NEW ISSUE - BOOK-ENTRY ONLY

Transcription

1 NEW ISSUE - BOOK-ENTRY ONLY SHORT-TERM RATING: Standard & Poor s: A-1 LONG-TERM RATING: Standard & Poor s: A+ (See Ratings herein) In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the 2008 Certificates is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In further opinion of Special Counsel, such interest is exempt from California personal income taxes. See TAX MATTERS. $19,900,000 Variable Rate Demand 2008 Refunding Certificates of Participation Water System Project) Evidencing and Representing Proportionate Interests of the Registered Owners Thereof in Installment Payments to be Made by the CITY OF CORCORAN to the CORCORAN JOINT POWERS FINANCE AUTHORITY Dated: Delivery Date Price: 100% Due: July 1, 2036 The 2008 Refunding Certificates of Participation (Water System Project) (the 2008 Certificates ) are being executed and delivered by the Corcoran Joint Powers Finance Authority (the Authority ) to refund certificates of participation issued in 2005 to facilitate the financing by the City of Corcoran (the City ) of certain capital improvements to the City s municipal water system. The 2008 Certificates are authorized and executed pursuant to a Trust Agreement, dated as of March 1, 2008 (the Trust Agreement ), by and among the City, the Authority and U.S. Bank National Association, as trustee (the Trustee ). The 2008 Certificates represent direct undivided fractional interests in the right to receive Installment Payments (as described herein) made pursuant to an Installment Sale Agreement, dated as of March 1, 2008 (the Installment Sale Agreement ) by and between the City and the Authority. The 2008 Certificates will initially bear interest at a Weekly Rate as determined by the Remarketing Agent and are payable on the first Business Day of each month, commencing April 1, The interest rate with respect to the 2008 Certificates may be converted from time to time in accordance with the Trust Agreement to a Daily Rate, a Weekly Rate, Commercial Paper Rate, Long-Term Rate or an Auction Rate (each an Interest Rate Mode ), and if the interest rate is so adjusted, the 2008 Certificates will be subject to mandatory tender for purchase (other than conversion between Weekly Rates and Daily Rates), as described herein. THIS OFFICIAL STATEMENT IS NOT INTENDED TO DESCRIBE ANY SERIES OF 2008 CERTIFICATES AFTER A CONVERSION TO AN INTEREST RATE MODE OTHER THAN A DAILY RATE OR A WEEKLY RATE. The Installment Payments are special obligations of the City, payable solely from and secured by a pledge of Net Revenues, as defined herein, on parity with Parity Debt (as described herein), consisting primarily of revenues received from the operation of the City s Water System. The Installment Payments are secured on a parity with installment payments payable by the City in connection with certificates of participation delivered by the Authority in 2003, as described herein. A Reserve Fund will be established and available in the event there are insufficient amounts available to make payment represented by the 2008 Certificates. The 2008 Certificates will be issued in fully registered form only and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the 2008 Certificates. Individual purchases will be made in book-entry form only. The 2008 Certificates will have denominations of $100,000 or any integral multiple of $5,000 in excess of $100,000 while in the Daily Rate, Weekly Rate or a Commercial Paper Rate of 180 days or less. Purchasers of the 2008 Certificates will not receive physical certificates representing their beneficial ownership interests in the 2008 Certificates purchased. Payments of principal of and interest with respect to the 2008 Certificates will be paid by the Trustee to DTC, which is obligated in turn to remit such principal, premium, if any, and interest to its DTC participants for subsequent disbursement to the Beneficial Owners of the 2008 Certificates as described herein. See APPENDIX F - BOOK-ENTRY ONLY SYSTEM. Payment of the principal of and interest with respect to, and purchase price of, the 2008 Certificates will initially have the benefit of an irrevocable direct-pay letter of credit (the Letter of Credit ) to be issued by Union Bank of California, N.A. (the Bank ) as the initial Credit Facility under the Trust Agreement. The initial expiration date of the Letter of Credit is March 26, 2013, as extended or earlier terminated prior thereto as described herein. See THE BANK and THE LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT. PROSPECTIVE INVESTORS SHOULD NOT EXPECT THE AUTHORITY OR THE CITY TO BE ABLE TO PAY DIRECTLY THE PRINCIPAL OF OR THE PREPAYMENT OR PURCHASE PRICE OF THE 2008 CERTIFICATES OR THE INTEREST ON THE 2008 CERTIFICATES AS SUCH PAYMENTS BECOME DUE. ACCORDINGLY, ANY INVESTMENT DECISION TO PURCHASE THE 2008 CERTIFICATES SHOULD BE MADE SOLELY ON THE BASIS OF THE CREDITWORTHINESS OF THE BANK. The 2008 Certificates are subject to prepayment and tender prior to maturity as described herein. See THE 2008 CERTIFICATES Prepayment, - Optional Tender and - Mandatory Tender. THIS OFFICIAL STATEMENT DESCRIBES THE 2008 CERTIFICATES ONLY DURING THE PERIOD THE 2008 CERTIFICATES BEAR INTEREST AT THE DAILY RATE OR WEEKLY RATE AND ARE SECURED BY THE LETTER OF CREDIT. INVESTORS SHOULD NOT RELY ON THIS OFFICIAL STATEMENT IF THE INTEREST RATE WITH RESPECT TO THE 2008 CERTIFICATES IS CONVERTED TO AN INTEREST RATE MODE OTHER THAN WEEKLY RATE OR DAILY RATE. Neither the 2008 Certificates nor the obligation to pay principal of or interest REPRESENTED THEREBY constitutes a debt or a liability of the CITY, the State of California or any of its political subdivisions within the meaning of any Constitutional limitation on indebtedness, or a pledge of the full faith and credit of the CITY. THE 2008 CERTIFICATES are secured solely by the pledge of NET Revenues and certain funds held under the TRUST AGREEMENT. The 2008 Certificates are not secured by a pledge of the taxing power of the City. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE OF 2008 CERTIFICATES. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION WITH RESPECT TO THE PURCHASE OF THE 2008 CERTIFICATES. The 2008 Certificates are offered when, as and if issued and received by the Underwriter and subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel. Certain legal matters will also be passed upon for the Authority and the City by Jones Hall, as Disclosure Counsel. Certain legal matters will be passed upon for the City by Michael Farley, Esq., as City Attorney. It is anticipated that the 2008 Certificates will be delivered in book-entry form through DTC on or about March 27, Dated: March 26, 2008

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3 CITY OF CORCORAN CITY COUNCIL Dick Haile, Mayor Raymond Lerma, Vice-Mayor Toni Baltierra, Councilmember Larry Hanshew, Councilmember Jim Wadsworth, Councilmember CITY EXECUTIVE STAFF Ron Hoggard, City Manager Joyce Venegas, Finance Director Michael Farley, City Attorney Steve Kroeker, Public Works Director Lorraine Lopez, City Clerk PROFESSIONAL SERVICES SPECIAL COUNSEL and DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California TRUSTEE U.S. Bank National Association San Francisco, California FINANCIAL ADVISOR, DISCLOSURE AND DISSEMINATION AGENT Urban Futures, Inc. Orange, California

4 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the sale of the 2008 Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the 2008 Certificates. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the City, in any press release and in any oral statement made with the approval of an authorized officer of the City, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the City since the date hereof. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 2008 Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the information set forth herein is not guaranteed as to accuracy or completeness by the Underwriter, and this Official Statement is not to be construed as a representation by the Underwriter. Limited Scope of Information. The City has obtained certain information set forth herein from sources which are believed to be reliable, but such information is neither guaranteed as to accuracy or completeness, nor to be construed as a representation of such by the City. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. All summaries of or references to the documents referred to in this Official Statement are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. All capitalized terms used herein, unless noted otherwise, shall have the meanings prescribed in the Trust Agreement. No Registration. THE 2008 CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE 2008 CERTIFICATES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

5 TABLE OF CONTENTS INTRODUCTION... 1 PLAN OF FINANCE... 4 The Project... 4 Estimated Sources and Uses of Funds.. 5 THE 2008 CERTIFICATES... 6 Authority for Issuance... 6 General 2008 Certificate Terms... 6 Determination of Weekly Rates... 6 Determination of Daily Rates... 7 Conversion... 7 Optional Tender Mandatory Tender Prepayment Purchase and Remarketing of 2008 Certificates Disclosure Concerning Sales of Variable Rate Demand Bonds by Remarketing Agent Book-Entry Only System SECURITY FOR THE 2008 CERTIFICATES Letter Installment Payments Net Revenues; Pledge of Revenues Water Revenue Fund Installment Payment Fund Reserve Fund Rate Covenant Parity Obligations...21 Subordinate Obligations...23 Eminent Domain Proceeds...23 Insurance...23 THE BANK...24 THE LETTER OF CREDIT AND THE REIMBURSEMENT AGREEMENT...24 The Letter of Credit...24 The Reimbursement Agreement CERTIFICATE OWNERS RISKS..27 Security for the 2008 Certificates...27 Expiration of the Letter of Credit...28 Bank s Obligations Unsecured...28 General Factors Affecting the Bank...28 Limitations on Remedies and Limited Recourse on Default...28 Loss of Tax-Exemption...29 Absence of Secondary Market for the 2008 Certificates...29 Parity Obligations...29 TAX MATTERS...29 CERTAIN LEGAL MATTERS...30 LITIGATION...30 RATINGS...31 NO CONTINUING DISCLOSURE...31 UNDERWRITING...31 MISCELLANEOUS...32 EXECUTION...33 APPENDIX A - SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS APPENDIX B - FORM OF LETTER OF CREDIT APPENDIX C - GENERAL INFORMATION REGARDING THE CITY OF CORCORAN AND KINGS COUNTY APPENDIX D - THE WATER SYSTEM OF THE CITY OF CORCORAN APPENDIX E - PROPOSED FORM OF SPECIAL COUNSEL OPINION APPENDIX F - DTC AND THE BOOK-ENTRY ONLY SYSTEM

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7 OFFICIAL STATEMENT $19,900,000 Variable Rate Demand 2008 Refunding Certificates of Participation (Water System Project) Evidencing and Representing Proportionate Interests of the Registered Owners Thereof in Installment Payments to be made by CITY OF CORCORAN to the CORCORAN JOINT POWERS FINANCE AUTHORITY INTRODUCTION This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the certificates captioned above (the 2008 Certificates ) to potential investors is made only by means of the entire Official Statement. Capitalized terms used but not defined herein have the meanings set forth in the Trust Agreement. See also APPENDIX A - SUMMARY OF SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS. This Official Statement contains brief descriptions of, among other things, the City, the Water System, the Installment Sale Agreement, the Trust Agreement, the Letter of Credit (all as defined below) and the 2008 Certificates. These descriptions do not purport to be comprehensive or definitive. All references in this Official Statement to documents are qualified in their entirety by reference to such documents, and references to the 2008 Certificates are qualified in their entirety by reference to the form of Certificate included in the Trust Agreement. THIS OFFICIAL STATEMENT DESCRIBES THE 2008 CERTIFICATES ONLY DURING THE PERIOD THE 2008 CERTIFICATES BEAR INTEREST AT THE DAILY RATE OR WEEKLY RATE AND ARE SECURED BY THE LETTER OF CREDIT. INVESTORS SHOULD NOT RELY ON THIS OFFICIAL STATEMENT IF THE INTEREST RATE PERIOD ON THE 2008 CERTIFICATES IS ADJUSTED TO ANOTHER INTEREST RATE MODE. Purpose of the 2008 Certificates. The 2008 Certificates are being issued for the purpose of refinancing the City of Corcoran s (the City ) $21,900,000 City of Corcoran (Kings County, California), 2005 Certificates of Participation (Water System Project) (Auction Rate) (the 2005 Certificates ), which were issued for the construction and acquisition of capital improvements to the City s municipal water system. Proceeds of the 2008 Certificates will also provide for a reserve fund (described herein) for the 2008 Certificates and payment of the costs of issuing the 2008 Certificates. See PLAN OF FINANCE - Estimated Sources and Uses of Funds. 1

