one of a duly authorized issue of Bonds of the Authority designated as "San Juan Basin Authority,Lease Revenue Bonds (Ground Water Recovery Project), Issue of 2002" (the "Bonds"), in an aggregate principal amount of Thirty-One Million Five Hundred Fifty-Five Thousand Dollars ($31,555,000), all of like tenor and date (except for such variation, if any, as may be required to designate varying series, numbers or redemption and other provisions)and all issued pursuant to the provisions of the Joint Exercise of Powers Act of the State of California(Government Code Section 6500 et seq.) including the Marks-Roos Local Bond Pooling Act (Government Code Sections 6584 et seq.)(the"Law")and pursuant to a resolution of the Authority adopted October 15, 2002, and a Trust Agreement, dated as of December 1, 2002, entered into by and among the Authority, the Capistrano Valley Water District (the "Water District") and the Trustee (the "Trust Agreement"), authorizing the issuance of the Bonds. Reference is hereby made to the Trust Agreement (copies of which are on file at the office of the Trustee) and all trust agreements supplemental thereto and to the Law for a description of the terms on which the Bonds are issued,the provisions with regard to the nature and extent of the Lease Payments, as that term is defined in the Trust Agreement, and the rights thereunder of the registered owners of the Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the Authority thereunder,to all of the provisions of which Trust Agreement the Registered Owner of this Bond, by acceptance hereof,assents and agrees. The Bonds have been issued by the Authority to finance the Service Contract Project Improvements pursuant to the Lease Agreement by and between the Authority and the Water District dated as of December 1,2002(the"Lease Agreement"). The Bonds are special obligations of the Authority and this Bond and the interest hereon and all other Bonds and the interest thereon (to the extent set forth in the Trust Agreement) are payable from, and are secured by the Lease Payments derived by the Authority from the Water District under the Lease Agreement (as defined in the Trust Agreement), and certain payments received by the Trustee pursuant to that certain Service Contract and Letter of Credit (as such terms are defined in the Trust Agreement). The Lease Payments are secured by a pledge of Revenues (as defined in the Trust Agreement) derived from the Water District's Water System (as defined in the Trust Agreement). There has been created and will be maintained by the Trustee the Project Trust Fund within which there is the Debt Service Payment Account (as defined in the Trust Agreement) into which Lease Payments shall be deposited from which the Trustee shall pay the principal of and the interest and redemption premium,if any, on the Bonds when due. As and to the extent set forth in the Trust Agreement,all such Lease Payments are exclusively and irrevocably pledged to and constitute a trust fund for,in accordance with the terms hereof and the provisions of the Trust Agreement and the Law, the security and payment or redemption of,and for the security and payment of interest on,the Bonds and any Parity Obligations, authorized by the Trust Agreement to be issued on a parity therewith. In addition,the Bonds(and,if the indenture authorizing any loans,advances or indebtedness issued on a parity with the Bonds shall so provide, any such loan, advance or indebtedness) shall be additionally secured at all times by a first and exclusive pledge of and lien upon all of the moneys in the Project Trust Fund, including the Debt Service Payment Account,the Reserve Account and the Redemption Account (as such terms are defined in the Trust Agreement). Except for the Lease Payments and such moneys, no funds or properties of the Authority or the Water District shall be pledged to, or otherwise liable for,the payment of principal of or interest on the Bonds. The Bonds are subject to redemption, in whole or in part, at the times, at the redemption B-2 DOCSOC1909619v 19\22658.0017 prices,with the notice,and on the other terms set out in the Trust Agreement. The Bonds are subject to default as further described in the Lease Agreement and the Trust Agreement. The Bonds are issuable as fully registered Bonds without coupons in denominations of $5,000 each and any integral multiple thereof. Subject to the limitations and conditions and upon payment of the charges, if any, as provided in the Trust Agreement, Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations and of the same maturity. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing,at the corporate trust office of the Trustee,in Los Angeles, California,but only in the manner and subject to the limitations provided in the Trust Agreement,and upon surrender and cancellation of this Bond. Upon registration of such transfer a new fully registered Bond or Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The Trustee shall not be required to register the transfer or exchange of any Bond(i) during the period established by the Trustee for selection of Bonds for redemption or (ii) selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Authority and the Trustee shall not be affected by any notice to the contrary. The rights and obligations of the Authority and the registered owners of the Bonds may be modified or amended at any time in the manner, to the extent and upon the terms provided in the Trust Agreement,but no such modification or amendment shall extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal, interest or redemption premiums (if any) at the time and place and at the rate and in the currency provided herein of any Bond without the express written consent of the registered owner of such Bond,reduce the percentage of Bonds required for the written consent to any such amendment or modification or,without its written consent thereto,modify any of the rights or obligations of the Trustee. This Bond is not a debt,liability or obligation of the Water District,the State of California,or any of its political subdivisions, and none of said Water District, said State, nor any of its political subdivisions is liable hereon, nor in any event shall this Bond be payable out of any funds or properties other than those of the Authority as set forth in the Trust Agreement. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time and manner as required by the Law and the laws of the State of California,and that the amount of this Bond,together with all other indebtedness of the Authority, does not exceed any limit prescribed by the Law or any laws of the State of B-3 DOCSOC\909619v 19122658.0017 • California, and is not in excess of the amount of Bonds permitted to be issued under the Trust Agreement. This Bond shall not be entitled to any benefit under the Trust Agreement or become valid or obligatory for any purpose until the Trustee's Certificate of Authentication hereon shall have been manually signed by the Trustee. IN WITNESS WHEREOF, the San Juan Basin Authority has caused this Bond to be executed in its name and on its behalf with the facsimile signature of its President of the Board of Directors and attested by the facsimile signature of its Secretary of the Board of Directors, all as of the Dated Date. SAN JUAN BASIN AUTHORITY By: Its: President of the Board of Directors ATTEST: Secretary of the Board of Directors [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Bonds described in the within-mentioned Trust Agreement. Authentication Date: BNY WESTERN TRUST COMPANY,as Trustee By: Its: Authorized Officer B-4 DOCSOCl909619v19\22658.0017 [FORM OF STATEMENT OF INSURANCE] Financial Guaranty Insurance Policy No. (the "Policy") with respect to payments due for principal of and interest on this Bond has been issued by Ambac Assurance Corporation("Ambac Assurance"). The Policy has been delivered to The Bank of New York,New York,New York,as the Insurance Trustee under said Policy and will be held by such Insurance Trustee or any successor insurance trustee. The Policy is on file and available for inspection at the principal office of the Insurance Trustee and a copy thereof may be secured from Ambac Assurance or the Insurance Trustee. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. The owner of this Bond acknowledges and consents to the subrogation rights of Ambac Assurance as more fully set forth in the Policy. [FORM OF ASSIGNMENT] For value received the undersigned hereby sells,assigns and transfers unto (Name,Address and Tax Identification or Social Security Number of Assignee) the within-registered Bond and hereby irrevocably constitute(s)and appoint(s) attorney,to transfer the same on the bond register of the Trustee with full power of substitution in the premises. Dated: Note: The signature(s)on this Assignment must correspond with the name(s)as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. Signature Guaranteed: Note: Signature(s)must be guaranteed by an eligible guarantor institution. B-5 DOCS OC1909619v 19\22658.0017 EXHIBIT C FORM OF PROJECT COST REQUISITION SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2002 REQUISITION FOR DISBURSEMENT OF PROJECT COSTS The undersigned hereby states and certifies: (i) that he is the authorized signatory of[Independent Engineer], which entity is duly appointed, qualified and acting Independent Engineer pursuant to the terms of the Service Contract entered into as of September 3, 2002 by and between the Capistrano Valley Water District (the `Water District") and ECO Resources,Inc. (the"Service Contract"),and as such,is familiar with the facts herein certified and is authorized to certify the same; (ii) that,pursuant to Section 4.2 of the Trust Agreement by and among the Water District, the San Juan Basin Authority and BNY Western Trust Company, as Trustee (the "Trust Agreement"), the undersigned hereby requests the Trustee to pay from the Project Account, established by the Trust Agreement, $ to for the payment of authorized Project Costs described in Attachment"A'hereto; (iii) that each obligation to be paid from the foregoing Project Account transfer will be a proper charge against the Project Account;and (iv) that there has not been filed with or served upon the District notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys payable to the District, which has not been released or will not be released simultaneously with the payment of such obligation,other than materialmen's or mechanics' liens accruing by mere operation of law. Dated: [INDEPENDENT ENGINEER] By: Authorized Representative C-1 DOCS0CW09619v19122658.0017 • ATTACIIMENT"A" PROJECT COST DESCRIPTION C-2 DOCS O C\909619v 19\22658.0017 EXHIBIT D FORM OF COSTS OF ISSUANCE REQUISITION SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2002 REQUISITION FOR DISBURSEMENT OF COSTS OF ISSUANCE The undersigned hereby states and certifies: (i) that he is the duly appointed, qualified and acting [General Manager or Administrative Services Director] of the Capistrano Valley Water District or his/her designee, a California county water district organized and existing under the laws of the State of California (the "District"), and as such, is familiar with the facts herein certified and is authorized to certify the same; (ii) that,pursuant to Section 4.1 of that certain Trust Agreement dated as of December 1, 2002, among the Authority, the District and BNY Western Trust Company(the"Trust Agreement"), the undersigned hereby requests the Trustee to pay from the Cost of Issuance Account,established by the Trust Agreement, $ to the [District for the payment of authorized Costs of Issuance]. (iii) that each obligation to be incurred by the District from the foregoing Cost of Issuance Account transfer will be a proper charge against the Cost of Issuance Account; (iv) that there has not been filed with or served upon the District notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys payable to the District,which has not been released or will not be released simultaneously with the payment of such obligation,other than materiahnen's or mechanics' liens accruing by mere operation of law. Dated: CAPISTRANO VALLEY WATER DISTRICT By: [General Manager or Administrative Services Director] D-1 DOCS0090961909122658.0017 TRUST AGREEMENT among CITY OF SAN JUAN CAPISTRANO and SAN JUAN BASIN AUTHORITY and THE BANK OF NEW YORK TRUST COMPANY,N.A., as Trustee Dated as of November 1,2014 RELATING TO $20,361,090 SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2014 OHSUSA:754116349.7 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section1.1. Definitions.............................................................................................................. 1 Section 1.2. Rules of Construction............................................................................................7 ARTICLE II ASSIGNMENT;DECLARATION OF TRUST; REPRESENTATIONS AND RECITALS Section 2.1. Assignment of Lease Agreement...........................................................................7 Section 2.2. Assignment of Property Lease...............................................................................8 Section.2.3. Declaration of Trust by Trustee.............................................................................8 Section2.4. Deposit of Moneys.................................................................................................8 Section.2.5. Description of the Project......................................................................................8 Section 2.6. Conditions Precedent Satisfied..............................................................................8 ARTICLE III BONDS,TERMS AND PROVISIONS Section 3.1. Preparation of Bonds..............................................................................................8 Section 3.2. Payments from Trust Estate Only;Distribution of Trust Estate............................8 Section3.3. The Bonds..............................................................................................................9 Section 3.4. Medium of Payment............................................................................................. 12 Section 3.5. Execution............................................................................................. .. 12 Section 3.6. Negotiability,Transfer and Registry.................................................................... 12 Section 3.7. Regulations With Respect to Exchanges and Transfers...................................... 12 Section 3.8. Bonds Mutilated,Destroyed, Stolen or Lost........................................................ 13 Section 3.9. Temporary Bonds................................................................................................. 13 Section 3.10. Privilege of Redemption...................................................................................... 13 Section 3.11. Selection of Bonds to be Redeemed.................................................................... 13 Section 3.12. Notice of Redemption.......................................................................................... 14 Section 3.13. Payment of Redeemed Bonds.............................................................................. 14 Section 3.14. Cancellation of Bonds.......................................................................................... 15 ARTICLE IV ESTABLISHMENT AND ADMINISTRATION OF FUNDS AND ACCOUNTS Section 4.1. Establishment of Project Trust Fund.................................................................... 15 Section 4.2. Refunding Account.............................................................................................. 15 Section 4.3. Debt Service Payment Account........................................................................... 15 Section 4.4. Redemption Account.............................................................................. ...... 16 Section 4.5. Insurance and Condemnation Account................................................................ 16 Section 4.6. Deposits of Money;Payment Procedure.............................................................. 16 OHSUSA:7541]6349.7 -i- TABLE OF CONTENTS (continued) Page Section 4.7. Investment of Certain Accounts and Subaccounts............................................... 16 Section 4.8. Valuation and Sale of Investments...................................................................... 18 Section 4.9. Costs of Issuance Account................................................................................... 19 Section4.10. Rebate Fund......................................................................................................... 19 ARTICLE V COVENANTS,EVENTS OF DEFAULT,REMEDIES OF BONDOWNERS AND LIMITATIONS OF LIABILITY Section 5.1. Trustee to Enforce Lease Agreement and Property Lease...................................21 Section 5.2. Against Amendment or Termination of Property Lease......................................21 Section 5.3. Amendment of Lease Agreement........................................................................21 Section 5.4. Notice of Non-Payment...............................................................................