8 Authority for Issuance. The 2008 Certificates are authorized pursuant to a resolution adopted by the City Council of the City on March 17, 2008 (the City Resolution ), and a Trust Agreement (the Trust Agreement ), dated as of March 1, 2008, between the Corcoran Joint Powers Finance Authority (the Authority ), the City and U.S. Bank National Association, as trustee (the Trustee ). Each 2008 Certificate represents a direct, undivided fractional interest in Installment Payments to be made by the City to the Authority under the Installment Sale Agreement, as described herein. Form of 2008 Certificates. The 2008 Certificates will be issued in fully registered form only and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the 2008 Certificates. Individual purchases will be made in book-entry form only. The 2008 Certificates will have denominations of $100,000 or any integral multiple of $5,000 in excess of $100,000 while bearing interest at a Daily Rate, Weekly Rate or a Commercial Paper Rate. Purchasers of the 2008 Certificates will not receive physical certificates representing their beneficial ownership interests in the 2008 Certificates purchased. Payments of principal of and interest with respect to the 2008 Certificates will be paid by the Trustee to DTC, which is obligated in turn to remit such principal, premium, if any, and interest to its DTC participants for subsequent disbursement to the Beneficial Owners of the 2008 Certificates as described herein. See APPENDIX F - DTC AND THE BOOK-ENTRY ONLY SYSTEM. Variable Rate Certificates. Under the Trust Agreement, the 2008 Certificates are multimodal certificates authorized to bear interest at a Daily Rate, Weekly Rate, Commercial Paper Rate, Long-Term Rate or Auction Rate. The 2008 Certificates will initially bear interest at a Weekly Rate. If the interest rate mode is subsequently adjusted, the 2008 Certificates will be subject to mandatory tender for purchase, as described herein, except no mandatory tender is applicable between Daily Rate and Weekly Rate modes. See THE 2008 CERTIFICATES. Prepayment. The 2008 Certificates are subject to optional, special and mandatory sinking fund prepayment, and optional and mandatory tender and purchase, as described herein. See THE 2008 CERTIFICATES - Prepayment, - Optional Tender and - Mandatory Tender. Pledge of Water System Revenues. The 2008 Certificates are payable from and secured, on parity with the 2003 Certificates (described herein) by a (i) first pledge of and lien on Net Revenues (as hereinafter defined) received from the operation of the City s Water System. The Trust Agreement defines Water System to include all of the water system of the City for the supply, storage, treatment and distribution of water within the service area of the City. Net Revenues means, for any period of computation, the amount of the Gross Revenues received from the Water System during such period, less the amount of Maintenance and Operation Expenses of the Water System becoming payable during such period, as such terms are defined herein. See SECURITY FOR THE 2008 CERTIFICATES - Net Revenues; Pledge of Net Revenues. Rate Covenant. In the Installment Sale Agreement, the City has covenanted that it will fix, prescribe and collect rates, fees and charges for the services and facilities furnished by the City s Water System during each fiscal year, which are at least sufficient to yield in each fiscal year Net Revenues equal to 120% of the Installment Payments and payments on Parity Debt payable for such year. See SECURITY FOR THE 2008 CERTIFICATES - Rate Covenant. Parity Obligations. The City and the Authority have previously entered into an installment sale agreement (the "2003 Installment Sale Agreement"), dated as of July 1, 2003, whereby the Authority agreed to sell certain improvements to the City s water system (the 2

9 "2003 Project") to the City and the City agreed to purchase the 2003 Project from the Authority all for the purposes of financing the 2003 Project and refinancing certain certificates of participation executed and delivered in 1994 with the proceeds of 2003 Certificates of Participation (Water System Project) (the 2003 Certificates ). The obligations of the City under the Installment Sale Agreement to pay the Installment Payments are secured on parity with the obligations of the City to pay installment payments in connection with the 2003 Certificates. The 2003 Certificates and the 2008 Certificates, together, are referred to as the Certificates. Additional obligations and bonds issued or incurred on parity with or subordinate to the Certificates may be issued pursuant to the Trust Agreement provided that certain conditions are met. In connection with the issuance of the 2005 Certificates, the City entered into an interest rate swap agreement; payments under the swap agreement are also payable on a parity with the Installment Payments, except for potential termination payments. See SECURITY FOR THE 2008 CERTIFICATES - Parity Obligations. Reserve Fund. A Reserve Fund will be established and available in the event there are insufficient amounts in the Installment Payment Fund to make payment on the 2008 Certificates. See SECURITY FOR THE 2008 CERTIFICATES - Reserve Fund. The Letter of Credit. Payment of the principal, interest and purchase price of the 2008 Certificates will initially have the benefit of an irrevocable direct-pay letter of credit (the Letter of Credit ) to be issued by Union Bank of California, N.A. (the Bank ) as the initial Credit Facility under the Trust Agreement. The initial expiration date of the Letter of Credit is March 26, 2013, as extended or earlier terminated prior thereto as described herein. The Letter of Credit and any Alternate Credit Facility are defined under the Trust Agreement as the Credit Facility. The Letter of Credit is being issued under the terms of a Reimbursement Agreement, dated as of March 1, 2008 (the Reimbursement Agreement ) between the Bank and the City. See THE BANK and THE LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT. The rating on the 2008 Certificates is based upon the availability of the Letter of Credit. Accordingly, detailed information on the finances and operations of the City is not attached to this Official Statement. However, general information regarding the City and its water system can be found in APPENDIX C - GENERAL INFORMATION REGARDING THE CITY OF CORCORAN AND KINGS COUNTY and APPENDIX D - THE WATER SYSTEM OF THE CITY OF CORCORAN respectively. Interest Rate Swap Agreement. To effectively fix the interest cost associated with the 2005 Certificates, the City entered into a interest rate swap agreement with Piper Jaffray Financial Products, Inc. (the Swap Counterparty ) and a Replacement Swap Undertaking with Morgan Stanley Capital Services Inc., as a credit support provider to the Swap Counterparty. The swap arrangement will continue in effect after the prepayment of the 2005 Certificates, being applicable, as amended, to the 2008 Certificates. The City Payments under the swap agreement are payable on a parity with the Installment Payments, except for potential termination payments. See SECURITY FOR THE 2008 CERTIFICATES Parity Obligations - Interest Rate Swap Agreement herein. Limited Obligation. The 2008 Certificates are repayable only from certain money available to the City from the Water System. For a discussion of some of the risks associated with the purchase of the 2008 Certificates, see 2008 CERTIFICATE OWNERS RISKS herein. Neither the 2008 Certificates nor the obligation to pay principal of or interest thereon constitutes a debt of the City, the State of California or any of its political subdivisions within the meaning of any constitutional limitation on indebtedness, or a pledge of the full faith and credit of the City. The 2008 Certificates are secured solely by 3

10 the pledge of Net Revenues of the City s Water System and certain funds held under the Trust Agreement. PLAN OF FINANCE The 2008 Certificates are being issued to refund the City s $21,900,000 original aggregate principal amount of City of Corcoran (Kings County, California), 2005 Certificates of Participation (Water System Project) (Auction Rate), which were issued in October 2005 for the construction and acquisition of capital improvements to the City s municipal water system (the Project ) which is described under the caption The Project below. Proceeds of the 2008 Certificates will also provide for a Reserve Fund (defined herein) for the 2008 Certificates and payment of a portion of the costs of issuing the 2008 Certificates. On the date of issuance of the 2008 Certificates, a portion of the proceeds will be used for the payment of all the outstanding principal of and interest with respect to the 2005 Certificates on the same date. The Project Proceeds of the 2005 Certificates were used to finance capital improvements to the City s water system (the Water System ), including but not limited to design and construction of new water treatment facilities for the remediation of arsenic content in water within the Water System. The Project was completed in October Along with removing arsenic from the City water supply the Project included the completion of two additional potable water wells, the addition of an additional 0.75 million gallon treated water storage reservoir, a new booster pump station, a new sewage lift station and the upgrade of an existing sewage lift station. The new treatment plant, through the addition of the two new potable drinking water wells and the elimination of some bottlenecks in the existing system, was able to increase the production capacity of the Water System from a maximum of 8 million gallons a day to approximately 18 million gallons of water a day which is expected to meet the needs of the City of Corcoran for the next years. It is expected that with proper care and maintenance this plant will last in excess of 50 years. Being a conventional water treatment plant it lends itself to modification and reconfiguration in the future should any new water quality regulations be imposed on the Water System. 4

11 Estimated Sources and Uses of Funds The estimated sources and uses of funds for the financing are as follows: Sources: Principal Amount of 2008 Certificates $19,900, Funds related to 2005 Certificates 1,756, City Contribution 20, TOTAL SOURCES $21,676, Uses: Deposit to Refunding Fund $19,917, Deposit to Reserve Fund 1,244, Deposit to Costs of Issuance Fund (1) 295, Deposit to Capitalized Interest Fund 218, TOTAL USES $21,676, (1) Costs of Issuance include legal fees, Underwriter s discount, initial Bank fees, legal costs, printing costs, rating agency fees and other miscellaneous expenses. 5

12 THE 2008 CERTIFICATES Authority for Issuance The 2008 Certificates are authorized pursuant to a resolution adopted by the City Council of the City on March 17, 2008 and the Trust Agreement. Ownership interests in the 2008 Certificates while in the Daily Rate or Weekly Rate will be in denominations of $100,000 or any integral multiple of $5,000 in excess of $100,000. General 2008 Certificate Terms This Official Statement describes certain terms of the 2008 Certificates applicable while the 2008 Certificates are in a Daily Rate or a Weekly Rate. There are significant changes in the terms applicable to the 2008 Certificates in other Interest Rate Modes. This Official Statement is not intended to provide information with respect to the 2008 Certificates during any Rate Period other than a Weekly Rate Period or a Daily Rate Period. Any terms not defined in this section shall have the meanings assigned to them in Appendix A attached hereto. The 2008 Certificates will be dated their date of delivery, will initially bear interest at the Weekly Rate (payable on the first Business Day of each calendar month, commencing on May 1, 2008) and will mature and become payable on July 1, The 2008 Certificates will be issued as fully registered bonds in denominations of $100,000 or any integral multiple of $5,000 in excess thereof. The 2008 Certificates will be issued in book-entry form only and, when delivered, will be registered in the name of a nominee of DTC, which will act as securities depository for the 2008 Certificates. So long as the 2008 Certificates remain in book-entry form, payments of principal and interest with respect to the 2008 Certificates will be made by the Trustee to DTC for subsequent credit to DTC Participants and disbursement to Beneficial Owners. For additional information concerning the book-entry system, see APPENDIX C attached hereto. Until changed as described below, the 2008 Certificates will be in a Weekly Rate mode and will bear interest at the applicable Weekly Rate. Thereafter, the 2008 Certificates may be converted from time to time among a Daily Rate, a Weekly Rate, a Commercial Paper Rate, an Auction Rate, or a Long-Term Rate. Determination of Weekly Rates During each Weekly Rate Period for the 2008 Certificates, such 2008 Certificates shall bear interest at the Weekly Rate, which shall be determined by the Remarketing Agent for the 2008 Certificates by no later than 5:00 p.m. (New York City time) on Wednesday of each week during such Weekly Rate Period, or if such day shall not be a Business Day, then on the next succeeding Business Day. The first Weekly Rate determined for each Weekly Rate Period shall be determined on or prior to the first day of such Weekly Rate Period and shall apply to the period commencing on the first day of such Weekly Rate Period and ending on the next succeeding Wednesday (whether or not a Business Day). Thereafter, each Weekly Rate shall apply to the period commencing on Thursday (whether or not a Business Day) and ending on the next succeeding Wednesday (whether or not a Business Day), unless such Weekly Rate Period shall end on a day other than Wednesday, in which event the last Weekly Rate for such Weekly Rate Period shall apply to the period commencing on Thursday (whether or not a Business Day) preceding the last day of such Weekly Rate Period and ending on the last day of such Weekly Rate Period. The Weekly Rate shall be the rate of interest per annum determined 6

13 by the Remarketing Agent to be the minimum interest rate which, if borne by such 2008 Certificates under Prevailing Market Conditions, would enable the Remarketing Agent to sell such 2008 Certificates on the effective date of such rate at a price (without regarding accrued interest) equal to the principal amount thereof. In the event that the Remarketing Agent fails to establish a Weekly Rate for any week, then the Weekly Rate for such week shall be the same as the Weekly Rate for the immediately preceding week if the Weekly Rate for such preceding week was determined by the Remarketing Agent. In the event that the Weekly Rate for the immediately preceding week was not determined by the Remarketing Agent, or in the event that the Weekly Rate determined by the Remarketing Agent shall be held to be invalid or unenforceable by a court of law, then the interest rate for such week shall be equal to the Variable Index on the day such Weekly Rate would otherwise be determined as provided herein for such Weekly Rate Period. Determination of Daily Rates During each Daily Rate Period for a Series of 2008 Certificates, such 2008 Certificates shall bear interest at the Daily Rate, which shall be determined by the Remarketing Agent by no later than 9:30 a.m. (New York City time) on each Business Day. The Daily Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the minimum interest rate which, if borne by such 2008 Certificates under Prevailing Market Conditions, would enable the Remarketing Agent to sell such 2008 Certificates on the effective date of such rate at a price (without regarding accrued interest) equal to the principal amount thereof. In the event that the Remarketing Agent fails to establish a Daily Rate for any Business Day, then the Daily Rate for such Business Day shall be equal to the Variable Index on such Business Day. Conversion Conversion to Daily Rate. Subject to the Trust Agreement, at any time, the City, with the written consent of the Bank (which consent may not be unreasonably withheld), by written direction to the Trustee and the Remarketing Agent, may elect that the 2008 Certificates shall bear interest at a Daily Rate. Such direction of the City shall specify the proposed Conversion Date for such Conversion to a Daily Rate Period, which shall be a Business Day not earlier than the 20th day following receipt by the Trustee of such direction. In addition, if the Conversion is from other than a Weekly Rate, such direction shall be accompanied by a letter of Special Counsel that it expects to be able to give a Favorable Opinion of Special Counsel on the Conversion Date. During each Daily Rate Period commencing on a date so specified and ending on the day immediately preceding the effective date of the next succeeding Rate Period, the interest rate borne by the 2008 Certificates shall be a Daily Rate. Notice of Conversion to Daily Rate. The Trustee shall give notice by first-class mail of a Conversion to a Daily Rate Period to the Bank and the Owners of the 2008 Certificates not less than 15 days prior to the proposed effective date of such Daily Rate Period. Such notice shall state: (i) that the interest rate on the 2008 Certificates will be adjusted to a Daily Rate unless Special Counsel fails to deliver a Favorable Opinion of Special Counsel to the Trustee, the City and the Remarketing Agent on the Conversion Date; (ii) the proposed Conversion Date for such Daily Rate Period; and (iii) if the Conversion is from other than a Weekly Rate, that such 2008 Certificates are subject to mandatory tender for purchase on such proposed Conversion Date and setting forth the applicable Purchase Price and the place of delivery for purchase of such 2008 Certificates. 7

14 Conversion to Auction Period. Subject to the Trust Agreement, at any time, the City, with the written consent of the Bank (which consent may not be unreasonably withheld) by written direction to the Trustee and the Remarketing Agent, may elect that the 2008 Certificates shall bear interest at an Auction Rate. Such direction of the City shall specify the proposed Conversion Date for such Conversion to an Auction Period, which shall be: (i) a Business Day not earlier than the 20th day following receipt by the Trustee of such direction, and (ii) in the case of Conversion from a Daily Rate Period or a Weekly Rate Period, the date immediately following an Interest Period during the Daily Rate Period or Weekly Rate Period, respectively. In addition, such direction shall be accompanied by a letter of Special Counsel that it expects to be able to give a Favorable Opinion of Special Counsel on the Conversion Date. In addition, such direction shall confirm the appointment of an Auction Agent, the initial Broker-Dealer(s) and the Market Agent and shall specify the initial Auction Date. During each Auction Period commencing on a date so specified and ending on the day immediately preceding the effective date of the next succeeding Rate Period, the interest rate borne by 2008 Certificates shall be an Auction Rate. The Trustee shall give notice by first-class mail of a Conversion to an Auction Period to the Owners of the 2008 Certificates not less than 15 days prior to the proposed effective date of such Auction Period. Such notice shall state: (i) that the interest rate on such 2008 Certificates will be adjusted to an Auction Rate unless Special Counsel fails to deliver a Favorable Opinion of Special Counsel to the Trustee, the City and the Remarketing Agent on the Conversion Date; (ii) the proposed Conversion Date for such Auction Period; and (iii) that such 2008 Certificates are subject to mandatory tender for purchase on such proposed Conversion Date and setting forth the applicable Purchase Price and the place of delivery for purchase of such 2008 Certificates. Conversion to Weekly Rate. Subject to the Trust Agreement, at any time, the City, with the written consent of the Bank (which consent may not be unreasonably withheld), by written direction to the Trustee and the Remarketing Agent (and, in the case of Conversion from an Auction Period, the Broker-Dealer), may elect that a Series of the 2008 Certificates shall bear interest at a Weekly Rate. Such direction of the City shall specify the proposed Conversion Date for such Conversion to a Weekly Rate Period, which shall be a Business Day not earlier than the 20th day following receipt by the Trustee of such direction. In addition, if the Conversion is from other than a Daily Rate, such direction shall be accompanied by a letter of Special Counsel that it expects to be able to give a Favorable Opinion of Special Counsel on the Conversion Date. During each Weekly Rate Period commencing on a date so specified and ending on the day immediately preceding the effective date of the next succeeding Rate Period, the interest rate borne by the 2008 Certificates shall be a Weekly Rate. The Trustee shall give notice by first-class mail of a Conversion to a Weekly Rate Period to the Bank and the Owners of such Series of 2008 Certificates not less than 15 days prior to the proposed effective date of such Weekly Rate Period. Such notice shall state: (i) that the interest rate on such 2008 Certificates will be adjusted to a Weekly Rate unless, if the Conversion is from other than a Daily Rate, Special Counsel fails to deliver a Favorable Opinion of Special Counsel to the Trustee and the City on the Conversion Date; (ii) the proposed Conversion Date for such Weekly Rate Period; and (iii) if the Conversion is from other than a Daily Rate Period, that such 2008 Certificates are subject to mandatory tender for purchase on such proposed Conversion Date and setting forth the applicable Purchase Price and the place of delivery for purchase of such 2008 Certificates. Conversion to or Continuation of Long-Term Rate. Subject to the Trust Agreement, at any time, the City, with the written consent of the Bank (which consent may not be unreasonably withheld) by written direction to the Trustee and the Remarketing Agent, may 8

15 elect that a Series of 2008 Certificates shall bear interest at a Long-Term Rate, provided that: (i) at least seven days prior to such Long-Term Conversion Date, the Trustee shall have received a copy of a firm commitment or a bond purchase agreement in customary written form satisfactory to the Trustee from an underwriter acceptable to the City to purchase all 2008 Certificates by 12:00 noon (New York City time) on such proposed Long-Term Conversion Date; (ii) at or prior to 12:00 noon (New York City time) on such proposed Long-Term Conversion Date, the Trustee shall have received the Purchase Price of such 2008 Certificates from the underwriter under the firm commitment or bond purchase agreement, and (iii) on or prior to the Long-Term Conversion Date, the Favorable Opinion of Special Counsel shall have been received by the Trustee and confirmed to the Remarketing Agent. If a notice of a proposed Conversion to a Long-Term Rate Period has been provided to the Owners pursuant to the Trust Agreement but the Trustee shall not have received the entire amount owed with respect to all specified 2008 Certificates on the Long-Term Conversion Date, or if any other condition precedent to the adjustment to the Long- Term Rate Period shall not have been met, then the specified 2008 Certificates shall be subject to mandatory tender for purchase pursuant but the proposed conversion to the Long-Term Rate Period shall not take place. In the event that the City shall elect that the 2008 Certificates shall bear interest at a Long-Term Rate, the direction of the City required by the first sentence of this paragraph, (i) shall specify the duration of the Long-Term Rate Period during which such 2008 Certificates shall bear interest at such Long-Term Rate or Rates; (ii) shall specify the proposed Long-Term Conversion Date, which date shall be a Business Day not earlier than the 20th day following receipt by the Trustee of such direction; (iii) shall specify the last day of such Long- Term Rate Period (which last day shall be either the day immediately prior to the maturity date, or a day which both immediately precedes a Business Day and is at least 271 days after the effective date thereof); (iv) shall specify a date or dates on or prior to which Owners are required to deliver such 2008 Certificates to be purchased. The direction of the City described above shall be accompanied by a letter of Special Counsel that it expects to be able to give a Favorable Opinion of Special Counsel on the Long-Term Conversion Date and by a form of the notice to be mailed by the Trustee to the Owners of such 2008 Certificates as provided in the Trust Agreement. During the Long-Term Rate Period commencing and ending on the dates so determined and during each successive Long-Term Rate Period, if any, so determined, the interest rate borne by such 2008 Certificates shall be a Long-Term Rate. If, by the second Business Day preceding the 29th day prior to the last day of any Long-Term Rate Period which ends on a day other than the day immediately preceding the maturity date of such 2008 Certificates, the Trustee shall not have received notice of the City s election that, during the next succeeding Rate Period, such 2008 Certificates shall bear interest at a Weekly Rate or a Long- Term Rate or at Commercial Paper Rate, the next succeeding Rate Period shall be a Weekly Rate Period until such time as the interest rate on such 2008 Certificates shall be adjusted to a Long-Term Rate or Commercial Paper Rate as provided in the Trust Agreement. The Trustee shall give notice by first-class mail of Conversion to a Long-Term Rate Period to Bank and the Owners of such 2008 Certificates not less than fifteen days prior to the proposed Long-Term Conversion Date for such Long-Term Rate Period. Such notice shall state: (i) that the interest rate on such 2008 Certificates shall be adjusted to, or continue to be, a Long-Term Rate unless Special Counsel fails to deliver a Favorable Opinion of Special Counsel to the Trustee, the City and the Remarketing Agent as to such adjustment in the Rate Period on the Long-Term Conversion Date or any of the other conditions in the Trust Agreement are not met; (ii) the proposed Long-Term Conversion Date; and (iii) that such 2008 Certificates are subject to mandatory tender for purchase on such proposed Long-Term Conversion Date and setting forth the applicable Purchase Price and the place of delivery for purchase of such 2008 Certificates. Conversion to Commercial Paper Rates. Subject to the Trust Agreement, at any time, the City, with the written consent of the Bank (which consent may not be unreasonably 9

16 withheld), by written direction to the Trustee and the Remarketing Agent, may elect that 2008 Certificates shall bear interest at Commercial Paper Rates. Such direction of the City shall specify the proposed Conversion Date for the Commercial Paper Rate Period (during which such 2008 Certificates shall bear interest at Commercial Paper Rates), which shall be (i) a Business Day not earlier than the 20th day following receipt by the Trustee of such direction, and (iii) in the case of Conversion from a Weekly Rate Period, the day immediately following the last day of such Rate Period with respect to such 2008 Certificates. In addition, the direction of the City shall be accompanied by a letter of Special Counsel that it expects to be able to give a Favorable Opinion of Special Counsel on the Conversion Date and a form of the notice to be mailed by the Trustee to the Owners of such 2008 Certificates as provided in the Trust Agreement. During each Commercial Paper Rate Period commencing on the date so specified and ending, with respect to each such 2008 Certificate, on the day immediately preceding the effective date of the next succeeding Rate Period with respect to such 2008 Certificate, each such 2008 Certificate shall bear interest at a Commercial Paper Rate during each Commercial Paper Rate for such 2008 Certificate. The Trustee shall give notice by first-class mail of Conversion to a Commercial Paper Rate Period to the Bank and the Owners of the specified 2008 Certificates not less than 15 days prior to the proposed Conversion Date for such Commercial Paper Rate Period. Such notice shall state: (i) that such 2008 Certificates shall bear interest at Commercial Paper Rates unless Special Counsel fails to deliver a Favorable Opinion of Special Counsel to the Trustee, the City and the Remarketing Agent as to such Conversion on the Conversion Date or the other conditions precedent to such adjustment are not met; (ii) the proposed effective date of such Commercial Paper Rate Period; (iii) that such 2008 Certificates are subject to mandatory tender for purchase on such proposed Conversion Date for such Commercial Paper Rate Period, regardless of whether any or all conditions precedent to the adjustment are met, and setting forth the applicable Purchase Price and the place of delivery for purchase of such 2008 Certificates. Conversion; Cancellation of Conversion. In the event that the City shall elect to adjust the interest rate with respect to the 2008 Certificates to an Auction Rate, a Daily Rate, a Long-Term Rate or Commercial Paper Rate as provided in the Trust Agreement, then the written direction furnished by the City to the Trustee, the Bank and the Remarketing Agent as required shall be made by registered or certified mail, or by telecopy, confirmed by registered or certified mail. Any such direction of the City shall specify whether the 2008 Certificates are to bear interest at the Daily Rate, the Auction Rate, Commercial Paper Rate or the Long-Term Rate and shall be accompanied by a copy of the notice required to be given by the Trustee pursuant to the Trust Agreement. Notwithstanding anything in the Trust Agreement, in connection with any Conversion of the Interest Rate Mode on the 2008 Certificates, the City shall cause a Favorable Opinion of Special Counsel to be provided to the Trustee, the City and the Remarketing Agent on the proposed Conversion Date. In the event that Special Counsel fails to deliver a Favorable Opinion of Special Counsel or any other condition precedent to such adjustment is not met on the proposed Conversion Date, then the Interest Rate Mode for such 2008 Certificates shall not be adjusted, and the 2008 Certificates shall continue to bear interest at the Weekly Rate as in effect immediately prior to such proposed adjustment in the Rate Period. In any event, if notice of such adjustment has been mailed to the Owners of such 2008 Certificates as provided in the Trust Agreement and any conditions set forth in the applicable provisions of the Trust Agreement have not been met, such 2008 Certificates shall continue to be subject to mandatory tender for purchase on the date which would have been the proposed effective date of such adjustment as provided in the Trust Agreement. The City may cancel its election to adjust the Interest Rate Mode on the 2008 Certificates on any date prior to the date on which notice of such Conversion has been mailed 10