•.......21 Section 5.5. Assignment of Rights................... Section 5.6. Events of Default.................................................................................................22 Section 5.7. Application of Funds............................................................................................22 Section 5.8. Institution of Legal Proceedings..........................................................................23 Section5.9. Non-Waiver..........................................................................................................23 Section 5.10. Remedies Not Exclusive......................................................................................23 Section 5.11. Power of Trustee to Control Proceedings............................................................23 Section 5.12. Limitation on Bondowners' Right to Sue............................................................23 Section 5.13. Reconstruction;Application of Insurance Proceeds............................................24 Section 5.14. Accounts and Reports..........................................................................................24 Section 5.15. No Obligation by the City to Bondowners..........................................................25 Section 5.16. No Obligation With Respect to Performance by Trustee....................................25 Section 5.17. No Liability to Bondowners for Payment.................................. Section 5.18. Possession and Enjoyment...................................................... Section 5.19, Tax Covenants.................................................................... ..25 Section 5.20. Parity Obligations................................................................................................26 ARTICLE VI CONCERNING THE TRUSTEE Section 6.1. Employment of Trustee........................................................................................26 Section 6.2. Trustee Acceptance of Duties..............................................................................26 Section 6.3. Evidence on Which Trustee May Act..................................................................27 Section 6.4. Obligations of Trustee..........................................................................................27 Section 6.5. Compensation......................................................................................................27 Section 6.6. Resignation of Trustee.........................................................................................27 Section 6.7. Removal of Trustee..............................................................................................28 Section 6.8. Appointment of Successor Trustee......................................................................28 Section 6.9. Transfer of Rights and Project to Successor Trustee...........................................28 Section 6.10. Merger or Consolidation......................................................................................29 OHSUSA:754116349.7 -ii- TABLE OF CONTENTS (continued) Page Section 6.11. Adoption of Authorized Signature.......................................................................29 Section 6.12. Liability of the Trustee.........................................................................................29 ARTICLE VII AMENDMENTS Section7.1. Mailing. ...............................................................................................................31 Section 7.2. Powers of Amendment.........................................................................................31 Section 7.3. Consent of Bondowners.......................................................................................32 Section 7.4. Modifications by Unanimous Consent.................................................................33 Section 7.5. Exclusion of Bonds..............................................................................................33 Section 7.6. Notation on Bonds...............................................................................................33 ARTICLE VIII MISCELLANEOUS Section8.1. Defeasance...........................................................................................................34 Section 8.2. Evidence of Signatures of Bondowners and Ownership of Bonds......................35 Section 8.3. Moneys Held for Particular Bonds......................................................................35 Section 8.4. Preservation and Inspection of Documents..........................................................35 Section 8.5. Parties Interested Herein......................................................................................36 Section 8.6. Severability of Invalid Provisions........................................................................36 Section 8.7. Recording and Filing............................................................................................36 Section8.8. Notices.................................................................................................................36 Section 8.9. California Law.....................................................................................................37 Section 8.10. Binding on Successors.........................................................................................37 Section8.11. Headings..............................................................................................................37 Section 8.12. Execution in Counterparts....................................................................................37 Section 8.13. Actions Due on Saturdays,Sundays and Holidays..............................................37 Section8.14. Force Majeure......................................................................................................37 EXHIBIT A FORM OF BOND.................................................................................A-1 EXHIBIT B FORM OF COSTS OF ISSUANCE REQUISITION...........................B-2 OHSUSA:754116349.7 -111- TRUST AGREEMENT RELATING TO THE SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2014 THIS TRUST AGREEMENT RELATING TO THE SAN JUAN BASIN AUTHORITY, LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2014, dated as of November 1,2014(the"Trust Agreement"),by and among the CITY OF SAN JUAN CAPISTRANO, a municipality duly organized and existing under and by virtue of the laws of the State of California (the "City"), THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States of America,as trustee(the"Trustee"), and the SAN JUAN BASIN AUTHORITY, a joint powers authority(the"Authority"), WITNESSETH: In consideration of the mutual agreements and covenants herein contained and for other valuable consideration,the parties hereto agree as follows: ARTICLE I DEFIINITIONS Section 1.1. Definitions (A) The terms set forth in this section shall have the meanings ascribed to them for all purposes of this Trust Agreement unless the context clearly indicates some other meaning. Additional Payments means any amounts payable by the City under the terms of the Lease Agreement,other than the Lease Payments. Annual Debt Service means, for each Bond Year, the sum of(a) the interest payable on the Outstanding Bonds in such Bond Year, assuming that any Outstanding term Bonds are redeemed from mandatory sinking fund payments as scheduled and (b) the principal amount of the Outstanding Bonds scheduled to be paid or redeemed in such Bond Year. Authori means the San Juan Basin Authority,a joint powers authority. Authorized Representative of the Authority means the Chairman,Vice Chairman or a Co- Administrator of the Authority and any person or persons designated by the Chairman, Vice Chairman or a Co-Administrator of the Authority and authorized to act on behalf of the Authority as certified by a written certificate signed on behalf of the Authority by the Chairman, the Vice Chairman or a Co-Administrator of the Authority and containing the specimen signature of each such person. Authorized Representative of the City means the City Manager of the City, the Public Works and Utilities Director of the City,the Chief Financial Officer/Treasurer of the City or any OHSUSA;754116349.7 person or persons designated by the City Manager of the City and authorized to act on behalf of the City by a written certificate signed on behalf of the City by the City Manager of the City and containing the specimen signature of each such person. Bond Counsel means a nationally-recognized firm of attorneys experienced in the issuance of tax-exempt obligations the interest on which is excludable from gross income under Section 103 of the Code. Bondowner or Owner of Bonds or Owner means the registered owner of any Bond or Bonds. Bond Year means the twelve month period which commences on December 2 in every year and ends on December 1 of the succeeding year. The first Bond Year shall commence on the Delivery Date and end on December 1,2015. Bonds means the San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project)Issue of 2014 issued pursuant to this Trust Agreement. 2002 Bonds means the San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project)Issue of 2002. Business Day means any day other than(i) a Saturday or Sunday or legal holiday or a day on which banking institutions in the city in which the principal office of the Trustee is located are authorized to close or(ii)a day on which the New York Stock Exchange is closed. Certificate of Authorized Representative of the Authority means a certificate executed by an Authorized Representative of the Authority. Certificate of Authorized Representative of the City means a certificate executed by an Authorized Representative of the City. Li!3Z means the City of San Juan Capistrano,California. Code means the Internal Revenue Code of 1986, as amended, and the United States Treasury Regulations proposed or in effect with respect thereto. Costs of Issuance means all expenses and costs of the Authority or the City incident to the performance of its obligations in connection with the authorization, issuance, sale and delivery of the Bonds, including, but not limited to, printing costs, initial Trustee fees and expenses and fees and expenses of its counsel, fees and expenses of consultants, fees and expenses of bond counsel to the Authority or the City and fees of counsel to the Original Puchaser. Costs of Issuance Account means the account by that name created pursuant to Section 4.1 hereof. Debt Service Payment Account means the Debt Service Payment Account established in Section 4.1 hereof. OHSUSA:754]]6349.7 2 Delivery Date means the date of the initial issuance of the Bonds. Escrow Agent means The Bank of New York Mellon Trust Company,N.A., acting in its capacity as trustee and escrow agent under and pursuant to the Escrow Agreement, and its successors and assigns as provided in the Escrow Agreement. Escrow Agreement means that certain Escrow Agreement,dated as of November 1,2014, by and among the City, the Authority and the Escrow Agent,providing for the refunding of the 2002 Bonds. Events of Default means events of default as set forth in Section 9.1 of the Lease Agreement. Fiscal Year means the twelve month fiscal period of the City which commences on July 1 in every year and ends on June 30 of the succeeding year. GAAP means generally accepted accounting principles. Interest Payment Datc means June 1 and December 1 of each year commencing June 1, 2015. Investment Securities means and includes any of the following securities, if and to the extent the same are at the time legal for investment of Authority funds (the Trustee is entitled to rely upon investment direction of the City as a determination that such investment is a legal investment): A. For all purposes including defeasance investments. (1) Cash (insured at all times by the Federal Deposit Insurance Corporation), (2) Direct obligations of(including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America,or (3) Senior debt obligations of other Government Sponsored Agencies. B. For all purposes other than defeasance investments in refunding escrow accounts. (1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America,including: -Export-Import Bank -Rural Economic Community Development Administration -U.S.Maritime Administration -Small Business Administration -U.S. Department of Housing&Urban Development(PHAs) -Federal Housing Administration -Federal Financing Bank OHSUSA:7541 J 6349.7 3 (2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: -Senior debt obligations issued by the Federal National Mortgage Association(FNMA)or Federal Home Loan Mortgage Corporation (FHLMC). -Obligations of the Resolution Funding Corporation(REFCORP) -Senior debt obligations of the Federal Home Loan Bank System -Senior debt obligations of other Government Sponsored Agencies; (3) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks,including the Trustee and its affiliates,which have a rating on their short term certificates of deposit on the date of purchase of"P-1" by Moody's and "A-1" or "A-1+"by S&P and maturing not more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank); (4) Commercial paper which is rated at the time of purchase in the single highest classification, "P-1"by Moody's and "A-1+"by S&P and which matures not more than 270 calendar days after the date of purchase; (5) Investments in a money market fund rated "AAAm" or "AAAmn-G" or better by S&P including such funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services or for which the Trustee or an affiliate of the Trustee serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian,notwithstanding that(i)the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to this Trust Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to this Trust Agreement may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee; (6) Pre-refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice;and (A) which are rated, based on an irrevocable escrow account or fund (the"escrow"),in the highest rating category of Moody's or S&P or any successors thereto;or (B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any,on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally OHSUSA:754116349.7 4 recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (7) Municipal obligations rated "Aaa/AAA' or general obligations of States with a rating of"AVA"or higher by both Moody's and S&P; (S) Investment agreements supported by appropriate opinions of counsel, provided that,without limiting the foregoing, any such Investment Agreement shall(i)be from a provider rated by S&P or Moody's at AA or Aa2 or above and (ii) expressly permit the withdrawal, without penalty, of any amounts necessary at any time to fund any deficiencies on account or debt service requirement s with respect to Bonds, together with such amendments as may be approved by the Authority,the City and the Trustee from time to time; and (9) The Local Agency Investment Fund established by the State of California, including investments in the name of the City. Lease Agreement means the Amended and Restated Lease Agreement, dated as of the date hereof, between the Authority and the City, and any and all modifications, alterations, amendments and supplements thereto made in accordance with the provisions of the Lease Agreement and the Trust Agreement. Lease Payment means the amount to be paid by the City for the lease of the Project corresponding to the Lease Payment Date set forth in Section 4.4 and Exhibit B of the Lease Agreement. Lease Payment Date means the 15th day of the month preceding each Interest Payment Date (or if the 15th day of the month is not a Business Day, on the next succeeding Business Day). Lease Term means the period during which the Lease Agreement is in effect as specified in the Lease Agreement. Moody's means Moody's Investors Service, Inc., a municipal bond rating service with offices in New York,New York. Net Insurance Proceeds means any insurance or condemnation proceeds paid with respect to the Project and remaining after payment therefrom of all expenses incurred in the collection thereof, Net Revenues means the amounts of Revenues (as defined in the Lease Agreement) remaining after payment therefrom of the Maintenance and Operation Costs. Original Purchaser means TPB Investments, Inc., a wholly-owned subsidiary of Western Alliance Bank, an Arizona corporation, the first purchaser of the Bonds upon their delivery by the Trustee. OHSUSA:754116349.7 5 Outstanding, when used with reference to Bonds, means, as of any date, Bonds theretofore or thereupon being issued under this Trust Agreement, including Bonds that are "Outstanding"in accordance with Section 8.1(c),except: (a) Bonds canceled or delivered for cancellation by the Trustee on or prior to such date; (b) Bonds (or portions of Bonds) defeased as provided in Section 8.1 of this Trust Agreement;and (c) Bonds in lieu of or in substitution for which other Bonds shall have been issued pursuant to Article III of this Trust Agreement. Project means, collectively, the Property and the improvements thereon, and any and all additions or modifications thereto made as provided in Section 7.8 of the Lease. Project Trust Fund means the fund so designated which is established in Section 4.1 hereof. Propg*means the real property described in the Lease Agreement. Prope , Lease means the Property Lease, dated as of December 1, 2002, between the City, as lessor, and the Authority, as lessee, as amended and supplemented from time to time in accordance with its terms. Rating Agencies means Moody's and S&P,any successors thereto or any other nationally recognized rating service to the extent such rating agencies are maintaining a rating in connection with the Bonds as requested by or on behalf of the City. Rebatable Arbitrap-e shall have the meaning attributed to such term in Section 4.11(b). Rebate Fund means the account so designated established pursuant to Section 4.1 hereof. Rebate Resulations means the Regulations issued under Section 148(f)of the Code. Record Date means the fifteenth day of the calendar month preceding an Interest Payment Date. Redemption Account means the Redemption Account established in Section 4.1 hereof. Refunding Account means the account by that name established pursuant to Section 4.1 hereof. Revenue Fund means the fund by that name described in Section 4.8 of the Lease Agreement. S&P or Standard & Poor's means Standard & Poor's Ratings Services, a Standard & Poor's Financial Services LLC business, a municipal bond rating service with offices in New York,New York. OHSUSA:754116349.7 6 State means the State of California. Supplemental Trust Agreement means any agreement supplemental or amendatory of this Trust Agreement. Tax Certificate means the certificate by that name to be executed by the Authority and the City on the Delivery Date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code. Trust Agreement means this Trust Agreement relating to the San Juan Basin Authority, Lease Revenue Bonds(Ground Water Recovery Project)Issue of 2014,dated as of November 1, 2014, entered into by and among the City, the Authority and the Trustee, and any and all Supplemental Trust Agreements. Trust Estate means all amounts received by the Trustee for the account of the City pursuant to or with respect to the Lease Agreement including, without limitation, the Lease Payments and all amounts from time to time deposited in the funds, accounts and subaccounts created pursuant to this Trust Agreement, including all investments and investment earnings thereon, excluding, however, all moneys deposited or required to be deposited in the Rebate Fund. Trustee means The Bank of New York Trust Company, N.A., national bank association, duly organized and existing under and by virtue of the laws of the United States of America, having a corporate trust office in Los Angeles, California, or such other offices as the Trustee may designate,or its successor as Trustee hereunder. Water System means the entire water system of the City, including,without limitation,all real property and buildings and, including all improvements, works or facilities assessed, controlled or operated by the City to provide water, as such improvements, works or facilities now exist, together with all improvements and extensions to said water system later acquired, constructed or organized. Section 1.2. Rules of Construction. Except where the context otherwise requires, words importing the singular number shall include the plural number and vice versa, and words importing persons shall include fums,associations,corporations and other entities. ARTICLE II ASSIGNMENT; DECLARATION OF TRUST; REPRESENTATIONS AND RECITALS Section 2.1. Assignment of Lease Agreement. The Authority hereby absolutely assigns all of its rights, title and interest in the Lease Agreement to the Trustee for the benefit of the Bondowners, and the Authority retains no right,title or interest therein(other than its right to certain Additional Payments under Section 4.14 of the Lease Agreement). The City hereby consents to such assignment. OHSUSA:754116349.7 7 Section 2.2. Assignment of Property Lease. The Authority hereby absolutely assigns, for so long as any Bond is Outstanding,all of its rights,title and interest in the Property Lease to the Trustee for the benefit of the Bondowners, and the Authority retains no right, title or interest therein(other than such right,title and interest as may exist from and after the payment in full, or defeasance pursuant to Section 8.1 hereof,of the Bonds). Section 2.3. Declaration of Trust by Trustee. The Trustee hereby declares that it holds and will hold the Trust Estate upon the trusts hereinafter set forth and for the use and benefit of the Bondowners. Section 2.4. Deposit of Moncys. In order to effect the refunding of the 2002 Bonds, the Authority has executed the Lease Agreement and caused the Trustee to authenticate and deliver the Bonds and from the proceeds of the sale of the Bonds, the Trustee shall deposit into the various accounts in the Project Trust Fund the amounts provided for in Section 4.1 hereof. Section 2.5. Description of the Project. The description of the Project to be leased to the City, as lessee, from the Authority, as lessor pursuant to the Lease Agreement is set forth in Exhibit A attached thereto and incorporated herein by reference. Section 2.6. Conditions Precedent Satisfied. The City and the Authority hereby declare that all acts, conditions and things required by law to exist,happen and be performed on their parts precedent to and in connection with the execution and entering into of this Trust Agreement have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly empowered to execute and enter into this Trust Agreement. ARTICLE III BONDS,TERMS AND PROVISIONS Section 3.1. Preparation of Bonds. (a) The Authority hereby directs the Trustee to authenticate and deliver to the Original Purchaser thereof, the Bonds in an aggregate principal amount of$20,361,090. The Bonds shall be and are special obligations of the Authority and are secured by an irrevocable pledge of,and are payable as to principal and interest from the Trust Estate. (b) The Trustee shall not at any time while any Bond is Outstanding authenticate and deliver additional bonds payable from the Lease Payments except as provided in Sections 3.5,3.6,3.7,3.8,3.9 and 3.13 hereof. Section 3.2. Payments from Trust Estate Only; Distribution of Trust Estate. (a) All amounts payable by the Trustee with respect to the Bonds pursuant to this Trust Agreement shall be paid only from the income of and proceeds from the Trust Estate and only to the extent that the Trustee shall have actually received sufficient income or proceeds from the Trust Estate to make such payments in accordance with the terms of Article IV hereof. Each Bondowner agrees to look solely to the income of and the proceeds from the Trust Estate to OHSUSA:754]16349.7 8 the extent available for distribution to such holder as herein provided, and each Bondowner agrees that the Trustee is not personally liable to any Bondowner for any amounts payable under this Trust Agreement or subject to any liability under this Trust Agreement except liability under this Trust Agreement as a result of negligence or willful misconduct by the Trustee. (b) So long as the Bonds shall be Outstanding, all amounts of Lease Payments (including without limitation prepayments), Additional Payments, indemnity payments and other payments of any kind constituting a part of the Trust Estate payable to the Trustee, shall be paid directly to the Trustee for distribution, in accordance with Article IV of this Trust Agreement, to or for the Bondowners. Section 3.3. The Bonds. (a) The Bonds shall mature on December 1, 2034. Interest on the Bonds shall be payable from the preceding Interest Payment Date to which interest was paid, provided, Bonds registered on or prior to May 15, 2015 shall have interest payable with respect thereto from the Delivery Date, and Bonds registered after a Record Date and on or prior to an Interest Payment Date shall have interest payable with respect thereto from such Interest Payment Date. (b) The Bonds shall bear interest at the rate of 3.85%per annum. (c) Interest due with respect to the Bonds shall be payable on each Interest Payment Date to and including the date of maturity or redemption, whichever is earlier. The interest to he paid to Bondowners on each Interest Payment Date shall be calculated on the basis of the rates per annum set forth in subsection(b) above. Interest shall be calculated on the basis of a 360 day year of twelve 30 day months. Interest with respect to any Bond shall be payable to the person appearing on the registration books of the Trustee as the Owner thereof, such interest to be paid by check mailed to such Owner on the Interest Payment Date by first class mail at his address as it appears on such registration books at the close of business on the Record Date. Payment of interest with respect to the Bonds may, at the option of any Owner, be transmitted by wire transfer to an account specified in writing to the Trustee on or before the applicable Record Date by said Owner. Any such written request shall remain in effect until rescinded in writing by the Owner. (d) The Bonds shall be delivered in fully registered form in the denomination of $250,000 or any integral multiple of $1.00 in excess thereof. Unless the Authority shall otherwise direct, in writing, the Bonds shall be lettered and numbered in such manner as the Trustee shall deem adequate and appropriate for record keeping purposes. Subject to the provisions of this Trust Agreement, the Bonds shall be substantially in the form set forth in Exhibit A hereof. The Trustee shall maintain,or cause to be maintained at its corporate trust office a system by which a record of the names and addresses of Bondowners as of any particular time can be kept,and the Trustee shall,upon request of the Authority or the City, furnish such information to the Authority or the City. 014SUSA:754116349.7 9 (e) The principal of the Bonds shall be payable at the corporate trust office of the Trustee,or such other location as so designated by the Trustee. (f) The Bonds are subject to redemption as follows: (i) Extraordinary Redemption. The Bonds are subject to redemption in whole or in part, without premium, on any date in the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, upon the occurrence of damage,destruction or condemnation of the Project,or any portion thereof, which results in Net Insurance Proceeds to the extent required or permitted by the Lease Agreement to be applied to prepayment of Lease Payments. (ii) Optional Redemption. The Bonds are subject to optional redemption prior to maturity, at the option of the City pursuant to the Lease Agreement, as a whole or in part on any date on or after December 1, 2024 from available funds in the Redemption Account, at a redemption price equal to the principal amount to be redeemed plus accrued interest to the redemption date. (iii) Mandatory Term Bond Redemption. The Bonds are subject to mandatory redemption, by lot, in the principal amounts hereinafter set forth, without premium, on December 1 of each year, commencing on December 1, 2015 from the principal portion of the Lease Payments required to be on deposit in the Debt Service Payment Account on the Lease Payment Date immediately prior to December 1 of each of the years and in the amounts as follows: OHSUSA:754116349.7 10 Year Principal Amount 2015 $ 1,109,882 2016 1,187,143 2017 1,232,473 2018 1,281,398 2019 1,328,794 2020 1,384,603 2021 1,433,622 2022 1,489,567 2023 1,548,915 2024 1,606,548 2025 567,401 2026 588,996 2027 609,672 2028 634,394 2029 658,068 2030 685,654 2031 712,052 2032 737,216 2033 766,099 2034(Maturity) 798,593 (g) In the event redemption is made pursuant to Section 3.3(f) hereof, all Bonds called for redemption shall be paid in the following manner: (i) In the event of a redemption of Bonds pursuant to Section 3.3(0(i) hereof, the Trustee shall deposit in the Redemption Account to be applied to the redemption on any date of Bonds and the payment of accrued interest on the Bonds to be redeemed,to the extent such interest is not paid out of the Debt Service Payment Account as provided in Section 4.3(b) hereof, the balance, if any, of Net Insurance Proceeds received by the Trustee pursuant to Section 5.3(b)of the Lease Agreement; (ii) In the event the City exercises its option to purchase the Project as provided in Section 7.3 of the Lease Agreement and there is a redemption of Bonds pursuant to Section 3.3(f)(ii) hereof, the Trustee shall transfer and deposit in the Redemption Account the amount received by Trustee from the City and all amounts then on deposit in all funds and accounts hereunder(excepting only the Rebate Fund)pursuant to Section 7.3 of the Lease Agreement which amount shall be applied to the redemption of Bonds on the earliest redemption date on which Bonds can be redeemed; and (iii) In the event sinking fund payments are due and payable, the Trustee shall transfer an amount equal to each such payment on or prior to the respective sinking fund payment date and deposit such amount into the Redemption Account,which amount shall be applied to the redemption of term Bonds pursuant to Section 3.3(f)(iii) hereof. OHSUSA:754116349.7 11 Section 3.4. Medium of Payment. The Bonds shall be payable,with respect to interest and principal,and premium,if any,in lawful money of the United States of America. Section 3.5. Execution. (a) The Bonds shall be executed by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors or by a Co-Administrator of the Authority by the facsimile or manual signature and authenticated in the name of, and by, the Trustee, as trustee under this Trust Agreement,by the manual signature of an authorized signatory of the Trustee. (b) Upon surrender of a Bond at the corporate trust office of the Trustee with a written instrument of transfer satisfactory to the Trustee, duly executed by the Bondowner or his duly authorized attorney,the Trustee shall, at the option of the Bondowner and upon payment by such Bondowner of any charges which the Trustee may make as provided in Section 3.7, exchange such Bond for an equal aggregate principal amount of Bonds of the same aggregate principal amount and maturity and interest rate. (c) The Bonds shall be sold and subsequently transferred only to a Qualified Institutional Buyer as defined in Rule 144A of the Securities Act of 1933 ("QIB")or any affiliate or other party related to the Original Purchaser or a special purpose entity, a trust or custodial arrangement, from which the Bonds are not expected to be sold except to beneficial owners who are QIBs. Section 3.6. Ne o_ tig_ability,Transfer and Registry. (a) Each Bond shall be transferable only upon the books of the Trustee which shall be kept for that purpose at the corporate trust office of the Trustee, by the Bondowner in person or by his attorney duly authorized in writing, upon surrender thereof together with a written instrument of transfer satisfactory to the Trustee duly executed by the Bondowner or his duly authorized attorney. Upon the transfer of any such Bond the Trustee shall deliver in the name of the transferee a new Bond or Bonds of the same aggregate principal amount and maturity and interest rate as the surrendered Bond. (b) The Trustee may deem and treat the person in whose name any Bond shall be registered upon the books of the Trustee as the absolute owner of such Bond, whether such Bond shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal, if any, of and interest with respect to such Bond and for all other purposes;and all such payments so made to any such Bondowner 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 the Trustee shall not be affected by any notice to the contrary. Section 3.7. Regulations With Respect to Exchanges and Transfers. In all cases in which the privilege of exchanging Bonds or transferring Bonds is exercised, the Trustee shall authenticate and deliver Bonds in accordance with the provisions of this Trust Agreement. All Bonds surrendered in any such exchanges or transfers shall forthwith be canceled by the Trustee pursuant to Section 3.14 hereof. For every such exchange or transfer of Bonds, except an exchange of a temporary Bond for a definitive Bond,the Trustee may make a charge sufficient to reimburse it for any tax, fee or other governmental charge required to be paid with respect to OHSUSA:754116349.7 12 such exchange or transfer. The cost of printing any new Bonds and any services rendered or any expenses incurred by the Trustee in connection with any exchange or transfer shall be paid by the City(except governmental taxes and charges and the costs of replacing lost, stolen or mutilated Bonds which shall be paid by the Owner). The Trustee shall not be required to transfer or exchange any Bonds selected for redemption or within the 15 days before the selection of Bonds for redemption. Any request for a transfer of a Bond will be deemed a representation by the Owner that such transfer complies with the restrictions set forth in Section 3.5(e). Section 3.8. Bonds Mutilated, Destroyed, Stolen or Lost. In case any Bond shall become mutilated or be destroyed, stolen or lost,the Trustee shall authenticate and deliver a new Bond of like maturity and principal amount as the Bond so mutilated,destroyed, stolen or lost,in exchange and substitution for such mutilated Bond, upon surrender and cancellation of such mutilated Bond, or in lieu of and substitution for the Bond, destroyed, stolen or lost,upon receipt by the Trustee of evidence satisfactory to the Trustee that such Bond has been destroyed, stolen or lost and proof of ownership thereof, and upon furnishing the Trustee with indemnity satisfactory to the Trustee and complying with such other regulations as the Trustee may prescribe and paying such expenses as the Trustee may incur. All Bonds so surrendered to the Trustee shall be canceled by it pursuant to Section 3.14 hereof. Any such new Bonds issued pursuant to this Section in substitution for Bonds mutilated or alleged to be destroyed, stolen or lost shall be equally secured by and entitled to equal and proportionate benefits of,with all other Bonds delivered under this Trust Agreement, any moneys or securities held by the Trustee for the benefit of the Bondowners. Section 3.9. Temporary Bonds. Until the definitive Bonds are prepared, the Trustee may authenticate and deliver, in the same manner as is provided in Section 3.5, in lieu of definitive Bonds, one or more temporary Bonds substantially of the tenor of the definitive Bonds in lieu of which such temporary Bond or Bonds are issued, in any authorized denomination, and with such omissions, insertions and variations as may be appropriate to temporary Bonds. The Trustee at the expense of the City shall authenticate and, upon the surrender of such temporary Bonds and the cancellation of such surrendered temporary Bonds, shall, without charge to the Owners thereof, in exchange therefor, deliver definitive Bonds, of the same aggregate principal amount and maturity as the temporary Bonds. Section 3.10. Privilege of Redemption. The Bonds shall be redeemable at such times,in such amount,upon such terms and upon such notice as are provided in this Article III. Section 3.11. Selection of Bonds to be Redeemed. If less than all of the Bonds of a single maturity shall be called for redemption, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair. In selecting Bonds for redemption, the Trustee shall treat each Bond as representing that number of Bonds of$1.00 denomination which is obtained by dividing the principal amount of such Bond to be redeemed in part by$1.00. Unless the City directs the Trustee in writing as to any other method of redemption, whenever provisions are made for the redemption of Bonds in part,the Bonds to be redeemed will be redeemed from each maturity, with the mandatory redemption schedule set forth above to be adjusted accordingly. The City shall provide the Trustee with a revised mandatory redemption schedule. OHSUSA:754116349.7 13 Section 3.12. Notice of Redemption. When redemption of Bonds is required, the Trustee shall, at the expense of the City, give notice of the redemption of such Bonds, the redemption date and the place or places where amounts due upon such redemption will be payable and, if less than all of the Bonds are to be redeemed, the letters and numbers of such Bonds so to be redeemed, and,in the ease of Bones to be redeemed in part only,such notice shall also specify the respective portions of the principal amount thereof to be redeemed. Such notice shall further state that on such date there shall become due and payable upon each Bond to be redeemed the principal amount to be redeemed, together with interest accrued to the redemption date, and that from and after such date interest on the principal amount redeemed shall cease to accrue and be payable. The Trustee shall mail a copy of such notice,postage prepaid, first class United States mail,not less than 30 days and not more than 60 days before the redemption date, to the Bondowners of any Bonds or portions of Bonds which are to be redeemed, at their addresses as the same appear upon the registry books, but neither the failure of a Bondowner to receive such notice nor any immaterial defect therein shall affect the validity of the proceedings for the redemption of Bonds. In the case of a redemption described in Section 3.3(f)(i) or (ii), the notice may state (i) that it is conditioned upon the deposit of money, in an amount equal to the amount necessary to effect the redemption, with the Trustee no later than the redemption date or(ii)that the Authority retains the right to rescind such notice on or prior to the scheduled redemption date (in either case, a "Conditional Redemption"), and such notice and optional redemption shall be of no effect if such money is not so deposited or if the notice is rescinded. Any Conditional Redemption may be rescinded in whole or in part at any time prior to the redemption date if the Authority delivers a Certificate of Authorized Representative of the Authority to the Trustee instructing the Trustee to rescind the redemption notice. The Trustee shall give prompt notice of such rescission to the affected Owners. Any Bonds subject to Conditional Redemption where redemption has been rescinded shall remain Outstanding, and the rescission shall not constitute an Event of Default. Further, in the case of a Conditional Redemption, the failure of the Authority to make funds available in part or in whole on or before the redemption date shall not constitute an Event of Default, and the Trustee shall give prompt notice to the affected Owners that the redemption did not occur and that the Bonds called for redemption and not so paid remain Outstanding. Section 3.13. Payment of Redeemed Bonds. Notice having been given in the manner provided in Section 3.12, and payment having been provided for, the Bonds or portions thereof so called for redemption shall become due and payable on the redemption date so designated at the principal amount to be redeemed plus interest accrued and unpaid to the redemption date, and, upon presentation and surrender thereof at the office specified in such notice, such Bonds, or portions thereof, the principal amount and interest shall be paid as provided in Section 3.3. If there shall be called for redemption less than all of a Bond,the Trustee shall execute and deliver, upon the surrender of such Bond, without charge to the Owner thereof, for the unredeemed balance of the principal amount of the Bond so surrendered, Bonds of like maturity in any of the authorized denominations, at the option of the Owner thereof. If, on the redemption date, moneys for the redemption of all the Bonds or portions thereof to be redeemed together with interest to the redemption date shall be held by the Trustee so as to be available therefor on said date;and if notice of redemption shall have been given to the Owners as aforesaid,then from and OHSUSAt754116349.7 14 after the redemption