17 the Owners of such 2008 Certificates as provided in the Trust Agreement upon notice to the Trustee and the Remarketing Agent. In such event, such 2008 Certificates shall remain in the current Interest Rate Mode and the interest rate on such 2008 Certificates shall continue to be determined as provided in the Trust Agreement. Optional Tender During Weekly Rate Period. If the Interest Rate Mode is the Weekly Rate, any 2008 Certificate shall be purchased on the demand of the Owner thereof on any Business Day during a Weekly Rate Period at a purchase price equal to the principal amount thereof plus accrued interest, if any, to the Purchase Date, upon written notice to the Trustee, at its Trust Office at or before 5:00 p.m. (New York City time) on a Business Day not later than the seventh day prior to the Purchase Date, which notice (a) states the number and principal amount (or portion thereof) of such 2008 Certificate to be purchased, (b) states the Purchase Date on which such 2008 Certificate shall be purchased and (c) irrevocably requests such purchase and agrees to deliver 2008 Certificate, duly endorsed in blank for transfer, with all signatures guaranteed, to the Trustee at or prior to 12:00 Noon (New York City time) on such Purchase Date. During Daily Rate Period. If the Interest Rate Mode is the Daily Rate, any 2008 Certificate shall be purchased on the demand of the Owner thereof on any Business Day during a Daily Rate Period at a purchase price equal to the principal amount thereof plus accrued interest, if any, to the Purchase Date upon written notice or Electronic Notice to the Trustee, at its Trust Office not later than 10:30 a.m. (New York City time) on the Business Day prior to the Purchase Date specified in such owner s demand for purchase, which notice (a) states the Series, number and principal amount (or portion thereof) of such 2008 Certificate to be purchased, (b) states the Purchase Date on which such 2008 Certificate shall be purchased and (c) irrevocably requests such purchase and agrees to deliver such 2008 Certificate, duly endorsed in blank for transfer, with all signatures guaranteed, to the Trustee at or prior to 12:00 noon (New York City time) on such Purchase Date. Notwithstanding any other provision of the Trust Agreement, the Owner of a 2008 Certificate may demand purchase of a portion of such 2008 Certificate only if the portion to be purchased and the portion to be retained by such Owner each will be in an Authorized Denomination. Mandatory Tender Mandatory Purchase on Conversion Date. The 2008 Certificates shall be subject to mandatory purchase at a purchase price equal to the principal amount thereof plus accrued interest, if any, on each Conversion Date other than a Conversion Date converting the Interest Rate Mode from a Daily Rate to a Weekly Rate or from a Weekly Rate to a Daily Rate. Mandatory Purchase Upon Delivery of Alternate Credit Facility. The 2008 Certificates shall be subject to mandatory purchase on the effective date of an Alternate Credit Facility. Mandatory Tender Upon Failure to Renew Credit Facility. The 2008 Certificates shall be purchased on the fifth Business Day preceding the date of expiration of the Credit Facility if a notice of renewal of the Credit Facility is not delivered by the Bank to the Trustee at least 25 days prior to the scheduled expiration of the Credit Facility. Mandatory Tender Upon Termination of Credit Facility. The 2008 Certificates shall be purchased on the Business Day preceding the date of termination of the Credit Facility. 11

18 Mandatory Tender Upon Default Under Reimbursement Agreement. The 2008 Certificates secured by a Credit Facility shall be purchased on a Business Day within 7 days after receipt by the Trustee of written notification from the Bank that an event of default under the Reimbursement Agreement has occurred and is continuing and instructing the Trustee to call for a mandatory tender of the 2008 Certificates. Notice of Mandatory Tender of Purchase. Notice of a mandatory tender (other than mandatory tender upon default under the Reimbursement Agreement) shall be given at least 25 days prior to the date of mandatory tender, or, in the event the Trustee does not have notice of the occurrence of the event which requires mandatory tender at least 25 days prior to the date of mandatory tender, notice shall be given as soon a practicable upon receipt of notice by the Trustee. Upon the occurrence of an event of default under the Reimbursement Agreement, the Trustee shall promptly mail a notice to all Owners of the 2008 Certificates stating that the 2008 Certificates will be subject to mandatory tender on a purchase date selected by the Trustee. Notices given in connection with a mandatory tender shall state: (i) that the Purchase Price of any 2008 Certificate so subject to mandatory tender for purchase shall be payable only upon surrender of such 2008 Certificate to the Trustee at its Trust Office, accompanied by an instrument of transfer thereof, in form satisfactory to the Trustee, executed in blank by the Owner thereof or by the Owner s duly-authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange; (ii) that all 2008 Certificates so subject to mandatory tender for purchase shall be purchased on the mandatory purchase date which shall be explicitly stated; and (iii) that in the event that any Owner of a 2008 Certificate so subject to mandatory tender for purchase shall not surrender such 2008 Certificate to the Trustee for purchase on such mandatory purchase date, then such 2008 Certificate shall be deemed to be an Undelivered 2008 Certificate, and that no interest shall accrue thereon on and after such mandatory purchase date and that the Owner thereof shall have no rights under this Trust Agreement other than to receive payment of the Purchase Price thereof. Notice of Alternate Credit Facility. Whenever the City has delivered to the Trustee notice of delivery of an Alternate Credit Facility, the Trustee shall mail a notice to all Owners of the 2008 Certificates, with a copy to the Bank, stating: (i) the name of the issuer of the Alternate Credit Facility, (ii) the date on which the Alternate Credit Facility will become effective, (iii) the rating expected to apply to the 2008 Certificates after the Alternate Credit Facility is delivered, and (iv) if the 2008 Certificates bear interest at a Weekly Rate, Daily Rate or Commercial Paper Rate, notice that the 2008 Certificates will be subject to mandatory tender for purchase on the effective date of the Alternate Credit Facility. Such notice shall be mailed at least 15 days prior to the effective date of the Alternate Credit Facility. Prepayment Special Prepayment. The 2008 Certificates shall be subject to prepayment as a whole on any date, or in part on any Interest Payment Date, pro rata among maturities, and by lot within a maturity, to the extent of the Net Proceeds of hazard insurance not used to repair or rebuild the Enterprise or the Net Proceeds of condemnation awards received with respect to the Enterprise to be used for such purpose pursuant to the Trust Agreement, at a Prepayment Price equal to the principal amount of the 2008 Certificates plus interest accrued thereon to the date fixed for prepayment, without premium. 12

19 Mandatory Sinking Fund Prepayment. The 2008 Certificates are subject to mandatory prepayment in part from Sinking Fund Installments to be made by the City on July 1, 2010 and on each July 1 thereafter up to and including July 1, 2036, at a Prepayment Price equal to the principal amount thereof plus accrued interest, if any, to the prepayment date without premium, as follows: Final Maturity Year Principal Amount 2010 $410, , , , , , , , , , , , , , , , , , , , , , ,015, ,060, ,105, ,155, ,200,000 Any Bank Certificates are subject to prepayment in accordance with the terms of the applicable Credit Facility. Optional Prepayment. Whenever the Interest Rate Mode is the Daily Rate or Weekly Rate, such 2008 Certificates shall be subject to prepayment prior to their stated maturity at the option of the City, in whole or in part on any Interest Payment Date with respect to such 2008 Certificates (in such amounts as may be specified by the City), by lot, at the principal amount thereof, without premium. Selection of 2008 Certificates for Prepayment. Whenever provision is made in the Trust Agreement for the prepayment of less than all of the 2008 Certificates, the Trustee shall select the 2008 Certificates to be redeemed, from all 2008 Certificates subject to prepayment or such given portion thereof not previously called for prepayment, by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair. Any Bank Certificates shall be prepaid in accordance with the applicable provisions of the Credit Facility and shall be prepaid before any other 2008 Certificates. 13

20 Notice of Prepayment. Notice of prepayment shall be mailed by the Trustee by first class mail, not less than 30 days (15 days if the Interest Rate Mode for such 2008 Certificates is an Auction Rate) nor more than 60 days prior to the prepayment date, to the respective Owners of any 2008 Certificates designated for prepayment at their addresses appearing on the bond registration books of the Trustee. Any 2008 Certificate which is remarketed subsequent to a notice of prepayment being delivered, but prior to the date of such prepayment, shall be delivered to the purchaser thereof accompanied by such notice. The Trustee shall also give notice of prepayment by overnight mail or by such other method acceptable to the Bank and such institutions to such securities depositories and/or securities information services as shall be designated in a Certificate of the City. Each notice of prepayment shall state the date of such notice, the date of issue of the 2008 Certificates the prepayment date, the Prepayment Price, the place or places of prepayment (including the name and appropriate address or addresses of the Trustee), the CUSIP numbers, if any, and, in the case of 2008 Certificates to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on said date there will become due and payable on each of said 2008 Certificates the Prepayment Price thereof or of said specified portion of the principal amount thereof in the case of a 2008 Certificate to be redeemed in part only, together with interest accrued thereon to the prepayment date, and that from and after such prepayment date interest thereon shall cease to accrue, and shall require that such 2008 Certificates be then surrendered. Failure by the Trustee to give notice of prepayment pursuant to the Trust Agreement to any one or more of the securities information services or depositories designated by the City, or the insufficiency of any such notice shall not affect the sufficiency of the proceedings for prepayment. Failure by the Trustee to mail notice of prepayment pursuant to the Trust Agreement to any one or more of the respective Owners of any 2008 Certificates designated for prepayment shall not affect the sufficiency of the proceedings for prepayment with respect to the Owners to whom such notice was mailed. Conditional notice of optional prepayment may be given at the direction of the City, provided however that prior to or contemporaneously with any withdrawal or rescission of any notice of prepayment, the Trustee and the Tender Agent receive written confirmation from the Bank of the full reinstatement, if any, of the Credit Facility. Any prepayment notice given pursuant to the Trust Agreement may be rescinded by written notice given to the Trustee by the City no later than five Business Days prior to the date specified for prepayment. The Trustee shall give notice of such rescission as soon thereafter as practicable in the same manner, and to the same persons, as notice of such prepayment was given pursuant to the Trust Agreement. Partial Prepayment of 2008 Certificates. Upon surrender of any 2008 Certificate redeemed in part only, the Trustee shall execute and deliver to the Owner thereof, at the expense of the City, a new 2008 Certificate or 2008 Certificates of authorized denominations, equal in aggregate principal amount to the unredeemed portion of the 2008 Certificate surrendered. Effect of Prepayment. Notice of prepayment having been duly given as aforesaid, and moneys for payment of the Prepayment Price of the 2008 Certificates (or portions thereof) so called for prepayment being held by the Trustee, on the prepayment date designated in such notice, the 2008 Certificates (or portions thereof) so called for prepayment shall become due and payable at the Prepayment Price specified in such notice and interest accrued thereon to the prepayment date, interest on the 2008 Certificates so called for prepayment shall cease to 14

21 accrue, said 2008 Certificates (or portions thereof) shall cease to be entitled to any benefit or security under this Trust Agreement, and the Owners of said 2008 Certificates shall have no rights in respect thereof except to receive payment of said Prepayment Price and accrued interest to the date fixed for prepayment from funds held by the Trustee for such payment. All 2008 Certificates prepaid pursuant to the provisions of this Article shall be canceled upon surrender thereof and delivered to or upon the Order of the City. Purchase and Remarketing of 2008 Certificates Purchase of 2008 Certificates. Any 2008 Certificates tendered to the Trustee for purchase will be held in trust for the benefit of the respective Owners of such 2008 Certificates until moneys representing the Purchase Price of such 2008 Certificates have been delivered to such Owners. The term Purchase Price of any Purchased 2008 Certificate means the principal amount thereof plus accrued interest to, but not including, the Purchase Date; provided, however, that if the Purchase Date for any Purchased 2008 Certificate is an Interest Payment Date, the Purchase Price thereof will be the principal amount thereof, and interest with respect to such 2008 Certificate will be paid to the Owner of such 2008 Certificate pursuant to the Trust Agreement. The Purchase Price of Purchased 2008 Certificates will be paid by the Trustee or Tender Agent at or before 4:00 p.m. (New York City time) on the Purchase Date from the proceeds of the sale of such 2008 Certificates received from the Remarketing Agent and, to the extent sufficient remarketing proceeds to pay the Purchase Price are not received, from draws on the Credit Facility. The Trustee will draw on the Credit Facility pursuant to the terms thereof or of the respective Reimbursement Agreement (or, if at any time there is an Alternate Credit Facility, then pursuant to the requirements of such Alternate Credit Facility) on the Purchase Date in the amount necessary, when added to the proceeds of the remarketing of the 2008 Certificates delivered to the Trustee from the Remarketing Agent to provide to the Trustee or the Tender Agent the balance of the funds needed to purchase tendered 2008 Certificates on the Purchase Date. Such moneys will be used only to pay the Purchase Price as provided in the Trust Agreement, and if not so used will be promptly returned to the Bank. If the 2008 Certificates are not Book-Entry Bonds, all amounts received from a draw under the Credit Facility will be transferred immediately by the Trustee to the Tender Agent to purchase tendered 2008 Certificates on the Purchase Date. Until applied to pay the Purchase Price or returned to the Bank, all such amounts will be deposited in the Credit Facility Account established under the Trust Agreement and until so applied will be held uninvested in trust for the benefit of the Owners tendering such 2008 Certificates for purchase. Remarketing. E.J. De La Rosa & Co., Inc. will serve as the initial Remarketing Agent for the 2008 Certificates. Under the Remarketing Agreement, the Remarketing Agent has agreed to: (i) determine the interest rates applicable to such 2008 Certificates and give notice to the Trustee of such rates and periods in accordance with the Trust Agreement; (ii) keep such books and records as shall be consistent with prudent industry practice; and (iii) use its best efforts to remarket 2008 Certificates in accordance with the Trust Agreement. The Remarketing Agent shall hold all amounts received by it in accordance with any remarketing of 2008 Certificates pursuant to the Trust Agreement in trust only for the benefit of the Owners of tendered 2008 Certificates and shall not commingle such amounts with any other moneys. Unclaimed Moneys. Any moneys held by the Trustee in the Purchase Fund remaining unclaimed by the Owners of the Purchased 2008 Certificates which were to have been purchased for two years after the respective Purchase Date for such Purchased 2008 Certificates shall be paid, upon the written request of the City to the City, against written receipt therefor. The Owners of Purchased 2008 Certificates who have not yet claimed money in 15

22 respect of such 2008 Certificates shall thereafter be entitled to look only to the Trustee, to the extent it shall hold moneys on deposit in the Purchase Fund or the City to the extent moneys have been transferred in accordance with the Trust Agreement. No Remarketing Under Certain Conditions. Notwithstanding anything in the Trust Agreement to the contrary, there will be no remarketing of 2008 Certificates under the Trust Agreement: (1) upon the occurrence of and the continuing of certain Events of Default, (2) upon receipt by the Trustee of written notification from the Bank that an event of default under the Reimbursement Agreement has occurred and is continuing and instructing the Trustee to call for a mandatory tender of the 2008 Certificates, or (3) for the period during which the Trustee has notice that the amount available to be drawn under the Credit Facility will not or has not been reinstated, or (4) at any time when no Credit Facility is in effect. Disclosure Concerning Sales of Variable Rate Demand Bonds by Remarketing Agent The Remarketing Agent is Paid by the City. The Remarketing Agent's responsibilities include determining the interest rate from time to time and remarketing 2008 Certificates that are optionally or mandatorily tendered by the Owners thereof (subject, in each case, to the terms of the Remarketing Agreement), all as further described in this Official Statement. The Remarketing Agent is appointed by the City and is paid by the City for its services. As a result, the interests of the Remarketing Agent may differ from those of existing holders and potential purchasers of 2008 Certificates. The Remarketing Agent Routinely Purchases 2008 Certificates for its Own Account. The Remarketing Agent acts as remarketing agent for a variety of variable rate demand obligations and, in its sole discretion, routinely purchases such obligations for its own account. The Remarketing Agent is permitted, but not obligated, to purchase tendered 2008 Certificates for its own account and, in its sole discretion, routinely acquires such tendered 2008 Certificates in order to achieve a successful remarketing of the 2008 Certificates (i.e., because there otherwise are not enough buyers to purchase the 2008 Certificates) or for other reasons. However, the Remarketing Agent is not obligated to purchase 2008 Certificates, and may cease doing so at any time without notice. The Remarketing Agent may also make a market in the 2008 Certificates by routinely purchasing and selling 2008 Certificates other than in connection with an optional or mandatory tender and remarketing. Such purchases and sales may be at or below par. However, the Remarketing Agent is not required to make a market in the 2008 Certificates. The Remarketing Agent may also sell any 2008 Certificates it has purchased to one or more affiliated investment vehicles for collective ownership or enter into derivative arrangements with affiliates or others in order to reduce its exposure to the 2008 Certificates. The purchase of 2008 Certificates by the Remarketing Agent may cause the interest rate to be lower than it would be if the Remarketing Agent did not purchase 2008 Certificates and may create the appearance that there is greater third party demand for the 2008 Certificates in the market than is actually the case. The practices described above also may result in fewer 2008 Certificates being tendered in a remarketing Certificates May be Offered at Different Prices on Any Date Including an interest rate determination date. Pursuant to the Remarketing Agreement, the Remarketing Agent is required to determine the applicable rate of interest that, in its judgment, is the lowest rate that would permit the sale of the 2008 Certificates bearing interest at the applicable interest rate at par plus accrued interest, if any, on and as of the applicable rate determination date. The interest rate will reflect, among other factors, the level of market demand for the 2008 Certificates (including whether the Remarketing Agent is willing to purchase 2008 Certificates for its own account). The purchase of the 2008 Certificates by the Remarketing Agent may cause the interest rate to be lower than it would be if the Remarketing Agent did not purchase 16

23 2008 Certificates. There may or may not be 2008 Certificates tendered and remarketed on a rate determination date, the Remarketing Agent may or may not be able to remarket any 2008 Certificates tendered for purchase on such date at par and the Remarketing Agent may sell 2008 Certificates at varying prices to different investors on such date or any other date. The Remarketing Agent is not obligated to advise purchasers in a remarketing if it does not have third party buyers for all of the 2008 Certificates at the remarketing price. The Remarketing Agent, in its sole discretion, may offer 2008 Certificates on any date, including the rate determination date, at a discount to par to some investors. The Ability to Sell the 2008 Certificates other than through Tender Process May Be Limited. The Remarketing Agent may buy and sell 2008 Certificates other than through the tender process. However, it is not obligated to do so and may cease doing so at any time without notice and may require holders that wish to tender their 2008 Certificates to do so through the Tender Agent with appropriate notice. Thus, investors who purchase the 2008 Certificates, whether in a remarketing or otherwise, should not assume that they will be able to sell their 2008 Certificates other than by tendering the 2008 Certificates in accordance with the tender process. Under Certain Circumstances, the Remarketing Agent May Be Removed, Resign or Cease Remarketing the 2008 Certificates, Without a Successor Being Named. Under certain circumstances the Remarketing Agent may be removed or have the ability to resign or cease its remarketing efforts, without a successor having been named, subject to the terms of the Remarketing Agreement. In the event there is no Remarketing Agent, the Trustee is required to apply to a court of competent jurisdiction for appointment of a successor Remarketing Agent. Book Entry Only System The 2008 Certificates will be issued in fully registered form only and, when initially issued, will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the 2008 Certificates. Purchasers of the 2008 Certificates will not receive physical certificates representing their beneficial ownership interests in the Bonds purchased. Payments of principal and interest on the 2008 Certificates will be paid by the Trustee to DTC, which is obligated in turn to remit such principal and interest to its DTC Participants for subsequent disbursement to the Beneficial Owners of the 2008 Certificates. See APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM herein. For so long as DTC is effecting book-entry of the 2008 Certificates, the Trustee will provide the mandatory tender notice described above to DTC. It is expected that DTC will, in turn, notify its participants and that the participants, in turn, will notify or cause to be notified, the Beneficial Owners of the 2008 Certificates. The Authority, the Trustee, and the City will have no responsibility or liability in connection with the failure on the part of DTC or a participant, or failure on the part of a nominee of a Beneficial Owner of a 2008 Certificate, to notify the Beneficial Owner of the 2008 Certificate so affected, and such failure shall not affect the validity of a mandatory tender for such 2008 Certificate. See APPENDIX F - DTC AND THE BOOK- ENTRY ONLY SYSTEM. 17

24 SECURITY FOR THE 2008 CERTIFICATES The general fund of the City is not liable and the credit or taxing power of the City is not pledged for the Installment Payments or the payment of the principal, Purchase Price, or Prepayment Price of and interest represented by the 2008 Certificates. The Owner of the 2008 Certificates may not compel the exercise of the taxing power by the City or the forfeiture of its property. The principal and interest represented by the 2008 Certificates are not a debt of the City, nor a legal or equitable pledge, charge, lien or encumbrance, upon any of its property, or upon any of its income, receipts, or revenues except the Net Revenues of the Water System. The Letter of Credit Payment of the principal of and interest with respect to, and purchase price of, the 2008 Certificates will initially will be made from proceeds of draws on the Letter of Credit. The initial scheduled expiration date of the Letter of Credit is March 26, 2013, as extended or earlier terminated prior thereto as described herein. See THE BANK and THE LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT. Installment Payments Each 2008 Certificate represents a direct, undivided fractional interest in installment payments (the Installment Payments ) required to be made by the City to the Authority under the Installment Sale Agreement. The Authority, pursuant to the Assignment Agreement, assigns certain of its rights under the Installment Sale Agreement to the Trustee for the benefit of the Owners, including its right to receive Installment Payments and prepayments made under the Installment Sale Agreement and its rights to enforce payment of the Installment Payments when due in the event of a default by the City. Net Revenues; Pledge of Net Revenues The obligation of the City to make Installment Payments constitutes a special obligation of the City payable solely from a first lien on a parity with the obligation to pay the 2003 Installment Payments and Parity Debt, subject to the issuance of additional Parity Debt, on the Net Revenues (defined below), certain net proceeds of insurance or condemnation proceedings pertaining to the Water System to the extent that such net proceeds are not used for the repair, reconstruction or replacement of the Water System pursuant to the Installment Sale Agreement, and certain interest and other income derived from the investment of moneys held in funds and accounts held by the Trustee for the City pursuant to the Trust Agreement. See Parity Debt below. Net Revenues. The Trust Agreement provides that the principal represented by the 2008 Certificates and the interest and prepayment premium, if any, thereon are payable from Net Revenues and that the Net Revenues constitute a trust fund for the security and payment of the principal and interest represented by the 2008 Certificates. Net Revenues are defined in the Trust Agreement as, for any period, an amount equal to all of the Gross Revenues received during such period minus the amount required to pay all Operation and Maintenance Expenses becoming payable during such period. Gross Revenues are defined in the Trust Agreement as, all gross charges (including surcharges, if any) received for, and all other gross income and receipts derived by the City from, the ownership and operation of the Water System or otherwise arising from the Water System, including but not limited to (a) connection charges, and (b) investment earnings on 18