date interest on the Bonds or portions thereof so called for redemption shall cease to accrue and become payable. Upon the payment of the redemption price of the Bonds being redeemed, each check or other transfer of funds issued for such purpose shall to the extent practicable by the Trustee bear the CUSIP number identifying, by issue and maturity,the Bonds being redeemed with the proceeds of such check or other transfer. Section 3.14. Cancellation of Bonds. All Bonds paid or redeemed, either at or before maturity, shall be delivered to the Trustee when such payment or redemption is made, and such Bonds shall thereupon be promptly canceled. Bonds so canceled shall be destroyed by the Trustee and upon written request of the City a certificate of destruction shall be provided to the City. ARTICLE IV ESTABLISM4ENT AND ADMINISTRATION OF FUNDS AND ACCOUNTS Section 4.1. Establishment of Proiect Trust Fund. There is hereby established with the Trustee a special trust fund to be designated as the `Troject Trust Fund'; which shall be held in trust by the Trustee for the benefit of the Bondholders pending application of the funds on deposit therein as provided in this Trust Agreement. The Trustee shall keep the Project Trust Fund separate and apart from all other funds and moneys held by it. Within the Project Trust Fund there are hereby established the following accounts (the "Accounts"): (i) Debt Service Payment Account; (ii) Costs of Issuance Account; (iii) Refunding Account; (iv) Redemption Account; and (v)Insurance and Condemnation Account. There is established by Section 4.11 hereof with the Trustee a special trust fund to be designated as the "Rebate Fund", which the Trustee shall maintain and manage pursuant to the provisions of Section 4.11 hereof. On the Delivery Date the Trustee shall deposit proceeds of the sale of the Bonds ($20,361,090), in the Project Trust Fund as follows. The Trustee shall deposit in the Accounts the following amounts: Costs of Issuance Account: an amount equal to $195,000.07 for the payment of Costs of Issuance. Refunding Account: an amount equal to $20,166,089.93 for the refunding of the 2002 Bonds. Section 4.2. Refunding Account. On the Delivery Date, the Trustee shall transfer $20,166,089.93 in the Refunding Account to the Escrow Agent for application as provided in the Escrow Agreement(and thereupon the Trustee shall close the Refunding Account). Section 4.3. Debt Service Payment Account. (a) In addition to the moneys required to be deposited in the Debt Service Payment Account pursuant to Sections 4.2, 4.4 and 4.7 hereof, all Lease Payments received by the Trustee shall be deposited by the Trustee in the Debt Service Payment Account immediately upon their receipt. The Trustee shall pay from the Debt Service Payment Account on each OHSUSA:754116349.7 15 Interest Payment Date,the amount required for the interest payable on such date and the amount required for the principal payable, if any, on such date. Such amounts shall be applied by the Trustee on the due dates thereof. (b) The Trustee shall also transfer to the Redemption Account from the Debt Service Payment Account any amount available therein to pay principal, premium, if any, and the accrued interest on the Bonds redeemed pursuant to Section 3.3(f). Section 4.4. Redemption Account. (a) The Trustee shall apply moneys in the Redemption Account as provided in this Section 4.5 and Section 4.6. Amounts in the Redemption Account shall be applied to the redemption of Bonds in accordance with Section 3.3(f). Interest on Bonds so redeemed shall be paid from the Debt Service Payment Account, except to the extent Net Insurance Proceeds are used to pay such interest, and all expenses in connection with such redemption shall be paid by the City as Additional Payments. (b) The Trustee shall deposit in the Redemption Account as received, all moneys, if any, paid to it by the City for prepayment of Lease Payments pursuant to Sections 6.1(c)and 7.3 and Article X of the Lease Agreement. All of said moneys shall be set aside in the Redemption Account for the purpose of redeeming the Bonds in advance of their maturity and shall be applied on or after the date of redemption designated pursuant to Section 3.3(f) and Section 3.3(g) to the payment of principal, redemption premium, if any, and accrued interest, if any,with respect to the Bonds to be redeemed upon presentation and surrender of such Bonds. Section 4.5. Insurance and Condemnation Account. Subject to the provisions of Section 6.1(a) of the Lease Agreement, the proceeds of insurance maintained pursuant to the Lease Agreement against physical loss of or damage to the Project or any portion thereof shall be deposited in the Insurance and Condemnation Account immediately upon receipt and applied as provided in Article VI of the Lease Agreement. Section 4.6. Deposits of Money; Payment Procedure. All moneys required to be held by the Trustee under the provisions of this Trust Agreement shall be deposited with the Trustee. All moneys deposited under the provisions of this Trust Agreement with the Trustee shall be held in trust and applied only in accordance with the provisions of this Trust Agreement, and the Project Trust Fund shall be a trust fund for the purposes thereof. Section 4.7. Investment of Certain Accounts and Subaccounts. Subject to the requirements of Section 4.9 hereof, all moneys in the funds, accounts and subaccounts held by the Trustee hereunder shall be invested as follows: (a) Moneys held in the Debt Service Payment Account shall be invested and reinvested by the Trustee pursuant to this Section 4.7. Moneys held in the Insurance and Condemnation Account may be invested and reinvested in Investment Securities which mature not later than such times as shall be necessary to provide moneys when needed for payments to be made from such Account. Moneys in the Redemption Account shall be invested only in Investment Securities which have a maturity no longer than 30 days. The Trustee shall make all OHSUSA:754116349.7 16 such investments of moneys held by it in accordance with written instructions received from an Authorized Representative of the City at least two Business Days in advance of the investment. The Authorized Representative of the City may instruct the Trustee, in making any investment in any Investment Securities with moneys in any Account established under this Trust Agreement, to combine such moneys with moneys in any other Account, but solely for purposes of making such investment in such Investment Securities. In the absence of instructions from the City, the Trustee shall hold such funds uninvested. Absent negligence or willful misconduct on its part, the Trustee shall have no liability or responsibility for any loss resulting from any investment made in accordance with the provisions of this Section 4.7. The Trustee shall have no obligation to pay additional interest or maximize investment income on any funds held by it and neither the Authority, nor the Bond Owners shall have any claim of any kind against the Trustee in connection with such Investments. (b) Any income or interest earned by the Debt Service Payment Account due to the investment thereof shall be retained in the Debt Service Payment Account and applied as a credit against the Lease Payments due on the next occurring Lease Payment Date and deemed to be the payment of the interest portion thereof to the extent thereof and then to principal. (c) Moneys held in the Costs of Issuance Account shall be invested and reinvested by the Trustee in Investment Securities set forth in clause (B)(5) of the definition thereof. Any income or interest earned by the Costs of Issuance Account due to the investment thereof shall transferred to the Debt Service Payment Account. (d) Nothing herein shall prevent any Investment Securities acquired as investments of funds held hereunder from being issued or held in book-entry form on the books of the Department of the Treasury of the United States of America. (e) The Trustee or an affiliate may act as principal or agent in the acquisition or disposition of an investment and shall be entitled to its customary fees therefor pursuant to a prior written fee agreement with the Authority and the City. (f) If at any time after investment therein an investment ceases to meet the criteria set forth in the definition of Investment Securities as determined by a valuation of such investment and such obligation, aggregated with other non-conforming investments, exceeds ten percent (10%) of invested funds, such investment shall be sold or liquidated unless otherwise approved by the City. (g) Investments (except investment agreements) in Trust Agreement funds and accounts and subaccounts shall be valued by the Trustee as frequently as deemed necessary by the Authority,but not less often than semi-annually nor more often than monthly, at the fair market value thereof, exclusive of accrued interest. Deficiencies in the amount on deposit in any fund or account resulting from a decline in market value shall be restored not later than the next succeeding semiannual valuation date which is at least six months after the valuation date. Investments purchased with funds on deposit in the Reserve Account shall have an average aggregate weighted term to maturity not greater than five years. OHSUSA:754116349.7 17 The Trustee shall terminate any repurchase agreement upon a failure of the counterparty thereto to maintain the requisite collateral percentage after the restoration period and, if not paid by the counterparty in federal funds against transfer of the repo securities,liquidate the collateral. The Trustee shall give notice to any provider of an investment agreement in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid. The Trustee shall,upon actual knowledge of the withdrawal or suspension of either of the ratings of an investment agreement provider or a drop in the ratings thereon below"A,"so notify the Authority and, if so directed by the Authority, shall demand further collateralization of the agreement or liquidation thereof. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City will not receive such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which the Trustee may make any investments hereunder through its own bond or investment department or trust investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. Section 4.8. Valuation and Sale of Investments. Obligations purchased as an investment of moneys in any fund, account or subaccount created under the provisions hereof shall be deemed at all times to be a part of such fund, account or subaccount and any profit realized from the liquidation of such investment shall be credited to, and any loss resulting from the liquidation of such investment shall be charged to, the computation of net interest earned on the moneys and investments of such fund,account or subaccount. The value of the above investments shall be determined as provided in "Value" below. "Value," which shall be determined as of the 10th day of March and September of each year unless otherwise directed in writing by the Authority, means that the value of any investments shall be calculated as follows: (a) as to investments the bid and asked prices of which are published on a regular basis in The Wall Street Journal (or, if not there, then in The New York Times): the average of the bid and asked prices for such investments so published on or most recently prior to such time of determination; (b) as to investments the bid and asked prices of which are not published on a regular basis in The Wall Street Journal or The New York Times: the average bid price at such time of determination for such investments by any two nationally recognized government securities dealers (selected by the Trustee in its absolute discretion) at the time making a market in such investments or the bid price published by a nationally recognized pricing service; (c) as to certificates of deposit and bankers acceptances: the face amount thereof,plus accrued interest; OHSUSA:754116349.7 18 (d) as to any investment not specified above: the value thereof established by prior agreement between the Authority,the Trustee and the City;and (e) alternatively, the Trustee shall determine the value based on accepted industry standards and from accepted industry providers. Except as otherwise provided herein, the Trustee shall sell or present for redemption or transfer as provided in the next sentence any obligation so purchased as an investment whenever it shall be requested in writing by an Authorized Representative of the City so to do or whenever it shall be necessary in order to provide moneys to meet any payment or transfer from any fund, account or subaccount held by it. In lieu of such sale or presentment for redemption,the Trustee may, in making the payment or transfer from any fund, account or subaccount mentioned in the preceding sentence, transfer such investment obligations or interest appertaining thereto if such investment obligations shall mature or be collectable at or prior to the time the proceeds thereof shall be needed and such transfer of investment obligations may be made in book entry form. Absent bad faith or willful misconduct or negligence on its part,the Trustee shall not be liable or responsible for making or liquidating any such investment in the manner provided above or for any loss resulting from any such investment. Section 4.9. Costs of Issuance Account. The Trustee shall deposit to the Costs of Issuance Account the amount required by Section 4.1 hereof. The Trustee shall disburse funds from the Costs of Issuance Account upon receipt by the Trustee of an executed Requisition in the form of Exhibit B hereto. Each such Requisition of the City shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. Any amounts remaining on deposit in the Costs of Issuance Account on May 1,2015 shall be transferred to the Debt Service Payment Account. Section 4.10. Rebate Fund. (a) Establishment. The Trustee shall establish a special fund designated the "Rebate Fund" (the "Rebate Fund"). All amounts at any time on deposit in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the requirement to make rebate payments to the United States pursuant to Section 148 of the Code and the Treasury Regulations promulgated thereunder. Such amounts shall be free and clear of any lien under this Trust Agreement and shall be governed by this Section and Section 5.17 of this Trust Agreement and by the Tax Certificate executed by the City and Authority. The Trustee shall have no independent responsibility to, or liability resulting from its failure to, enforce compliance by the Authority with the Rebate Requirement. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the Bonds shall be governed by this Section and the Tax Certificate for the Bonds, unless and to the extent that the Authority delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the Bonds will not be adversely affected if such requirements are not satisfied. (i) Computation of Rebate Amount. Within 55 days of the end of the fifth Bond Year (as such term is defined in the Tax Certificate) and each five years thereafter, the Authority shall calculate or cause to be calculated the amount of"rebate OHSUSA:754116349.7 19 amount," in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the "rebate amount," described, if applicable, in the Tax Certificate (e.g.,the temporary investment exceptions of Section 148(f)(4)(B) of the Code, the expenditure exception of Section 148(f)(4)(C) of the Code or Section 1.148-7(c) and (d) of the Treasury Regulations,the exception for certain"small governmental issuers"as set forth in Section 148(f)(4)(D) of the Code, and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the "1-1/2% Penalty") has been made)), for this purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b)of the Treasury Regulations. The Authority shall obtain expert advice as to the calculation of the "rebate amount" to comply with this Section. The Trustee may rely conclusively upon the City's determinations, calculations and certifications required by this Section. The Trustee shall have no responsibility to independently make any calculation or determination or to review the City's calculations hereunder. (ii) Transfer of Moneys. Within 55 days of the end of the fifth Bond Year and each five years thereafter,upon the written request of the Authority, an amount shall be deposited to the Rebate Fund by the Trustee from any legally available moneys for such purpose(as specified by the Authority in the aforesaid written request), if and to the extent required so that the balance in the Rebate Fund shall equal the"rebate amount" so calculated in accordance with this Section. In the event that immediately following the transfer required by the previous sentence,the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon written request of the Authority,the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Debt Service Payment Fund. (iii) Timing of Rebate Payment to the Treasury. The Trustee shall pay, as directed by request of the Authority, to the United States Treasury, out of amounts in the Rebate Fund, (1) not later than 60 days after the end of(A) the fifth Bond Year, and(B) each applicable fifth Bond Year thereafter, an amount that,together with all previous rebate payments,is equal to at least 90%of the"rebate amount"calculated as of the end of such Bond Year; and (2) not later than 60 days after the payment of the Bonds or Parity Obligations of any series, as applicable, an amount equal to 100% of the "rebate amount"calculated as of the date of such payment (and any income attributable to the"rebate amount"determined to be due and payable) in accordance with Section 1.148-3 of the Treasury Regulations. Each payment required to be made pursuant to this Section shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T prepared by the Authority, or shall be made in such other manner as provided under the Code. OHSUSA:754116349.7 20 (b) Deficiencies in the Rebate fund. In the event that,prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the Authority shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. (c) Disposition or Unexpended Mone. Any moneys remaining in the Rebate Fund after redemption and payment of the Bonds and the payments described in this Section being made may be withdrawn by the Authority and utilized in any lawful manner by the Authority. (d) Record Keeping. The Authority shall retain records of all determinations made hereunder until six years after the complete retirement of the Bonds. (e) Survival of Defeasance. Notwithstanding anything in this Trust Agreement to the contrary, the obligation to comply with the requirements of this Section shall survive the payment in full or defeasance of the Bonds. ARTICLE V COVENANTS,EVENTS OF DEFAULT,REMEDIES OF BONDOWNERS AND LIMITATIONS OF LIABILITY Section 5.1. Trustee to Enforce Lease Agreement and Property Lease. The Trustee covenants and agrees with the Bondowners, subject to the provisions of the Trust Agreement to exercise the rights assigned to it under the Lease Agreement and the Property Lease as assignee of the Authority, and to enforce the Property Lease against the City as provided therein and the Lease Agreement against the City as provided therein, all subject to the provisions of Section 6.12 hereof. Section 5.2. Against Amendment or Termination of Property Lease. The Authority and the City hereby covenant and agree not to amend the Property Lease in a manner that materially adversely affects the security for the Bonds or to terminate the Property Lease so long as the Bonds remain Outstanding. Section 5.3. Amendment of Lease Agreement. The terms of the Lease Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever except by written instrument signed by the Authority and the City, subject to the same conditions as set forth in Section 7.2 hereof. Section 5.4. Notice of Non-Payment. In the event of delinquency in the payment of Lease Payments due by the City pursuant to the Lease Agreement, the Trustee shall promptly give written notice of the delinquency and the amount thereof to the City. Section 5.5. Assigprnent of Rights. Pursuant to this Trust Agreement, the Authority has transferred, assigned and set over to the Trustee all of the Authority's rights in and to the Property Lease and the Lease Agreement including without limitation all of the Authority's right to receive Lease Payments from the City under the Lease Agreement, its right to receive the OHSUSA:754116349.7 21 proceeds of insurance or of an eminent domain award on the Project, its right to pursue the remedies to which it is entitled in the event of default by the City under the Lease Agreement (a "Lease Default Event"), its right to enforce payment of such Lease Payments when due, or otherwise protect its interests and enforce its rights under the Lease Agreement. Section 5.6. Events of Default. The following events shall be Events of Default hereunder: (a) Default in the due and punctual payment of the principal on any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption,by acceleration,or otherwise. (b) Default in the due and punctual payment of any installment of interest on any Bonds when and as the same shall become due and payable. (c) Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in this Trust Agreement or in the Bonds contained, if such default shall have continued for a period of thirty (30) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee; provided, however, that if in the reasonable opinion of the Authority the default stated in the notice can be corrected,but not within such thirty (30) day period, such default shall not constitute an Event of Default hereunder if the Authority shall commence to cure such default within such thirty (30) day period and thereafter diligently and in good faith cure such failure in a reasonable period of time. (d) The occurrence and continuation of a Lease Default Event. Notwithstanding anything in this Trust Agreement to the contrary,the Trustee shall have no right to declare the principal or interest on the Bonds to be due and payable immediately Section 5.7. Application of Funds. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article V or Article IX of the Lease Agreement shall be applied by the Trustee in the order following upon presentation of the several Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid- First,to the payment of the costs and expenses of the Trustee in declaring such Event of Default, including reasonable compensation to its or their agents, attorneys, consultants and counsel and any fees and expenses due or owing the Trustee, and then the payment of the costs and expenses of the Bondowners in declaring such Event of Default, including reasonable compensation to its or their agent,attorneys,consultants and counsel; Second, to the payment of the whole amount then owing and unpaid with respect to the Bonds for principal and interest and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid with respect to the Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or of interest over principal, or of any installment over any other installment of interest, ratably to the aggregate of such principal and interest. OHSUSA:754116349.7 22 Section 5.8. Institution of L.eeal Proccedinps. If one or more Events of Default shall happen and be continuing, the Trustee in its discretion may, and upon the written request of the Owners of a majority in principal amount of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall,proceed to protect or enforce its rights or the rights of the Owners of Bonds as provided in the Lease Agreement or in this Trust Agreement. Section 5.9. Non-Waiver. Nothing in this Article V or in any other provision of this Trust Agreement or in the Bonds, shall affect or impair the obligation of City to pay or prepay the Lease Payments in accordance with and subject to the terms and provisions of the Lease Agreement, or affect or impair the right of action, which is also absolute and unconditional, of the Bondowners to institute suit to enforce and collect such payment. No delay or omission of the Trustee or of any Bondowners to institute suit to enforce and collect such payment and no delay or omission of the Trustee or of any Bondowner of any of the Bonds to exercise any right or power arising upon the happening of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by this Article V to the Trustee or to the Bondowner may be exercised from time to time and as often as shall be deemed expedient by the Trustee or the Bondowner. Section 5.10. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or the Bondowners is intended to be exclusive of any other remedy, and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing,at law or in equity or by statute or otherwise. Section 5.11. Power of Trustee to Control Proceedings. Except as provided in Section 5.3, in the event that the Trustee, upon the happening of an Event of Default, shall have taken any action,by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Bondowners of a majority in principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal,compromise, settlement or other disposal of such action;provided,however, that the Trustee shall not discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, without the consent of a majority in aggregate principal amount of the Bonds Outstanding. Section 5.12. Limitation on Bondowners' Right to Sue. Except as provided in Section 5.3, no Bondowner shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Trust Agreement, unless (a) such Bondowner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b)the Bondowners of at least twenty-five percent(25%) in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted to the Trustee as assignee of the Authority or to institute such action, suit or proceeding in its own name; (c) said Bondowner shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty(60) days after such written request shall have been received by, and said tender of indemnity shall have been made to,the Trustee. OHSUSA:754116349.7 23 Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Bondowner of any remedy hereunder; it being understood and intended that no one or more Bondowners shall have any right in any manner whatever by his or their action to enforce any right under this Trust Agreement, except in the manner herein provided, and that all proceedings at law or in equity with respect to an Event of Default shall be instituted,had and maintained in the manner herein provided and for the equal benefit of all Bondowners of the Outstanding Bonds. The right of any Bondowner of any Bond to receive payment of said Bondowner's interest in the Lease Payments as the same become due, or to institute suit for the enforcement of such payment, shall not be impaired or affected without the consent of such Bondowner, notwithstanding the foregoing provisions of this Section or any other provision of this Trust Agreement. Section 5.13. Reconstruction;Application of Insurance Proceeds. (a) If any useful portion of the Project shall be destroyed or is damaged by fire or other casualty, or title to, or the temporary use of, such portion shall be taken under the exercise of the power of eminent domain, the City shall as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair, reconstruction, restoration or replacement thereof, unless it is determined under the provisions of the Lease Agreement that such repair, reconstruction, restoration or replacement is not to be undertaken. The proceeds of any insurance paid on account of such damage or destruction, shall be held by the Trustee in the Insurance and Condemnation Account and made available for, and to the extent necessary be applied to,the cost of such repair,reconstruction,restoration or replacement. Such moneys deposited in the Insurance and Condemnation Account shall be applied and paid out by the Trustee as provided in the Lease Agreement. Pending such application, such proceeds shall be invested, upon direction of an Authorized Representative of the City, by the Trustee in Investment Securities which mature not later than such times as shall be necessary to provide moneys when needed to pay such cost of repair,reconstruction,restoration or replacement. The interest,as well as the gain.,if any,on such investments shall remain a part of any such Insurance and Condemnation Account to be applied as provided in this Section. The proceeds of any insurance not applied within six months after receipt thereof by Trustee to repairing, reconstructing, restoring or replacing damaged or destroyed property, or in respect of which notice in writing of intention to apply the same to the work of repairing,reconstruction,restoring or replacing the property damaged or destroyed shall not have been given to the Trustee by City within such six months, or which City shall at any time notify the Trustee are not to be so applied, shall be deposited in the Redemption Account and applied to the redemption of Bonds pursuant to Section 3.3(f)(i). After the completion of any repair, reconstruction,restoration, any remaining insurance proceeds shall be deposited in the Redemption Account and applied to the redemption of Bonds pursuant to Section 3.3. Section 5.14. Accounts and Reports. (a) The Trustee shall keep proper books of record and account in which complete and correct entries shall be made of its transactions relating to each fund and account established under this Trust Agreement and the principal amount of the Bonds and which shall at OHSUSA:754116349.7 24 all reasonable times upon reasonable prior notice be subject to the inspection of the City and Bondowners. (b) The Trustee shall provide the City,promptly after the end of each calendar month a statement of its transactions during such month relating to each fund, account or subaccount held by it under the Trust Agreement. Section 5.15. No Obligation by the City to Bondowners. Except for the payment of Lease Payments when due in accordance with the Lease Agreement and any other payment due and owing by the City under the Lease Agreement and the performance of the other covenants and agreements of the City contained in the Lease Agreement or hereunder, the City shall have no obligation or liability to any of the other parties or to the Bondowners with respect to this Trust Agreement or the terms, execution, delivery or transfer of the Bonds, or the distribution of Lease Payments to the Bondowners by the Trustee. Section 5.16. No Obligation With Refect to Performance by Trustee. The City or the Authority shall not have any obligation or liability to any of the other parties or to the Bondowners with respect to the performance by the Trustee of any duty imposed upon it under this Trust Agreement. Section 5.17. No Liability to Bondowners for Payment. Except as provided in this Trust Agreement, neither the Trustee nor the Authority shall have any obligation or liability to the Bondowners with respect to the payment of the Lease Payments by the City when due, or with respect to the performance by the City of any other covenant by it in the Lease Agreement. Section 5.18. Possession and Enjoyment. So long as no Lease Termination shall have occurred, the City shall during such Lease Term peaceably and quietly have and hold and enjoy the Project, without suit, trouble or hindrance from the Trustee, except as expressly set forth in the Lease Agreement. The Trustee will, at the written request of the City and at the City's cost, join in any legal action in which the City asserts its right to such possession and enjoyment, to the extent Trustee lawfully may do so; provided, however, the Trustee may decline to join in such action if it believes it will be exposed to liability for which it has not been satisfactorily indemnified against. Section 5.19. Tax Covenants. Notwithstanding any other provision of this Trust Agreement, absent an opinion of Bond Counsel that the exclusion from gross income of interest on the Bonds will not be adversely affected for federal income tax purposes, the Authority and the City covenant to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income and specifically covenant, without limiting the generality of the foregoing,as follows: (a) Private Activity. The Authority and the City will not take or omit to take any action or make any use of the proceeds of the Bonds, the Service Contract Project Improvements or of any other moneys or property which would cause the Bonds to be "private activity bonds"within the meaning of Section 141 of the Code. (b) Arbitrage,. The Authority and the City will make no use of the proceeds of the Bonds, the Project or of any other amounts or property, regardless of the sources, or take or OHSUSA:754116349.7 25 omit to take any action which would cause the Bonds to be"arbitrage bonds"within the meaning of Section 148 of the Code; (c) Federal Guarantee. The Authority and the City will make no use of the proceeds of the Bonds,the Project, or take or omit to take any action that would cause the Bonds to be"federally guaranteed"within the meaning of Section 149(b)of the Code; (d) Information Reportin The Authority and the City will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e)of the Code; (e) Hedge Bonds. The Authority and the City will make no use of the proceeds of the Bonds,the Project,or any other amounts or property,regardless of the source, or take or omit to take any action that would cause the Bonds to be considered "hedge bonds" within the meaning of Section 149(8) of the Code unless the Authority and the City take all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the Bonds for federal income tax purposes;and (f) Miscellaneous. The Authority and the City will take no action inconsistent with their expectations stated in the Tax Certificate and will comply with the covenants and requirements stated therein and incorporated by reference herein. Section 5.20. Parity Obligations. Neither the Authority nor the City shall issue or incur evidences of indebtedness or other obligations payable from the Lease Payments having any priority in payment over the Bonds. The City may at any time issue obligations secured on a parity with the Lease Payments which are incurred in accordance with Section 4.11 of the Lease. ARTICLE VI CONCERNING THE TRUSTEE Section 6.1. Employment of Trustee. The Authority hereby appoints The Bank of New York Mellon Trust Company,N.A., as Trustee. The Trustee shall,prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in this Trust Agreement, and no implied covenants or obligations shall be read into this Trust Agreement against the Trustee. The Trustee shall, during the existence of any Event of Default(which has not been cured in accordance herewith), exercise such of the rights and powers vested in it by this Trust Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Section 6.2. Trustee Acceptance of Duties. The Trustee shall signify its acceptance of the duties and obligations imposed upon it hereby by executing and delivering this Trust Agreement; and by executing such acceptance the Trustee shall be deemed to have accepted such duties and obligations with respect to all the Bonds thereafter delivered,but only,however,upon the terms and conditions set forth herein. OHSUSA:754116349.7 26 Section 6.3. Evidence on Which Trustee May Act. (a) The Trustee, upon receipt of any notice, resolution, request, consent, order, certificate, report, opinion, bond, or other paper or document furnished to it pursuant to any provision hereof, shall examine such instrument to determine whether it conforms to the requirements hereof and shall not be liable for acting upon any such instrument believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may or may not be counsel to the City, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee may rely on and shall not be liable for acting upon the written instructions of the Authority and the City and such employees and representatives of the City as the City may hereinafter designate in writing. (b) Whenever the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter(unless other evidence in respect thereof be therein specifically prescribed)may be deemed to be conclusively proved and established by a certificate of an Authorized Representative of the City, and such certificate shall be full warrant for any action taken or suffered in good faith under the provisions hereof upon the terms hereof; but in its discretion the Trustee may in lieu thereof accept other evidence of such fact or matter or may require such further or additional evidence as to it may seem reasonable. (c) Except as otherwise expressly provided herein, any request, order, notice or other direction required or permitted to be furnished pursuant to any provision hereof by the Authority or the City to the Trustee shall be sufficiently executed in the name of the Authority or the City by an Authorized Representative of the Authority or the City, as appropriate. Section 6.4. Obligations of Trustee. Upon receipt of written notice of the termination of the Lease Agreement,the Trustee shall at the written request of the City convey any right,title or interest in the Project created by this Trust Agreement free and clear of all liens thereon which Trustee may have. Section 6.5. Compensation. The City has agreed in the Lease Agreement to pay to the Trustee compensation for all services rendered hereunder and also all expenses, charges, counsel fees and other disbursements,including those of its attorneys, agents, and employees, incurred in and about the performance of its powers and duties hereunder, at the rates and charges specified in a separate written fee agreement among the Authority, the City and the Trustee. The City shall reimburse the Trustee for any advances of its own funds to make payments for which the City and Authority is obligated hereunder,with interest at the maximum rate allowed by law. Section 6.6. Resignation of Trustee. The Trustee may at any time resign and be discharged of the duties and obligations created hereby by giving not less than 60 day's written notice to the City and the Bondowners, specifying the date when such resignation shall take effect, and such resignation shall take effect upon the day specified in such notice unless previously a successor shall have been appointed by the City and the Authority or the Bondowners as provided in Section 6.8, in which event such resignation shall take effect immediately on the appointment of such successor; provided that in the event the City and the OHSUSA:754116349.7 27 Authority are unable to appoint a successor on or before the date specified, the resigning Trustee shall continue to serve hereunder until a successor is appointed pursuant to Section 6.8. Section 6.7. Removal of Trustee. So long as no Event of Default has occurred and is continuing, the City may remove the