25 amounts held in the Water Fund or in any other fund established with respect to the Water System. Gross Revenues does not include (i) refundable deposits made to establish credit, (ii) the proceeds of any ad valorem property taxes, and (iii) the proceeds of any special assessments or special taxes levied upon real property within any improvement district served by the City for the purpose of paying special assessment bonds or special tax obligations of the City relating to the Water System. Operation and Maintenance Expenses are defined in the Trust Agreement as the reasonable and necessary costs and expenses paid by the City to maintain and operate the Water System, including but not limited to (a) costs of acquisition of water to be supplied by the Water System, (b) costs of electricity and other forms of energy supplied to the Water System, (c) the reasonable expenses of management and repair and other costs and expenses necessary to maintain and preserve the Water System in good repair and working order, and (d) the reasonable administrative costs of the City attributable to the operation and maintenance of the Water System. Operation and Maintenance Expenses do not include (i) debt service payable on obligations incurred by the City with respect to the Water System, including but not limited to the Installment Payments and any Parity Debt, (ii) depreciation, replacement and obsolescence charges or reserves therefor, and (iii) amortization of intangibles or other bookkeeping entries of a similar nature. First Lien on Net Revenues. Under the Installment Sale Agreement, the City agrees that the payment of the Installment Payments shall be secured by a pledge, charge and first and prior lien upon Net Revenues, subject to Parity Debt (including the 2003 Installment Payments), and Net Revenues sufficient to pay the Installment Payments as they become due and payable are pledged, charged, assigned, transferred and set over by the City to the Authority and its assigns for the purpose of securing payment of the Installment Payments. The Net Revenues shall constitute a trust fund for the security and payment of the Installment Payments. The Net Revenues may not be used for any other purpose while any of the Certificates remain Outstanding, except that out of Net Revenues there may be apportioned and paid such sums for such purposes, as are expressly permitted by the Trust Agreement. See Parity Debt below. Water Revenue Fund In order to carry out and effectuate the pledge and lien of Net Revenues to payment of debt service on the 2008 Certificates, the City agrees and covenants in the Trust Agreement that all Gross Revenues shall be received by the City in trust under the Trust Agreement and shall be deposited when and as received into the Water Revenue Fund (the Water Revenue Fund ), which fund the City agrees and covenants to maintain so long as any 2008 Certificates remain Outstanding. All Gross Revenues shall be applied, transferred, used and withdrawn only for the purposes hereinafter authorized in the Trust Agreement, which include the following. (1) Operating Costs. The Finance Director shall first pay from the moneys in the Water Revenue Fund the budgeted Operation and Maintenance Expenses as such expenses become due and payable. (2) Installment Payments and Parity Debt Payments. The City shall next pay Installment Payments, obligations to the Bank under the Reimbursement Agreement, Debt Service on Parity Debt and all payments other than termination payments due from the City under the Swap Agreement as the same become due and payable (3) Reserve Fund. Remaining moneys next are used to replenish the Reserve Fund, if needed, in accordance with the Trust Agreement. 19

26 (4) Surplus. Following the annual application of Net Revenues for payment of the Installment Payment due in August of each year, Net Revenues in excess of amounts required for the payment of Installment Payments, any Parity Debt and for the replenishment of the Reserve Fund in that Fiscal Year are released from the lien of the Installment Sale Agreement and will be available for any lawful purpose of the City, including any termination payments under the Swap Agreement. Installment Payment Fund The Trust Agreement provides that an Installment Payment Fund will be established and maintained by the Trustee. The Trustee shall withdraw from the Installment Payment Fund, prior to each Interest Payment Date, an amount equal to the Installment Payment payable on such Interest Payment Date, and shall cause the same to be applied to the payment of the principal and/or interest evidenced and represented by said 2008 Certificates when due. Provided however, that as long as the Letter of Credit is in effect, the Bank will make payments of principal and interest with respect to the 2008 Certificates, and Installment Payments will be applied to reimburse the Bank under the Reimbursement Agreement. Reserve Fund Under the Trust Agreement, the Trustee will establish a special fund designated the Reserve Fund which shall be separate and apart from all other funds and moneys held by the Trustee. All moneys at any time on deposit in the Reserve Fund shall be at least equal to the Reserve Requirement, shall be held by the Trustee in trust for the benefit of the Owners of the 2008 Certificates, and shall be applied solely as provided in the Trust Agreement. Reserve Requirement means, as of the date of calculation with respect to the 2008 Certificates and Parity Debt, a sum equal to the maximum amount of Installment Payments and Debt Service on any outstanding Parity Debt due in the current or any future calendar year. The amount maintained in the Reserve Fund is held in trust as a reserve for the payment when due of the Installment Payments (and any Parity Debt if it serves as a common reserve fund therefor). A reserve fund also exists for the 2003 Certificates and any draws from the Reserve Fund shall be on a pro-rata basis with draws from the reserve fund for the 2003 Certificates (as well as any Parity Debt issued in the future) so long as the 2003 Certificates are outstanding. The City has the right at any time to direct the Trustee to release funds from the Reserve Fund and replace such funds with a Qualified Reserve Fund Credit Instrument. A Qualified Reserve Fund Credit Instrument is an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Trustee, provided that all of the following requirements are met: (a) the long-term credit rating of such bank or insurance company is in the highest rating category by Moody s and S&P; (b) such letter of credit or surety bond has a term of at least twelve (12) months; (c) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released; and (d) the Trustee is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the Installment Payment Fund for the purpose of making payments required to be made from such fund. If the amounts are to be so released from the Reserve Fund, the City shall tender to the Trustee: (1) a Qualified Reserve Fund Credit Instrument, and (2) an opinion of Special Counsel stating that such release will not, of itself, cause interest with respect to the 2008 Certificates to become includable in gross income for purposes of federal income taxation. Prior to the expiration of any Qualified Reserve Fund Credit Instrument, the City shall be obligated either (a) to replace such Qualified Reserve Fund Credit Instrument with a new Qualified Reserve Fund Credit Instrument, or (b) to deposit 20

27 or cause to be deposited with the Trustee an amount of moneys equal to the Reserve Requirement, to be derived from Net Revenues; provided, however, that if the City shall fail to replace an expiring Qualified Reserve Fund Credit Instrument or to deposit moneys equal to the Reserve Requirement, the Trustee shall draw on such Qualified Reserve Fund Credit Instrument before such expiration to the extent necessary to fund the Reserve Requirement. Rate Covenant The City covenants in the Installment Sale Agreement that it shall fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Water System during each Fiscal Year, which are at least sufficient, after making allowances for contingencies and error in the estimates, to yield Gross Revenues sufficient to pay (i) all Operation and Maintenance Expenses estimated by the City to become due and payable in such Fiscal Year; (ii) all Installment Payments and Debt Service on any Parity Debt as they become due and payable during such Fiscal Year, without preference or priority; (iii) all amounts, if any, required to restore the balance in the Reserve Fund to the full amount of the Reserve Requirement; and (iv) all payments required to meet any other obligations of the City which are charges, liens, encumbrances upon, or which are otherwise payable from, the Gross Revenues or the Net Revenues during such Fiscal Year, and are sufficient to yield Net Revenues which are at least equal to 120% of the amount described in the preceding clause (ii) for such Fiscal Year. If, in any Fiscal Year, charges for the services and facilities of the Water System which, after allowances for contingencies and error in the estimates, shall produce Gross Revenues insufficient to meet the covenant set forth above, the City covenants and agrees to employ an independent consultant to make recommendations as to a revision of the rates, fees and charges of the Water System or the methods of operation of the Water System that will result in producing Net Revenues in the amount required by the covenant. The City also covenants and agrees in the Installment Sale Agreement that it shall, subject to certain limitations, revise its rates, fees and charges or its methods of operation or collections and shall take such other action as shall be in conformity with such recommendations. In the event that the City fails to comply with such recommendations, the Authority, or its assignee, may compel the City to comply with the recommendations and requirements in accordance with the Installment Sale Agreement. Parity Obligations The 2003 Certificates. The obligations of the City under the Installment Sale Agreement to pay the Installment Payments for the 2008 Certificates are secured on a parity with the obligations of the City to pay the 2003 Installment Payments in connection with the $5,915,000 aggregate principal amount of 2003 Certificates, outstanding the in the aggregate principal amount of $5,490,000. The 2003 Certificates were issued to finance capital improvements to the Water System (primarily wells and transmission lines) and to pay in full the obligations of the City under an Installment Sale Agreement dated as of November 1, Additional obligations and bonds issued or incurred on a parity with or subordinate to the Certificates may be issued pursuant to the Trust Agreement provided that certain conditions are met, as described below. Additional Parity Debt. The Trust Agreement provides that the City will not incur any obligations payable from the Net Revenues superior to the payment of the Certificates, although the City may at any time issue or incur indebtedness or other obligations (including leases and installment sale agreements) secured by a pledge of and lien on Net Revenues equally and ratably with the Installment Payments (including lien of the 2003 Installment Payments, Parity Debt ) to provide financing for the Water System, in such principal amount as shall be 21

28 determined by the City. The City may issue or incur any such Parity Debt subject to the specific conditions contained in the Installment Sale Agreement, which include: (i) The City is not in default under the terms of this Installment Sale Agreement; (ii) Net Revenues, calculated on sound accounting principles, as shown by the books of the City for the latest Fiscal Year or any more recent twelve (12) month period selected by the City ending not more than sixty (60) days prior to the adoption of the resolution pursuant to which instrument such Parity Debt is issued or incurred, as shown by the books of the City, plus, at the option of the City, the additional allowance described below, shall have amounted to at least 1.20 times the sum of the Installment Payments coming due and payable in any future Fiscal Year and the annual debt service for such Fiscal Year on all Parity Debt outstanding immediately subsequent to the incurring of such additional obligations in the Fiscal Year in which such sum is the greatest; The following item may be added to such Net Revenues for the purpose of applying the foregoing: an allowance for earnings arising from any increase in the charges made for service from the Water System which has become effective prior to the incurring of such additional obligations but which, during all or any part of such Fiscal Year or 12-month period, was not in effect, in an amount equal to 100% of the amount by which the Net Revenues would have been increased if such increase in charges had been in effect during the whole of such Fiscal Year or 12-month period, as shown by a 2008 Certificate of the City. (iii) A reserve fund shall be funded, or a Qualified Reserve Fund Credit Instrument shall be established, for such Parity Debt which is at least equal to the amount resulting from the application on the closing date of such Parity Debt of the requirement contained in the definition of Reserve Requirement. Interest Rate Swap Agreement. Simultaneously with the delivery of the 2005 Certificates, the City entered into an interest rate swap agreement with Piper Jaffray Financial Products, Inc. (the Swap Counterparty ) and a Replacement Swap Undertaking with Morgan Stanley Capital Services Inc., as a credit support provider to the Swap Counterparty. The swap arrangement will remain in effect applicable to the 2008 Certificates. The payment obligations of the Swap Counterparty under the Swap Agreement will be general, unsecured obligations of the Swap Counterparty. The Swap Agreement has a term extending to the scheduled final maturity date of the 2008 Certificates (the Scheduled Expiration Date ) and requires the City to pay a fixed rate of interest on an initial notional amount equal to the principal amount of the related 2008 Certificates, which payments are payable on a parity with the Installment Payments. In return, the Swap Counterparty will pay a variable rate of interest equal to a percentage of the London Interbank Offering Rate ( LIBOR ) one month index on a like notional amount. The amounts payable by a party under the Swap Agreement are netted against the payments to be received by such party thereunder. The Swap Agreement may be terminated sooner than the Scheduled Expiration Date upon the occurrence of certain events. Termination of the Swap Agreement requires payment of termination fees either to the City or the Swap Counterparty based upon a formula that includes an assessment of the then current market value of the Swap Agreement. The payments by the City under the Swap Agreements are secured by a pledge of the Net Revenues of the Water System on a parity with the Parity Debt. 22

29 Subordinate Obligations The City may issue bonds or other obligations secured by a lien on Gross Revenues or Net Revenues which is subordinate to the lien established under the Installment Sale Agreement, upon such terms and in such principal amounts as the City may determine. Eminent Domain Proceeds The Installment Sale Agreement provides that if all or any part of the Water System is taken by eminent domain proceedings, the Net Proceeds thereof allocable to the Installment Payments shall be transferred by the City to the Trustee for deposit in the Insurance and Condemnation Fund pursuant to the Installment Sale Agreement and shall be applied and disbursed by the Trustee as follows: Insurance (a) If the City determines that such eminent domain proceedings have not materially affected the operation of the Water System, or the ability of the City to meet any of its obligations under the Installment Sale Agreement and any Parity Debt, and if the City determines that such proceeds are: (i) not needed for repair, replacement or rehabilitation of the Water System, upon receipt of a written certificate of a City Representative to such effect, the Trustee shall transfer such proceeds to the Installment Payment Fund to be credited towards the Prepayments required to be paid pursuant to the Installment Sale Agreement and applied to the prepayment of 2008 Certificates, or (ii) needed for repair or rehabilitation of the Water System, upon receipt of a written certificate of a City Representative to such effect, the Trustee shall pay to the City, or to its order, from said proceeds such amounts as the City may expend for such repair or rehabilitation, upon the filing with the requisitions of the City Representative, which shall (i) set forth the amounts to be disbursed for payment or reimbursement of construction costs and the person or persons to whom said amounts are to be disbursed; (ii) state that the amounts to be disbursed were necessarily and reasonably incurred, and that said amounts are not being paid in advance of the time, if any, fixed for payment; and (iii) state that no amount set forth in the requisition was included in any requisition requesting disbursement previously filed with the Trustee. (b) If (i) less than all of the Water System shall have been taken in such eminent domain proceedings, and if the City determines that such eminent domain proceedings have materially affected the operation of the Water System or the ability of the City to meet any of its obligations under the Installment Sale Agreement, or (ii) all of the Water System shall have been taken in such eminent domain proceedings, then upon receipt of written instruction from the City the Trustee shall transfer such proceeds to the Installment Payment Fund to be credited toward the Prepayment required to be paid pursuant to the Installment Sale Agreement and applied to the prepayment of 2008 Certificates. The City covenants in the Trust Agreement it shall at all times maintain such insurance on the Water System as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to the Water System, either in the form of selfinsurance or with responsible insurers. All amounts collected from insurance against accident to or destruction of any portion of the Water System shall be used either to repair or rebuild such damaged or destroyed portion of the Water System or to prepay the 2008 Certificates and Parity Debt. The City is also required to maintain worker s compensation insurance and insurance against public liability and property damage to the extent reasonably necessary to 23

30 protect the City, the Trustee and the Owners of the 2008 Certificates, either in the form of selfinsurance or with responsible insurers. The Trustee is not responsible for the adequacy of such insurance. THE BANK THE FOLLOWING REPRESENTS ONLY A SUMMARY OF THE INFORMATION REFERRED TO HEREIN. EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN, THIS DOCUMENT DOES NOT ATTEMPT TO DESCRIBE THE BUSINESS OR ANALYZE THE CONDITION, FINANCIAL OR OTHERWISE, OF THE BANK OR OTHERWISE DESCRIBE ANY RISKS ASSOCIATED WITH THE BANK. EACH BONDHOLDER MUST RELY ON THAT HOLDER S OWN KNOWLEDGE, INVESTIGATION AND EXAMINATION OF THE BANK AND THE BANK S CREDITWORTHINESS. Union Bank of California, N.A. ( UBOC or the Bank ) is the primary banking subsidiary of Union BanCal Corporation, a bank-holding company based in San Francisco with assets of $52.0 billion as of December, UBOC is the fourth largest bank in California and among the 25 largest commercial banks in the United States, with 330 full service domestic branches, as well as 2 international facilities. As of December, 2007, Union BanCal Corporation had loans totaling $36.6 billion, and total deposits of $41.8 billion. For the twelve months ending December, 31, 2007, net income (unaudited) was $608.1 million, compared to $753.9 million for the same period last year. Copies of the latest annual report and the most recent quarterly report may be obtained at or at UBOC s Los Angeles office, located at 445 Figueroa Street, Los Angeles, California THE LETTER OF CREDIT AND THE REIMBURSEMENT AGREEMENT The following are brief outlines of certain provisions contained in the Letter of Credit established by the Bank in favor of the Trustee and the Reimbursement Agreement and are not to be considered a full statement pertaining thereto. Reference is made to the Letter of Credit and the Reimbursement Agreement on file with the Trustee for the complete texts thereof. Capitalized terms used in this section and not otherwise defined shall have the meanings given such terms in the Reimbursement Agreement. The Letter of Credit The purchase price of, and principal and interest evidenced by the 2008 Certificates (other than the Bank Certificates or 2008 Certificates owned by the City or the Authority) will be payable from amounts available to be drawn by the Trustee under an irrevocable, transferable direct-pay Letter of Credit issued by the Bank. Ratings on the 2008 Certificates will therefore by based primarily on the credit of the Bank rather than the credit of the City or the Authority. See THE BANK herein for a description of the Bank. Concurrently with the execution and delivery of the 2008 Certificates, the Bank will deliver the Letter of Credit to the Trustee. The Trustee will be permitted to draw an aggregate amount not to exceed the principal amount of the 2008 Certificates plus interest calculated at an assumed rate of 12% for 195 days, based upon a 360-day year, subject to reductions and reinstatements as provided in the Letter of Credit. 24

31 The Letter of Credit provides that the Trustee may draw upon the Letter of Credit up to the Available Amount (subject to reduction as provided in the Letter of Credit) for any of the following purposes: (a) Payment Drawing in the form of (i) an Interest Drawing representing the payment of interest due with respect to the 2008 Certificates; (ii) a Partial Prepayment Drawing representing the payment of principal plus accrued and unpaid interest upon redemption or prepayment of less than all of the 2008 Certificates Outstanding (as defined in the Trust Agreement) and (iii) a Final Draft representing the payment of the unpaid principal and interest on 2008 Certificates either at a stated maturity, upon acceleration, or as a result of prepayment, redemption, or mandatory tender of the 2008 Certificates (other than 2008 Certificates presently held of record by the City, or the Authority or by the Trustee for the account of the City or the Authority) which 2008 Certificates are not to be remarketed again with the support of the Letter of Credit; and (b) Tender Drawing representing the payment of unpaid principal and interest due with respect to all or less than all of the 2008 Certificates Outstanding upon tender to the Trustee for purchase pursuant to the Trust Agreement (other than 2008 Certificates presently held of record by the City or the Authority or by the Trustee for the account of the City or the Authority). The Letter of Credit shall terminate (the Stated Termination Date ) upon the earliest to occur of: (i) the date on which the Bank receives written notice from the Trustee that there are no longer any 2008 Certificates Outstanding (as defined in the Trust Agreement); (ii) the date on which the Bank receives written notice from the Trustee that its Letter of Credit has been replaced with an Alternate Credit Facility with respect to all of the 2008 Certificates; (iii) the date on which the Bank honors a Final Draft with respect to all of the 2008 Certificates; (iv) the date on which all of the 2008 Certificates earn interest at the Fixed Rate as described in written notice to the Bank from the Trustee; and (v) the close of banking business at the Bank s Los Angeles, California office on March 26, 2013 (the Maturity Date ). The Maturity Date may be extended from time to time by amendment to the Letter of Credit at the sole discretion of the Bank. The Reimbursement Agreement The Reimbursement Agreement, among other things, sets the terms and conditions whereby the City is required to repay to the Bank any amounts drawn by the Trustee under the Letter of Credit. The Bank has certain rights and the City has certain obligations under the Reimbursement Agreement. These rights of the Bank do not extend to the owners of the 2008 Certificates. In addition, the City s compliance with its obligations under the Reimbursement Agreement can be waived solely at the behest of the Bank. The Reimbursement Agreement provides for, among other things, repayment by the City of amounts drawn under the Letter of Credit. Although certain aspects of the Reimbursement Agreement are summarized herein, this summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Reimbursement Agreement. The occurrence of any of the following events shall be an Event of Default under the Reimbursement Agreement: (a) The City shall fail to pay any amount payable under the Reimbursement Agreement when due; or (b) Any representation or warranty made, or deemed made, by or on behalf of the City (or any of its officials) in connection with the Reimbursement Agreement or any of the 25

32 Related Documents shall prove to have been incorrect in any material respect when made or deemed made; or (c) The City shall fail to perform or observe any term, covenant or agreement contained in Article V of the Reimbursement Agreement on its part to be performed or observed; or (d) The City shall fail to perform or observe any other term, covenant or agreement contained in any other section of the Reimbursement Agreement on its part to be performed or observed and any such failure shall remain unremedied for ten (10) days after written notice thereof shall have been given to the City by the Bank; or (e) The City shall default in the payment of any Debt (other than Debt arising under the Reimbursement Agreement and Debt which is secured by or payable from sources other than the City s general fund and as to which the City has no legal obligation to pay from its general fund), whether such Debt now exists or shall hereafter be created, and any period of grace with respect thereto shall have expired, or an event of default as defined in any mortgage, indenture or instrument, under which there may be issued, or by which there may be secured or evidenced, any Debt, whether such Debt now exists or may be hereafter created, shall occur, which default in payment or event of default shall result in such Debt becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; or (f) An order for relief shall have been entered against the City under the Bankruptcy Code or any other similar applicable Federal or State law, and such decree or order shall have continued undischarged and unstayed for a period of 90 days; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, trustee, liquidator or custodian of the City of its property, or for the winding up or liquidation of its affairs, shall have been entered, and such decree or order shall have remained in force undischarged and unstayed for a period of 90 days; or (g) The City shall institute a voluntary case, or shall consent to the institution of an involuntary case against it, or shall file a petition or answer or consent seeking reorganization or arrangement under the Bankruptcy Code or any other similar applicable Federal or State law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver, trustee, liquidator or custodian of it or of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or corporate action shall be taken by the City in furtherance of any of the aforesaid purposes; or (h) Any provision of this Agreement or any of the Related Documents to which the City is a party shall at any time for any reason cease to be valid and binding on the City, or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by the City, or the City shall deny that it has any or further liability or obligation under the Reimbursement Agreement; or (i) Any Event of Default under and as defined respectively in the Trust Agreement, the Installment Sale Agreement, the Assignment Agreement or any other Related Document shall have occurred and be continuing; or (j) Any event which materially and adversely affects the financial condition of the City or the ability of the City to observe and perform the terms of the Reimbursement Agreement shall have occurred and be continuing. 26

33 If any Event of Default shall have occurred and be continuing, the Bank may by notice to the City, declare the obligation of the Bank to issue the Letter of Credit to be terminated, whereupon the same shall forthwith terminate, or, if the Letter of Credit shall have been issued, (i) give notice to the Trustee pursuant to the Trust Agreement requesting the Trustee to declare a mandatory tender of all 2008 Certificates then outstanding and all interest accrued and unpaid thereon to be due and payable, (ii) take such action as may be necessary to cure such Event of Default on behalf and for the account of the City, (iii) require immediate payment in full by the City of any payment or amount owed or to be owed to the Bank under the Reimbursement Agreement, (iv) exercise any and all of the rights available to it under the Trust Agreement or any Related Documents, and (v) exercise any other rights and remedies available to it at law or in equity or under any other agreement. It is understood that, upon the occurrence of an Event of Default, the Bank may exercise its rights with respect to remedies available to it under the Trust Agreement or any of the other Related Documents, all without limiting or restricting the Bank's ability, at a later date, to exercise its rights with respect to any remaining revenues for payment of any remaining indebtedness of the City to the Bank. In the Reimbursement Agreement, Related Document is defined as the Letter of Credit, the 2008 Certificates, the Trust Agreement, the Installment Sale Agreement, the Assignment Agreement, the Custody Agreement, the Remarketing Agreement, or any other agreement or instrument relating thereto CERTIFICATE OWNERS RISKS The following describes certain special considerations and risk factors affecting the payment of and security for the 2008 Certificates. The following discussion is not meant to be an exhaustive list of the risks associated with the purchase of any 2008 Certificates and does not necessarily reflect the relative importance of the various risks. Potential investors in the 2008 Certificates are advised to consider the following special factors along with all other information in this Official Statement in evaluating the 2008 Certificates. There can be no assurance that other considerations will not materialize in the future. Security for the 2008 Certificates The 2008 Certificates are being offered solely on the basis of the Letter of Credit and the financial strength of the Bank and not the operations, financial strength or condition of the City or any other security. The rating assigned to the 2008 Certificates is based primarily on the creditworthiness of the Bank. Prospective purchasers of the 2008 Certificates that wish to make a full evaluation of the financial status of the Bank are advised to obtain financial statements of the Bank. Except as noted herein under THE LETTER OF CREDIT AND THE REIMBURSEMENT AGREEMENT, the 2008 Certificates are payable solely from payments made under the Installment Purchase Contract. No representation or assurance can be made that revenues will be realized by the City in amounts sufficient to make payments required by the Installment Purchase Contract and thus to pay maturing principal, mandatory sinking fund requirements and interest with respect to the 2008 Certificates. Future economic and other conditions, including economic trends and events, technological developments and demographic changes, increases in insurance claims, as well as increased costs and changes in government regulations, including Internal Revenue Service (the IRS ) policy regarding tax exemption, may adversely 27