Trustee upon 60 days' written notice by an instrument in writing filed with the Trustee. The Trustee may be removed upon 60 days' written notice by an instrument or concurrent instruments m writing filed with the Trustee and signed by the Owners of a majority in principal amount of the Bonds then Outstanding or their attorneys-in-fact duly authorized. Section 6.8. Appointment of Successor Trustee. (a) In case at any time the Trustee shall resign or shall be removed or shall become incapable of acting, or shall be adjudged as bankrupt or insolvent, or if a receiver, liquidator or conservator of the Trustee, or of its property, shall be appointed, or if any public officer shall take charge or control of the Trustee or of its property or affairs, a successor may be appointed by the Authority and the City. (b) If in a proper case no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Section 6.8 within 45 days after the Trustee shall have given to the City written notice as provided in Section 6.6 or after a vacancy in the office of the Trustee shall have occurred by reason of its inability to act, the Trustee may petition at the expense of the City a court to appoint a successor Trustee. (c) Any Trustee appointed under the provisions of this Section 6.8 in succession to the Trustee shall be a commercial bank or trust company or national banking association,having capital stock and surplus aggregating at least$75,000,000 and authorized to exercise trust powers. (d) Notwithstanding any other provision of this Trust Agreement,no removal, resignation or termination of the Trustee shall take effect until a successor shall be appointed. Section 6.9. Transfer of Rights and Project to Successor Trustee. Any successor Trustee appointed under the Trust Agreement shall execute, acknowledge and deliver to its predecessor Trustee an instrument accepting such appointment, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become fully vested with all moneys, estates, properties, rights, powers, duties and obligations of such predecessor Trustee, with like effect as if originally named as Trustee; but the Trustee ceasing to act shall nevertheless, on the written request of the successor Trustee, execute, acknowledge and deliver such instrument of conveyance and. further assurance and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor Trustee all the right, title and interest of the predecessor Trustee in and to any property held by it under the Trust Agreement, and shall pay over, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Should any deed, conveyance or instrument in writing from the City or the Authority be required by such successor Trustee for more fully and certainly vesting in and confirming to such successor Trustee any such estates,rights,power and duties, any and all such deeds, conveyances and instruments in writing shall, on request, and OHSUSA:754116349.7 28 so far as may be authorized by law, be executed, acknowledged and delivered by the City or the Authority. Section 6.10. Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be a bank or trustee company organized under the laws of any state of the United States or a national banking association, shall meet the other requirements of Section 6.8(c), and shall be authorized by law to perform all the duties imposed upon it hereby, shall be the successor to the Trustee without the execution or filing of any paper or the performance of any further act. Section 6.11. Ad2ption of Authorized Signature. In case any of the Bonds contemplated to be delivered hereunder shall have been executed but not delivered,any successor Trustee may adopt the authorized signature of any predecessor Trustee so authenticating such Bonds and deliver such Bonds so executed; and in case any of the said Bonds shall not have been executed, any successor Trustee may authenticate such Bonds in the name of the successor Trustee, and in all such cases such authentication shall have the full force which it is anywhere in said Bonds or herein provided that the authentication of the Trustee shall have. Section 6.12. Liability of the Trustee. The recitals, statements and representations by the City or the Authority contained in this Trust Agreement or in the Bonds shall be taken and construed as made by and on the part of the City and Authority and not by the Trustee and the Trustee does not assume, and shall not have, any responsibility or obligations for the correctness of any thereof. The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder either directly or by or through attorneys or agents and shall be entitled to advice of counsel concerning all matters of trust and its duties hereunder and shall be absolutely protected in relying thereon. The Trustee shall not be responsible for the misconduct of such persons selected by it with reasonable care. No provision in this Trust Agreement shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. The Trustee shall not be liable in connection with the performance of its duties hereunder except for its own negligence or willful misconduct. In accepting the trust hereby created, the Trustee acts solely as Trustee for the Owners and not in its individual capacity and all persons, including without limitation the Owners and the City or the Authority,having any claim against the Trustee arising from this Trust Agreement shall look only to the funds and accounts held by the Trustee hereunder for payment except as otherwise provided herein. Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Bonds. OHSUSA:754116349.7 29 The Trustee makes no representation or warranty, express or implied as to the title,value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the City or the Authority of the Project. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection with or arising from the Lease Agreement or this Trust Agreement. The Trustee shall not be responsible for the sufficiency or enforceability of the Property Lease or the Lease Agreement or the assignment under the Trust Agreement of its rights to receive Lease Payments. The Trustee shall not be deemed to have knowledge of any Event of Default hereunder or under the Lease Agreement unless and until it shall have actual knowledge thereof. The Trustee shall not be accountable for the use or application by the City or the Authority or any other party of any funds which the Trustee has released under this Trust Agreement. The Trustee shall not be responsible for accounting for, or paying to, any party to this transaction, including but not limited to the City, the Authority, and the Bondowners, any retum on or benefit from funds held for payment of unredeemed Bonds or outstanding checks and no calculation of the same shall affect, or result in any offset against, fees due to the Trustee under this Trust Agreement. The Trustee's rights to immunities and protection from liability hereunder and its rights to payment of its fees and expenses shall survive its resignation or removal and the final payment or the defeasance of the Bonds(or the discharge of the Bonds or the defeasance of the lien of this Trust Agreement). All indemnification and releases from liability granted to the Trustee herein or in the Lease Agreement shall extend to the directors, officers, employees, attorneys and agents of the Trustee. The Trustee shall have no responsibility, opinion, or liability with respect to any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds except for information provided by the Trustee. Before taking any action under Article V hereof or this section at the request of Owners, the Trustee may require that a satisfactory indemnity bond be furnished by the Owners for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any action so taken. The Trustee agrees to accept and act upon instructions or directions pursuant to this Trust Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing OHSUSA:754116349.7 30 specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee's understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The City agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties. The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. The Trustee shall not be liable in connection with the performance of its duties hereunder,except for its own negligence or willful misconduct. ARTICLE VII AMENDMENTS Section 7.1. Mailing. Any provision in this Article for the mailing of a notice or other paper to Bondowners shall be fully complied with if it is mailed first class United States mail, postage prepaid only (i) to each Owner of Bonds then Outstanding at his address, if any, appearing upon the registry books of the Trustee, and(ii)to the Trustee. Section 7.2. Powers of Amendment. This Trust Agreement and the rights and obligations provided may be modified or amended at any time by a Supplemental Trust Agreement, entered into among the Trustee, the Authority and the City but without the consent of any Bondowners, but only (a) to cure any ambiguity, supply any omission, or cure or correct any defect or inconsistent provision in this Trust Agreement, (b) to insert such provisions clarifying matters or questions arising hereunder as are necessary or desirable and are not contrary to or inconsistent herewith as theretofore in effect, (c) to provide for the authorization, execution and delivery of Parity Obligations, or (d) in regard to matters arising hereunder or thereunder, as the parties hereto or thereto may deem necessary or desirable which shall not in the opinion of Bond Counsel which may be supported by a certificate of an independent financial consultant materially adversely affect the interest of the Bondowners. Any other modification or amendment hereof and of the rights and obligations of the Trustee or of the Owners of the Bonds hereunder, in any particular, may be made by a Supplemental Trust Agreement, entered into among the Trustee, the Authority and the City with the written consent, given as provided in Section 7.3, of the Owners of at least sixty percent (60%) in principal amount of the Bonds Outstanding at the time such consent is given. No such modification or amendment shall permit a change in the terms of redemption or maturity of the principal with respect to any Outstanding Bonds or of any installment of interest with respect thereto or a reduction in the principal amount or the redemption price with respect thereto or in the rate of interest with respect thereto or OHSUSA:754116349.7 31 which will have an adverse effect on the security interest of the Owner without the consent of the Owner of such Bond,or shall reduce the percentages or otherwise affect the classes of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or shall change or modify any of the rights or obligations of the Trustee without the written assent of the Trustee. The Trustee may in its discretion determine whether or not, in accordance with the foregoing powers of amendment, Bonds of any particular maturity would be affected by any modification or amendment hereof, and any such determination shall be binding and conclusive on the Authority, the City and all Owners of Bonds. The Trustee may obtain an opinion of counsel that any such Supplemental Trust Agreement entered into by the Authority, the City and the Trustee complies with the provisions of this Section 7.2 and the Trustee may conclusively rely upon such opinion. The Authority shall be provided with a full original transcript of all proceedings relating to the execution of any amendatory or Supplemental Trust Agreement or Lease Agreement. Section 7.3. Consent of Bondowners. The Trustee, the Authority and the City may at any time enter into a Supplemental Trust Agreement making a modification or amendment permitted by the provisions of Section 7.2 to take effect when and as provided in this Section. A copy of such Supplemental Trust Agreement(or brief summary thereof), together with a request to Bondowners to approve the same shall be mailed to each Bondowner(but failure to mail such copy and request shall not affect the validity of the Supplemental Trust Agreement when consented to as in this Section 7.3 provided). Such Supplemental Trust Agreement shall not be effective unless and until (i)there shall have been filed with the Trustee (a)the written consents of Owners of the percentage of Outstanding Bonds specified in Section 7.2 and(b) an opinion of Bond Counsel stating that such Supplemental Trust Agreement has been duly and lawfully entered into by the parties thereto and filed with the City and the Trustee in accordance with the provisions hereof, is authorized or permitted hereby, and is valid and binding upon the parties thereto in accordance with its terms. Each such consent shall be effective only if accompanied by proof of the Owner, at the date of such consent, of the Bonds with respect to which such consent is given, which proof shall be such as is permitted by Section 8.2. The request for consent of Bondowners pursuant to this Section may provide a date by which such consents must be received to be effective. A certificate or certificates executed by the Trustee and filed with the City stating that it has examined such proof and that such proof is sufficient in accordance with Section 8.2 shall be conclusive that the consents have been given by the Owners of the Bonds described in such certificate or certificates of the Trustee. Any such consent shall be binding upon the holder of the Bonds giving such consent and, anything in Section 8.2 to the contrary notwithstanding,upon any subsequent Owner of such Bonds and of any Bonds issued in exchange therefor(whether or not such subsequent Owner thereof has notice thereof)unless such consent is revoked in writing by the Owner of such Bonds giving such consent or a subsequent Owner thereof by filing with the Trustee, prior to the time when the written statement of the Trustee hereinafter in this Section 7.3 provided for is filed. Such revocation and, if such Bonds are held by the signer of such revocation, proof of ownership shall be evidenced in the manner permitted by Section 8.2. The fact that a consent has not been revoked may likewise be proved by a certificate of the Trustee filed with the City to the effect that no revocation thereof is on file with the Trustee. At any time after the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Trust Agreement, the Trustee shall make and file with the City a written statement that the Owners of such required percentage of Bonds have filed such consents. Such written statements shall be conclusive that such consents have been so filed. OHSUSA:754116349.7 32 At any time thereafter notice, stating in substance that the Supplemental Trust Agreement(which may be referred to as a Supplemental Trust Agreement entered into by the parties thereto on a stated date, a copy of which is on file with the Trustee)has been consented to by the Owners of the required percentages of Bonds and will be effective as provided in this Section,may be given to Bondowners by the City or the Trustee at the direction of the City, by mailing such notice pursuant to Section 7.1 hereof to Bondowners (but failure to receive such notice shall not prevent such Supplemental Trust Agreement from becoming effective and binding as in this Section provided). The City shall file with the Trustee proof of the mailing of such notice. A record, consisting of the certificates or statements required or permitted by this Section to be made by the Trustee, shall be proof of the matters therein stated. Such Supplemental Trust Agreement making such amendment or modification shall be deemed conclusively binding upon the City,the Trustee,the Authority and the Owners of all Bonds at the expiration of 40 days after the filing with the Trustee of the proof of the mailing of such last mentioned notice, except in the event of a final decree of a court of competent jurisdiction setting aside such Supplemental Trust Agreement in a legal action or equitable proceeding for such purpose commenced within such 40 day period; provided, however, that the Trustee, the Authority or the City during such 40 day period and any such further period during which any such action or proceeding may be pending shall be entitled in their absolute discretion to take such action, or to refrain from taking such action,with respect to such Supplemental Trust Agreement as they may deem expedient. Section 7.4. Modifications by Unanimous Consent. The terms and provisions hereof and the rights and obligations of the Trustee and of the Owners of the Bonds hereunder may be modified or amended in any respect upon entering into by the parties hereto of a Supplemental Trust Agreement with the unanimous consent of the Owners of all the Bonds then Outstanding, such consent to be given as provided in Section.7.3 except that no notice to Bondowners by mailing shall be provided and to the extent any such Supplemental Trust Agreement alters the rights and obligations of the Trustee the Trustee's approval shall be required. Section 7.5. Exclusion of Bonds. Bonds owned or held by or for the account of the City shall not be deemed Outstanding for the purpose of consent or other action or any calculation of Outstanding Bonds provided for in this Article or Section 6.7, and the City shall not be entitled with respect to such Bonds to give any consent or take any other action provided for in this Article or Section 6.7. At the time of any consent or other action taken under this Article or Section 6.7, the City shall furnish the Trustee a Certificate of Authorized Representative of the City, upon which the Trustee may rely, describing all Bonds so to be excluded. Section 7.6. Notation on Bonds. Bonds issued after the effective date of any action taken as provided in Article V or this Article provided may, and if the City so determines shall, bear a notation by endorsement or otherwise in form approved by the City and the Trustee as to such action, and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of the Bond or Bonds for the purpose at the principal corporate trust office of the Trustee or upon any transfer or exchange of any Bond Outstanding at such effective date, suitable notation shall be made on such Bond or upon any Bonds issued upon any such transfer or exchange by the Trustee as to any such action. If the City and the Trustee shall so determine, new Bonds so modified as in the opinion of the Trustee and the City may be necessary to conform to such action shall be prepared, issued, and upon demand of the Owner of OHSUSA:754116349.7 33 any Bond then Outstanding shall be exchanged, without cost to such Bondowner, for Bonds of the same maturity then Outstanding,upon surrender of such Bonds. ARTICLE VIII MISCELLANEOUS Section 8.1. Defeasance. (a) Outstanding Bonds shall be paid and discharged in any one or more of the following ways- (i) by paying or causing to be paid the principal of and interest with respect to said Outstanding Bonds,as and when the same become due and payable;or (ii) by depositing with the Trustee, in trust, cash or Investment Securities of the type set forth in part (A) of the definition thereof in such amount, including without limitation cash or Investment Securities of the type set forth in part(A) of the definition thereof then on deposit in the Debt Service Payment Account and Reserve Account applicable to the Outstanding Bonds, together with the interest to accrue with respect thereto, as will be sufficient, as shown on a certificate of a nationally recognized certified public accountant or firm of certified public accountants, to pay and discharge the Outstanding Bonds to be paid and discharged (including all principal, interest and premium,if any)at or before their respective maturity dates. In the event of a refunding, the City shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants ("Accountant")verifying the sufficiency of the escrow established to pay the Bonds in full and(ii) an opinion of nationally recognized Bond Counsel to the effect that the Bonds are no longer "Outstanding" under the Trust Agreement,each of which shall be addressed to the City,the Trustee and the Authority. Notwithstanding that any Bonds shall not have been surrendered for payment, all obligations of Authority, the Trustee and the City under this Trust Agreement with respect to those Bonds paid, as provided in the above subsections (i) (ii) or (iii), and the trust created by this Trust Agreement shall cease and terminate, except only the obligation of the Trustee to pay or cause to be paid to the Owner of the Bonds not so surrendered and paid all sums due thereon, to transfer title to the City as provided in Section 7.3 of the Lease Agreement, and the obligation of City to cause rebates pursuant to Section 4.11 and the obligation of the Trustee to make transfers and exchanges of Bonds pursuant to Section 3.7. Notice of defeasance of the Bonds and the obligations under this Trust Agreement as provided in this Section shall be given by the Trustee in the manner provided in Section 3.12. The fees and charges of the Trustee (including reasonable counsel fees and expenses) must be paid in order to effect such discharge. The satisfaction and discharge of this Trust Agreement shall be without prejudice of the rights,if any, of the Trustee to charge and be reimbursed by the City for any expenditures which it may thereafter incur in connection therewith. Any funds held by the Trustee, at the time of one of the events described above in paragraphs (i), (ii) or (iii), shall have occurred, which are not required for the payment to be OHSLISA:754116349.7 34 made to Owners, or for payments to be made to the Trustee by the City, or for payment to the United States under Section 4.11, shall be paid over to the City. (b) Anything in this Trust Agreement to the contrary notwithstanding, any moneys held by the Trustee in trust for the payment of any of the Bonds which remain unclaimed for two years after the date when such Bonds have become due and payable,either at their stated maturity dates or by call for earlier redemption, if such moneys were held by the Trustee at such date, or for two years after the date of deposit of such moneys if deposited with the Trustee after the said date when such Bonds became due and payable, shall be repaid by the Trustee to the City, as its absolute property and free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Bondowners shall look only to the City for the payment of such Bonds. Section 8.2. Evidence of Signatures of Bondowners and Ownership of Bonds. (a) Any request, consent,revocation of consent or other instrument which this Trust Agreement may require or permit to be signed and executed by the Bondowners may be in one or more instruments of similar tenor, and shall be signed or executed by such Bondowners in person or by their attorneys appointed in writing. Proof of (i) the execution of any such instrument, or of an instrument appointing any such attorney, or(ii)the ownership by any person of the Bonds, shall be sufficient for any purpose hereof(except as otherwise therein expressly provided) if made in the following manner, or in any other manner satisfactory to the Trustee, which may nevertheless in its discretion require further or other proof in cases where it deems the same desirable: the fact and date of the execution by any Bondowner or his attorney of such instruments may be proved by a guaranty of the signature thereon by a commercial bank or trust company or member firm of the New York Stock Exchange or by the certificate of any notary public or other officer authorized to take acknowledgments of deeds,that the person signing such request or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. Where such execution is by an officer of a corporation or association or a member of a partnership, on behalf of such corporation, association or partnership, such signature guaranty, certificate or affidavit shall also constitute sufficient proof of his authority. (b) The ownership of Bonds and the amount, numbers and other identification, and date of owning the same shall be proved by the registry books of the Trustee. Section 8.3. Moneys Held for Particular Bonds. The amounts held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds shall,on and after such date and pending such payment,be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto. Section 8.4. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Trust Agreement shall be retained in its possession and shall be subject at all reasonable times to the inspection of the City, the Authority or any Bondowner and their agents and representatives,any of whom may make copies thereof. OHSUSA.754116349.7 35 Section 8.5. Parties Interested Herein. Nothing in this Trust Agreement expressed or implied is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the City, the Authority, the Trustee and the registered Owners of the Bonds, any right, remedy or claim under or by reason of this Trust Agreement or any covenant, condition or stipulation hereof, and all covenants, stipulations,promises and agreements in this Trust Agreement contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the City,the Authority,the Trustee and the registered Owners of the Bonds. Section 8.6. Severdbility of Invalid Provisions. If any one or more of the covenants or agreements provided herein should be contrary to law, then such covenant or covenants or agreement or agreements shall be deemed severable from the remaining covenants and agreements,and shall in no way affect the validity of the other provisions hereof. Section 8.7. Recording and Filing. The City shall be responsible for the recording and filing of the Properly Lease, Lease Agreement and financing statements (or continuation statements in connection therewith) or of any supplemental instruments or documents of further assurance as may be required by law in order to perfect the security interests created by the Property Lease or the Lease Agreement. The City and the Authority shall take such further actions as may be necessary to effectuate the transactions contemplated by this Trust Agreement, the Property Lease and the Lease Agreement. Section 8.8. Notices. All notices, certificates, requests or other communications (other than payments by City) hereunder shall be in writing and shall be sufficiently given and shall be deemed given when delivered or mailed by certified or first class mail, postage prepaid, to the parties at their respective places of business as follows: If to the City: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attention: City Manager and Chief Financial Officer/City Treasurer If to the Authority: San Juan Basin Authority 2611 Antonio Parkway Rancho Santa Margarita, CA 92688 Attention: Administrator If to the Trustee: The Bank of New York Mellon Trust Company,N.A. 400 S.Hope Street, Ste 400 Los Angeles, CA 90071 Attention: Corporate Trust Department OHSUSA:754116349.7 36 Section 8.9. California Law. This Trust Agreement shall be construed and governed in accordance with the laws of the State of California. Section 8.10. Binding on Successors. This Trust Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Section 8.11. Headings. Headings preceding the text of the several Articles and Sections hereof, and the table of contents, are solely for convenience of reference and shall not constitute a part of this Trust Agreement or affect its meaning,construction or effect. Section 8.12. Execution in Counterparts. This Trust Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument. Section 8.13. Actions Due on Saturdays, Sundays and Holidays. If any date on which a payment, notice or other action required by this Trust Agreement falls on other than a Business Day, then that action or payment need not be taken or made on such date, but may be taken or made on the next succeeding Business Day with the same force and effect as if made on such date. Section 8.14. Force Maieure. From the effective date of this Trust Agreement, the Trustee, or any successor in interest, shall not be considered in breach of or in default in its obligations with respect to any obligations created hereunder or progress in respect thereto,in the event of enforced delay ("unavoidable delay") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, acts of God, or of the public enemy, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. OHSUSA:754116349.7 37 IN WITNESS WHEREOF, the parties have executed and attested this Trust Agreement by their officers thereunto duly authorized as of the date and year first written above. CITY OF SAN JU N CAPISTRANO By: Mayor ATTEST: City Ll r SAN JUAN BASIN AUTHORITY B Chairman chife Board of Directors ATTEST: L20 y Secretary of the Board of Directors THE BANK OF NEW YORK MELLON TRUST COMPANY,N.A.,as Trustee By: Authorized Officer OHSUSA;754116349 ,S-1 IN WITNESS WHEREOF, the parties have executed and attested this Trust Agreement by their officers thereunto duly authorized as of the date and year first written above. CITY OF SAN JUAN CAPISTRANO By: Mayor ATTEST: City Clerk SAN JUAN BASIN AUTHORITY By: Chairman of the Board of Directors ATTEST: Secretary of the Board of Directors THE BANK OF NEW YORK MELLON TRUST COMPANY,N.A.,as Trustee By: Wu-tho—rAed Officer OHSUSA;754116349 S-1 EXHIBIT A FORM OF BOND R-1 $20,361,090 UNITED STATES OF AMERICA STATE OF CALIFORNIA (COUNTY OF ORANGE) SAN JUAN BASIN AUTHORITY LEASE REVENUE BOND (GROUND WATER RECOVERY PROJECT) ISSUE OF 2014 INTEREST RATE MATURITY DATE DATED DATE 3.85% December 1,2034 November 14,2014 REGISTERED OWNER: PRINCIPAL SUM: TWENTY MILLION THREE HUNDRED SIXTY-ONE THOUSAND NINETY AND NO/100 DOLLARS The SAN JUAN BASIN AUTHORITY, a public body, corporate and politic, duly organized and existing under and by virtue of the laws of the State of California (the "Authority"), for value received hereby promises to pay to the Registered Owner stated above, or registered assigns, on the Maturity Date stated above (subject to any right of prior redemption hereinafter provided for), the Principal Sum stated above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the preceding Interest Payment Date to which interest was paid, provided, Bonds registered on or prior to May 15, 2015 shall have interest payable with respect thereto from the Delivery Date, and Bonds registered after a Record Date (the fifteenth day of the calendar month preceding an Interest Payment Date) and on or prior to an Interest Payment Date shall have interest payable with respect thereto from such Interest Payment Date; provided, however, that if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on this Bond, until payment of such Principal Sum in full, at the rate per annum stated above,payable semiannually on June 1 and December 1 in each year(each, an"Interest Payment Date"), commencing June 1, 2015, calculated on the basis of a 360-day year composed of twelve 30-day months. Principal hereof is payable upon presentation and surrender of this Bond at the corporate trust office of The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"), in Los Angeles, California or such other location as designated by the Trustee. Interest hereon (including the final interest payment upon maturity or earlier redemption) is payable by check of the Trustee mailed on the Interest Payment Date by first class mail to the Registered Owner hereof at the Registered Owner's address as it appears on the registration books maintained by the Trustee at the close of business on the Record Date next preceding such Interest Payment Date; provided, however, that upon the written request of any Registered OHSUSA:754116349.7 A-1 Owner received by the Trustee on or before such Record Date, payment shall be made by wire transfer in immediately available funds to an account designated by such Owner. This Bond is one of a duly authorized issue of Bonds of the Authority designated as "San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project) Issue of 2014" (the"Bonds"), in an aggregate principal amount of Twenty Million Three Hundred Sixty- One Thousand Ninety Dollars ($20,361,090), all of like tenor (except for such variation, if any, as may be required to designate varying series,numbers or redemption and other provisions)and all issued pursuant to the provisions of the Joint Exercise of Powers Act of the State of California (Government Code Section 6500 et seq.) including the Marks-Roos Local Bond Pooling Act (Government Code Sections 6584 et seq.) (the"Law") and pursuant to a Trust Agreement, dated as of November 1, 2014, entered into by and among the Authority, the City of San Juan Capistrano (the"City") and the Trustee (the "Trust Agreement"), authorizing the issuance of the Bonds. Reference is hereby made to the Trust Agreement (copies of which are on file at the office of the Trustee) and all trust agreements supplemental thereto and to the Law for a description of the terms on which the Bonds are issued, the provisions with regard to the nature and extent of the Lease Payments, as that term is defined in the Trust Agreement, and the rights thereunder of the registered owners of the Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the Authority thereunder, to all of the provisions of which Trust Agreement the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued by the Authority to refund the San Juan Basin Authority Lease Revenue Bonds(Ground Water Recovery Project)Issue of 2002. The Bonds are special obligations of the Authority and this Bond and the interest hereon and all other Bonds and the interest thereon (to the extent set forth in the Trust Agreement) are payable from, and are secured by the Lease Payments derived by the Authority from the City under the Amended and Restated Lease Agreement, dated as of November 1, 2014 (the "Lease Agreement"),by and between the Authority and the City. The Lease Payments are secured by a pledge of Revenues (as defined in the Trust Agreement) derived from the City's Water System (as defined in the Trust Agreement). There has been created and will be maintained by the Trustee the Project Trust Fund within which there is the Debt Service Payment Account (as defined in the Trust Agreement) into which Lease Payments shall be deposited from which the Trustee shall pay the principal of and the interest and redemption premium, if any, on the Bonds when due. As and to the extent set forth in the Trust Agreement, all such Lease Payments are exclusively and irrevocably pledged to and constitute a trust fund for, in accordance with the terms hereof and the provisions of the Trust Agreement and the Law, the security and payment or redemption of, and for the security and payment of interest on, the Bonds and any Parity Obligations, authorized by the Trust Agreement to be issued on a parity therewith. In addition,the Bonds (and, if the indenture authorizing any loans, advances or indebtedness issued on a parity with the Bonds shall so provide, any such loan, advance or indebtedness) shall be additionally secured at all times by a first and exclusive pledge of and lien upon all of the moneys in the Project Trust Fund, including the Debt Service Payment Account and the Redemption Account (as such terms are defined in the Trust Agreement). Except for the Lease Payments and such moneys, no funds or properties OHSUSA:754116349.7 A-2 of the Authority or the City shall be pledged to, or otherwise liable for,the payment of principal of or interest on the Bonds. The Bonds are subject to redemption, in whole or in part, at the times, at the redemption prices,with the notice, and on the other terms set out in the Trust Agreement. The Bonds are subject to default as further described in the Lease Agreement and the Trust Agreement. The Bonds are issuable as fully registered Bonds without coupons in denominations of $250,000 and integral multiples of $1.00 in excess thereof. Subject to the limitations and conditions and upon payment of the charges, if any, as provided in the Trust Agreement,Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations and of the same maturity. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing,at the corporate trust office of the Trustee,in Los Angeles, California, but only in the manner and subject to the limitations provided in the Trust Agreement, and upon surrender and cancellation of this Bond. Upon registration of such transfer a new fully registered Bond or Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The Trustee shall not be required to register the transfer or exchange of any Bond (i) during the period established by the Trustee for selection of Bonds for redemption or (ii) selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Authority and the Trustee shall not be affected by any notice to the contrary. The rights and obligations of the Authority and the registered owners of the Bonds may be modified or amended at any time in the manner, to the extent and upon the terns provided in the Trust Agreement, but no such modification or amendment shall extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal, interest or redemption premiums(if any)at the time and place and at the rate and in the currency provided herein of any Bond without the express written consent of the registered owner of such Bond, reduce the percentage of Bonds required for the written consent to any such amendment or modification or,without its written consent thereto,modify any of the rights or obligations of the Trustee. This Bond is not a debt, liability or obligation of the City,the State of California, or any of its political subdivisions, and none of said City, said State,nor any of its political subdivisions is liable hereon, nor in any event shall this Bond be payable out of any funds or properties other than those of the Authority as set forth in the Trust Agreement. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist,have OHSUSA:754116349.7 A-3 happened or have been performed in due and regular time and manner as required by the Law and the laws of the State of California, and that the amount of this Bond,together with all other indebtedness of the Authority, does not exceed any limit prescribed by the Law or any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Trust Agreement. This Bond shall not be entitled to any benefit under the Trust Agreement or become valid or obligatory for any purpose until the Trustee's Certificate of Authentication hereon shall have been manually signed by the Trustee. OHSUSA:754116349.7 A-4 IN WITNESS WHEREOF, the San Juan Basin Authority has caused this Bond to be executed in its name and on its behalf with the manual signature of its Chairman of the Board of Directors,all as of the Dated Date. SAN JUAN BASIN AUTHORITY By: Chairman of the Board of Directors OHSUSA:754116349.7 A-5 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Bonds described in the within-mentioned Trust Agreement. Authentication Date: THE BANK OF NEW YORK MELLON TRUST COMPANY,N.A.,as Trustee By: Authorized Officer OHSUSA:754116349.7 A-( [FORM OF ASSIGNMENT] For value received the undersigned hereby sells,assigns and transfers unto (Name,Address and Tax Identification or Social Security Number of Assignee) the within-registered Bond and hereby irrevocably constitute(s)and appoint(s) attorney, to transfer the same on the bond register of the Trustee with full power of substitution in the premises. Dated: Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. Signature Guaranteed: Note: Signature(s)must be guaranteed by an eligible guarantor institution. oHSUSA:754116349.7 A-7 EXHIBIT B FORM OF COSTS OF ISSUANCE REQUISITION SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2014 REQUISITION FOR DISBURSEMENT OF COSTS OF ISSUANCE The undersigned hereby states and certifies: (i) that he is the duly appointed, qualified and acting of the City of San Juan Capistrano or his/her designee, a municipality organized and existing under the laws of the State of California(the"City"), and as such, is familiar with the facts herein certified and is authorized to certify the same; (ii) that, pursuant to Section 4.1 of that certain Trust Agreement, dated as of November 1, 2014, among the San Juan Basin Authority, the City and The Bank of New York Mellon Trust Company, N.A., (the "Trust Agreement"), the undersigned hereby requests the Trustee to pay from the Cost of Issuance Account, established by the Trust Agreement, to the parties listed in Schedule I attached hereto the amounts listed on such Schedule I (iii) that each obligation to be incurred by the City from the foregoing Cost of Issuance Account transfer will be a proper charge against the Cost of Issuance Account. Dated: November ,2014 CITY OF SAN JUAN CAPISTRANO By: OHSUSA:754116349.7 B-1 SCHEDULE Party to Be Paid Amount Purpose OHSUSA:754116349.7 S-1 EXHIBIT 3e RECORDING REQUESTED BY This Document was electronically recorded by IIRSTAMERICAN TITLE COMPANY First American Title SURDIVIIS N DEPARTMENT VESTED BY Recorded in Official Records,County of Orange RECORDING REQUESTED ) Tom Daly,Clerk-Recorder AND WHEN RECORDED MAH;TO: ) qI`1��pn pq�p Ip�p BB�tlp� ''II Stradling Yocca Carlson &Rauth ) �bllll<WII�IIpI��p�III���U NO FEE 660 Newport Center Drive, Suite 1600 ) 2003000021097 04:07pm 01/07/03 NewNewport Beach, California 92660 0.00103 0 0.0 00 P ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Attn: Denise E.Hering,Esq. ) � -; 7t(-03 tiC, LE }']L,,'7 [Space above for Recorder's use.] 76 75 This document is recorded for the benefit of the City of San Juan }}a 7( 77 Capistrano.and the recording is fee-exempt under Section 27383 of the Government Code. PROPERTY LEASE By and Between CITY OF SAN,JUAN CAPISTRANO and SAN JUAN BASIN AUTHORITY Dated as of December 1,2002 Relating to $31,555,000 SAN JUAN BASIN AUTHORITY LEASE REVENUE BONDS (GROUND WATER RECOVERY PROJECT) ISSUE OF 2002 DOCS OC\909634v I 1\22659.0017 PROPERTY LEASE This Property Lease is dated as of December 1, 2002,by and between CITY OF SAN JUAN CAPISTRANO, a municipal corporation,duly organized and existing under and by virtue of the laws of the State, as lessor (the "City"), and the SAN JUAN BASIN AUTHORITY, a joint powers authority,duly organized and existing under the laws of the State,as lessee(the"Authority"). WITNESSETH : WHEREAS, the City has determined the public benefit and necessity therefor and has entered into this Property Lease (the"Property Lease") with the Authority for the purpose of leasing all of the City's interest in the real property constituting the Sites(as defined in the Service Contract) (including all existing improvements thereon) described in Exhibit A hereto (collectively, the "Property"),to the Authority, as lessee hereunder;and WHEREAS, the Authority intends to lease the Property to the Capistrano Valley Water District, a county water district (the "Water District"), pursuant to the terms of that certain Lease Agreement, dated the date hereof, between the Authority and the Water District (the "Lease") in order to obtain funds to finance the design,construction and installation of the ground water recovery plant project known as the San Juan Basin Desalter Plant, which consists of the Project Improvements (as defined in the Service Contract) (the "Service Contract Project Improvements"); and WHEREAS, by resolution of the City Council, the City has agreed to execute this Property Lease and,to deliver it upon performance and compliance by the Authority of all terms or conditions of this contract to be performed concurrently herewith, including without limitation, the delivery of certain San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project) issue of 2002 (the "Bonds")pursuant to that certain Trust Agreement, dated as of the date hereof(the "Trust Agreement"), among the Authority, the Water District and BNY Western Trust Company, as trustee (the"Trustee"); NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other valuable consideration,it is hereby mutually agreed as follows: Section 1. Definitions. Unless the context otherwise requires, the capitalized terms herein which are not defined herein shall have the meanings specified in the Trust Agreement or, if not defined therein,in the Lease. Section 2. Lease of the Property. The City hereby leases to the Authority, and the Authority hereby leases from the City,the Property,on the terms and conditions hereinafter set forth. Section 3. Term. The term of this Property Lease shall commence as of the Delivery Date for the Bonds and shall remain in effect until the earlier of October 1, 2057 or the day following the date of expiration or termination of the Operating Lease pursuant to its terms. Section 4. Rental. The Authority,or any assignee or successor in interest of the Authority under this Property Lease, shall pay upon execution and delivery of this Property Lease to the City as and for rental hereunder, the amount of One Dollar and no/100 ($1.00), and shall pay to the Trustee the amount required to be deposited in the Project Account of the Project Trust Fund pursuant to the provisions of Section 4.2 of the Trust Agreement. Such amounts shall be disbursed in accordance AOCSOC\909634v]1\22658.0017 with Section 4.2 of the Trust Agreement for the purpose of funding the Service Contract Project Improvements (as defined in the Trust Agreement). As additional consideration for the leasing of the Property to it, the Authority shall execute and deliver the Lease and the Trust Agreement and perform its obligations thereunder. The Authority hereby waives any right that it may have under the laws of the State of California to receive a rebate of any rent paid hereunder in full or in part in the event there is a substantial interference with the use and right of possession by the Authority or its sublessee of the Property or any portion thereof as a result of material damage, destruction or condemnation. Section 5. Purpose. The Authority shall lease the Property to the Water District pursuant to the Lease for the purposes described in the Lease and for such purposes as may be incidental thereto. Section 6. Installation of Water District's Personal Property. The Water District may, so long as to do so is not reasonably expected to obstruct, delay, hinder or interfere with the development and construction of the Project Improvements, at any time and from time to time, in its sole discretion and at its own expense,install or permit to be installed items of equipment or other personal property in or upon any portion of the Property. All such items, so long as such items do not constitute a part of the Service Contract Project Improvements, shall remain the sole personal property of the Water District, regardless of the manner in which the same may be affixed to such portion of the Property, in which none of the Authority, the City(but only until such time as the Water District has merged into the City)nor the Trustee shall have any interest, and may be modified or removed by the Water District at any time; provided that the Water District shall repair and restore any and all damage to such portion of the Property resulting from the installation, modification or removal of any such items of equipment. Nothing in this Property Lease shall prevent the Water District from purchasing items to be installed pursuant to this Section, provided that no lien or security interest attaching to such items shall attach to any part of the Property,other than Permitted Encumbrances. Section 7. Additions, Modifications and Improvements. Subject only to applicable restrictions and conditions of the Service Contract, and, so long as to do so is not reasonably expected to obstruct, delay, hinder or interfere with the development and construction of the Project Improvements, the Water District shall, at its own expense, have the right to make additions, modifications or improvements to any portion of the Property if such additions, modifications or improvements are necessary or beneficial for the use of such portion of the Property. Such additions, modifications and improvements shall not in any way damage any portion of the Property or cause them to be used for purposes other than those authorized under the provisions of state and federal law or in any way which would impair the exclusion from gross income for federal income tax purposes of the interest portion of the Lease Payments or diminish the value of the Property; and the Property, upon completion of any additions, modifications and improvements made pursuant to this Section, shall be of a value which is not less than the value of the Property immediately prior to the making of such additions,modifications or improvements_ Section 8. Representations,Warranties and Covenants. (a) The City represents and warrants as follows: (i) Ownership. The City is the owner in fee of the Property. (ii) Organization;Authorization;Enforceability. The City is a municipal corporation duly created under the laws of the State and the laws of the State authorize the City to enter into this Property Lease and to enter into the transactions contemplated by and to carry out its 2 DOCSOC\909634v 11\22656.0017 obligations under this Property Lease,and the City has duly authorized and executed this Property Lease. This Property Lease constitutes the legal,valid and binding obligation of the City, enforceable in accordance with its respective terms,except to the extent limited by applicable bankruptcy,insolvency,reorganization,moratorium or similar laws or equitable principles affecting the rights of creditors generally. (iii) No Conflicts or Default;No Liens or Encumbrances. Neither the execution and delivery of this Property Lease,nor the fulfillment of or compliance with the terms and conditions hereof,nor the consummation of the transactions contemplated hereby,conflicts with or results in a breach of the terms,conditions or provisions of any restriction or any agreement or instrument to which the City is now a party or by which the City is bound,or constitutes a default under any of the foregoing,or results in the creation or imposition of any lien,charge or encumbrance whatsoever upon any of the property or assets of the City or upon the Project,except for Permitted Encumbrances. (iv) No Consent Re uircd. There is no consent,approval,authorization or other order of,or filing with,or certification by, any regulatory authority having jurisdiction over the City required for the consummation by the City of the transactions contemplated by this Property Lease. (v) No Litigation. There is no action,suit,proceeding,inquiry or investigation, at law or in equity,before or by any court, governmental agency,public office or body,pending or threatened against the City affecting the existence of the City or the titles of its officers to their respective offices or seeking to prohibit,restrain or enjoin the City's ability to confer rights and entitlements on the Authority as described herein or in any way contesting or affecting the validity or enforceability of this Property Lease or contesting the powers of the City or its authority to enter into, adopt or perform its obligations under this Property Lease or any amendment or supplement thereto, wherein an unfavorable decision,ruling or finding would materially adversely affect this Property Lease,or in which a final adverse decision could materially adversely affect the operations of the City. (vi) I A)ckow Provision. The City hereby accepts and agrees to be bound by the lockout provisions of Section 6.4 of the Insurance and Indemnity Agreement affecting the rights of the City,Water District and Authority in the event of a termination of the Lease Agreement pursuant to the Lease Agreement, subject to the express terms of Section 6.4 of the Insurance and Indemnity Agreement. (b) The Authority covenants that it shall not encumber the Property except for Permitted Encumbrances. Section 9. Assignments. The City acknowledges and affirms the lease of the Property to the Authority and the assignment by the Authority of its right, title and interest in and to the Property to the Trustee,under the terms of the Trust Agreement among the Authority,the Water District and the Trustee, for the benefit of the Owners of the Bonds. No other assignment of any rights hereunder shall be permitted without the consent of the City,the Authority and the Trustee. Section 10. Actions on Termination. The Authority agrees, upon the termination of this Property Lease,to quit and surrender to the City the Property in the same good order and condition as it was in at the time the real property then constituting the Property became subject to this Property Lease, reasonable wear and tear excepted, provided that any permanent improvements and structures existing upon the Property at the time of the termination of this Property Lease shall remain thereon 3 DOCSM909634v]1\22658.0017 and all interest therein shall vest in the Authority free and clear of any interest of the City,except as provided in the Operating Lease. Section 11. Quiet Enjoyment. The Authority at all times during the term of this Property Lease shall peaceably and quietly have, hold and enjoy all of the Property, subject only to Permitted Encumbrances. Section 12. Default. In the event the Authority shall be in default in the performance of any obligation on its part to be performed under the terms of this Property Lease,which default continues for 30 days following written notice to and demand for correction thereof by the City, the City may exercise any and all remedies granted by law which do not adversely affect the interests of the Owners of the Bonds, with the prior consent of the Trustee;provided that the City may not terminate this Property Lease and shall exercise only remedies providing for specific performance hereunder. Section 13. Taxes. The City covenants and agrees to pay any and all assessments and utility charges of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Property. Section 14. Eminent Domain. In the event the whole or any part of the Property is taken by eminent domain proceedings, the interest of the Authority shall be recognized and is hereby determined to be the amount of unpaid Lease Payments and Additional Payments due the Authority under the Lease. Section 15. Partial Invalidity. If any one or more of the terms, provisions, covenants or conditions of this Property Lease shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final,none of the remaining terms,provisions, covenants and conditions of this Property Lease shall be affected thereby,and each provision of this Property Lease shall be valid and enforceable to the fullest extent permitted by law. Section 16. Applicable Law. This Property Lease shall be governed by and construed in accordance with the laws of the State. Section 17. Representatives. Whenever under the provisions of this Property Lease the approval of the Authority or the City is required,or the Authority or the City is required to take some action at the request of the other, such approval or such request shall be given for the Authority by an Authorized Representative of the Authority and for the City by an Authorized Representative of the City and any party hereto shall be authorized to rely upon any such approval or request. Section 18. Notices. All notices or other communications hereunder shall be sufficiently given and shall be deemed to have been received five days after deposit in the United States mail in registered or certified form,postage prepaid: If to the City: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano,California 92675 Attention: Treasurer 4 DOCS009096340 l N22658.0017 If to the Authority: San Juan Basin Authority 27500 La Paz Road Laguna Niguel,CA 92677 Attention:Executive Director If to the Trustee: BNY Western Trust Company 700 South Flower Street,Suite 500 Los Angeles,California 90017 Attention: Corporate Trust The Authority, the City and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices or other communications will be sent. The Authority and the City agree to give the Trustee copies of all notices or other communications given to the other party hereunder. Section 19. Captious. The captions or headings in this Property Lease are for convenience only and in no way define,limit or describe the scope or intent of any provision or section of this Property Lease. Section 20. Execution in CountgMarts. This Property Lease may be executed in any number of counterparts,each of which shall be deemed to be an original but all together shall constitute but one and the same instrument. Section 21. Amendment. The terns of this Property Lease shall not be waived, altered, modified, supplemented or amended in any manner whatsoever, except by written instrument signed by the Authority and the City, with the prior written consent of the Trustee and, so long as the Insurance Policy is in effect and the Insurer is not in default thereunder,the Insurer. 5 DOCSM909634v 11\22658.0017 IN WITNESS WBEREOF, the parties have caused this Property Lease to be executed by their duly authorized officers on the date and year first above written. CITY OF SAN JUAN CAPISTR&ANO Lessor Byy Mayo ATTEST: C' C rk SAN JUAN BASIN AUTHORITY, as Lessee By: President of the Board of Directors ATTEST: Secretary of the Board of Directors S-1 DOCSOM0963400\22658.0017 PUBLIC AGENCY FORM OF ACKNOWLEDGEMENT State of California ) County of Orange ) ss. City of San Juan Capistrano ) (Gov't Code 40814&Civil Code 118 1) On L.e'I u i �4t : ► before me,Margaret R.Monahan, City Clerk,personally appeared John S. Gelff, personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity,and thatby his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. (SEAL) WITNESS my hand and official seal. M!�Oet R.Monahan,City Clerk OPTIONAL Capacity Claimed by Signers Description of Attached Document Property Lease: City of San Juan Capistrano Mayor &San Juan Basin Authority Title or Type of Document Title 5 plus signature&acknowledgement pages Signers are Representing Number of Pages City of San Juan Capistrano November 1,2002 Date of Document San Juan Basin Authority President of Board Signer(s)Other Than Named Above IN WITNESS WHEREOF, the parties have caused this Property Lease to be executed by their duly authorized officers on the date and year first above written. CITY OF SAN JUAN CAPISTRANO, as Lessor By: Mayor ATTEST: City Clerk SAN JUAN BASIN AUTHORITY, as Lessee By: (a LZIr esident of the oard of Directors ATTEST: _ Secreta9y of the Board of Directors S-1 DOCS0090963400122658.0017