34 affect the future financial condition of the City and, consequently, its ability to make payments of the principal of and premium, if any, and interest with respect to 2008 Certificates. Expiration of the Letter of Credit The initial scheduled expiration date of the Letter of Credit is March 26, 2013, subject to extension or earlier termination in certain circumstances as described therein. If the Letter of Credit is not extended or an Alternate Credit Facility is not obtained by the City, the 2008 Certificates will be subject to mandatory tender. There can be no assurance that the City will be able to obtain an extension of the Letter of Credit or an Alternate Credit Facility. The Bank is under no obligation to extend the Letter of Credit beyond the scheduled expiration thereof. Bank s Obligations Unsecured The ability of the Bank to honor draws upon the Letter of Credit is based solely upon the Bank s general credit and is not collateralized or otherwise guaranteed by the United States of America or any agency or instrumentality thereof. No provision has been made for replacement of or substitution for the Letter of Credit in the event of any deterioration in the financial condition of the Bank. Neither the Authority, the City or the Bank assumes any liability to any purchaser of the 2008 Certificates as a result of any deterioration of the financial condition of the Bank. Upon any insolvency of the Bank, any claim by the Trustee against the Bank would be subject to bank receivership proceedings. General Factors Affecting the Bank The Bank is subject to regulation and supervision by various regulatory bodies. New regulations could impose restrictions upon the Bank which would restrict its ability to respond to competitive pressures. Various legislative or regulatory changes could dramatically impact the banking industry as a whole and the Bank specifically. The banking industry is highly competitive in many of the markets in which the Bank operates. Such competition directly impacts the financial performance of the Bank. Any significant increase in such competition could adversely impact the Bank. Prospective purchasers of the 2008 Certificates should evaluate the financial strength of the Bank based upon the information contained and referred to herein under the caption THE BANK, and other information available upon request from the Bank and should not rely upon any governmental supervision by any regulatory entity. Limitations on Remedies and Limited Recourse on Default Remedies available to the owners of the 2008 Certificates upon the occurrence of an event of default may be limited and are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition to the limitations on remedies contained in the Installment Purchase Contract and the Trust Agreement, the rights and obligations under the Installment Purchase Contract and the Trust Agreement may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against cities in the State of California. The opinion to be delivered by Special Counsel concurrently with the execution and delivery of the 2008 Certificates will be subject to such limitations and the various other legal opinions to be delivered concurrently with the execution and delivery of the 2008 Certificates will be similarly qualified. See APPENDIX D PROPOSED FORM OF SPECIAL COUNSEL OPINION. 28

35 Loss of Tax-Exemption As discussed under the caption TAX MATTERS herein, interest represented by the 2008 Certificates could become includable in gross income for purposes of federal income taxation retroactive to the date the 2008 Certificates were issued, as a result of future acts or omissions of the City in violation of its covenants in the Trust Agreement or Installment Sale Agreement. Should such an event of taxability occur, the 2008 Certificates are not subject to special prepayment and will remain Outstanding until maturity or until prepaid under other provisions set forth in the Trust Agreement. Absence of Secondary Market for the 2008 Certificates There can be no guarantee that there will be a secondary market for the 2008 Certificates or, if a secondary market exists, that any 2008 Certificates can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon thenprevailing circumstances. Such prices could be substantially different from the original purchase price. No assurance can be given that the market price for the 2008 Certificates will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Internal Revenue Code), or changes in interpretation of the Internal Revenue Code, or any action of the Internal Revenue Service, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the 2008 Certificates for audit examination, or the course or result of any Internal Revenue Service audit or examination of the 2008 Certificates or obligations that present similar tax issues as the 2008 Certificates. On November 5, 2007, the U.S. Supreme Court heard an appeal of Davis v. Kentucky Dep t of Revenue of the Finance and Admin. Cabinet, 197 S.W.3d 557 (2006), a decision holding that state statutes providing more favorable state income tax treatment to holders of debt issued by in-state government bodies than for debt issued by out-of-state government bodies violate the U.S. Constitution. If the decision is upheld, the marketability and market price for the 2008 Certificates may be affected. Parity Obligations As described in SECURITY FOR THE 2008 CERTIFICATES - Parity Obligations above, the Trust Agreement permits the City to issue Parity Debt, its obligations under which would be payable on a parity with the payment of debt service of the 2008 Certificates. In the event of a decline in Net Revenues available to pay debt service on the 2008 Certificates, the existence of Parity Debt could adversely affect the City s ability to pay debt service on the 2008 Certificates. TAX MATTERS In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel, based on an analysis of existing statutes, regulations, rulings, and court decisions, and assuming, among other matters, compliance with certain covenants, interest represented the 2008 Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ) and is exempt from State of California personal income taxes. Special Counsel is of the further opinion that interest represented by the 2008 Certificates is not a specific preference item for purposes of federal individual or corporate alternative minimum taxes, although Special Counsel observes 29

36 that interest represented by the 2008 Certificates is included in adjusted current earnings when calculating federal corporate alternative taxable income. A copy of the proposed opinion of Special Counsel is set forth in Appendix E hereto. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal tax purposes of interest on obligations such as the 2008 Certificates. The City has covenanted to comply with certain guidelines designed to assure that interest represented by the 2008 Certificates will not become includable in federal gross income. Failure to comply with these covenants may result in interest represented by the 2008 Certificates being included in federal gross income, possibly from the date of issuance of the 2008 Certificates. The opinion of Special Counsel assumes compliance with these covenants. Special Counsel has not undertaken to determine, or to inform any person, whether actions taken, or omitted, or whether events occurring, or not occurring, after the date of issuance of the 2008 Certificates may affect the value of, or tax status of, interest represented by the 2008 Certificates. Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the Tax Certificate and other relevant documents may be changed and certain actions may be taken or not taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Special Counsel expresses no opinion as to any 2008 Certificate or the interest thereon if any such change occurs or action is taken or not taken upon the advice or approval of bond counsel other than Jones Hall, A Professional Law Corporation. Although Special Counsel has rendered an opinion that interest represented by the 2008 Certificates is excluded from federal gross income, the ownership or disposition of, or the accrual or receipt of interest with respect to, the 2008 Certificates may otherwise affect an Owner s tax liability. The nature and extent of these other tax consequences will depend upon the Owner s particular tax status and the Owner s other items of income or deduction. Special Counsel expresses no opinion regarding any such other tax consequences caused by the ownership or disposition or the accrual or receipt of interest represented by, the 2008 Certificates. CERTAIN LEGAL MATTERS Jones Hall, A Professional Law Corporation, Special Counsel, will render an opinion with respect to the validity of the 2008 Certificates, the form of which opinion is set forth in Appendix E. Special Counsel has assumed no responsibility for the accuracy, completeness or fairness of the Official Statement. Certain legal matters will also be passed upon for the City by Jones Hall as Disclosure Counsel. Certain legal matters will be passed upon for the City by the City Attorney. Payment of the fees and expenses of Special Counsel and Disclosure Counsel is contingent upon issuance of the 2008 Certificates. LITIGATION To the best knowledge of the City, there is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending or threatened against the City to restrain or enjoin the authorization, execution or delivery of the 2008 Certificates, or the pledge of the Net Revenues or the collection of the payments to be made pursuant to the Trust Agreement, or in any way contesting or affecting validity of the

37 Certificates, the Trust Agreement or the agreement for the sale of the 2008 Certificates, or in any way contesting or affecting the transactions described in this Official Statement. RATINGS Standard & Poor s Credit Market Services (the Rating Agency ) has assigned its short term rating of A-1 to the 2008 Certificates and its long-term rating of A+ to the 2008 Certificates. Such ratings are based on the Letter of Credit issued for the benefit of the 2008 Certificates. See THE LETTER OF CREDIT AND THE REIMBORUSEMENT AGREEMENT above. In addition, the Rating Agency has assigned an underlying bond rating of BBB+ to the 2008 Certificates. This Official Statement applies only while the 2008 Certificates are secured by the Letter of Credit, and investors should rely upon the Bank for payment of principal and interest with respect to the 2008 Certificates. For general information about the City and its Water System, see Appendix C and Appendix D hereto. Such ratings reflect only the view of the Rating Agency assigning such rating, and any explanation of the significance of such ratings should be obtained from the Rating Agency furnishing the same. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of any rating obtained may have an adverse effect on the market price of the 2008 Certificates. The City and the Underwriter have undertaken no responsibility either to bring to the attention of the Owners of the 2008 Certificates any proposed change in or withdrawal of the rating or to oppose any such proposed revision or withdrawal, however. Any such downward change in or withdrawal of the rating might have an adverse effect on the market price or marketability of the 2008 Certificates. NO CONTINUING DISCLOSURE While in the Daily Rate or Weekly Rate mode, the 2008 Certificates are exempt from the continuing disclosure requirements of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended. UNDERWRITING The 2008 Certificates are being purchased by E.J. De La Rosa & Co., Inc. (the Underwriter ). The Underwriter has agreed to purchase the 2008 Certificates at a price of $19,800,500 (which price is equal to the aggregate principal amount of the 2008 Certificates, less an Underwriter s discount of $99,500). The Certificate Purchase Contract pursuant to which the Underwriter has agreed to purchase the 2008 Certificates provides that the Underwriter will purchase all of the 2008 Certificates if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Certificate Purchase Contract, including the approval of certain legal matters by counsel and certain other conditions. 31

38 The Underwriter intends to offer the 2008 Certificates to the public at the offering prices set forth on the cover page of this Official Statement. The Underwriter may offer and sell to certain dealers and others at a price lower than the offering prices stated on the cover page hereof. The offering price may be changed from time to time by the Underwriter. MISCELLANEOUS So far as any statements made in this Official Statement involve matters of opinion, assumptions, projections, anticipated events or estimates, whether or not expressly stated, they are set forth as such and not as representations of fact, and actual results may differ substantially from those set forth herein. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the Owners of the 2008 Certificates. The summaries of certain provisions of the 2008 Certificates, statutes and other documents or agreements referred to in this Official Statement do not purport to be complete, and reference is made to each of them for a complete statement of their provisions. Copies are available for review by making requests to the City. The Appendices are an integral part of this Official Statement and must be read together with all other parts of this Official Statement. 32

39 EXECUTION The execution of this Official Statement and its delivery have been authorized by the City Council of the City. CITY OF CORCORAN By /s/ Ronald Hoggard City Manager 33

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41 APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS The following is a summary of certain provisions of the Trust Agreement and the Installment Sale Agreement. These summaries do not purport to be complete or definitive and reference should be made to such documents for a full and complete statement of their provisions. DEFINITIONS Alternate Credit Facility means an alternate irrevocable letter of credit or similar credit facility issued by a commercial bank or savings institution, the terms of which shall be to the extent dictated by the terms of the 2008 Certificates, the same as or similar to those of the initial Credit Facility, delivered to the Trustee pursuant to the terms of the Trust Agreement. The Alternate Credit Facility may include a bond insurance policy and a liquidity facility combined. "Assignment Agreement" means the Assignment Agreement, dated as of March 1, 2008, by and between the Authority and the Trustee, together with any amendments or supplements thereto. Auction Procedures means the procedures set forth in Exhibit B to the Trust Agreement. Auction Rate means the interest rate to be determined for the 2008 Certificates pursuant to the Auction Procedures. Authority means the Corcoran Joint Powers Finance Authority, a joint exercise of powers authority organized and existing under the laws of the State of California. Authorized Official means the Executive Director, Treasurer or Chairperson of the Board of the Authority, or any other officer of the Authority duly authorized by the Board for that purpose. Bank means, with respect to the initial Credit Facility, Union Bank of California, and thereafter the commercial bank or other financial institution issuing (or having primary obligation, or acting as agent for the financial institution so obligated) under a Credit Facility then in effect. Bank Certificates means 2008 Certificates purchased with moneys drawn under (or otherwise obtained pursuant to the terms of the Credit Facility), but excluding 2008 Certificates no longer considered to be Bank Certificates under the terms of the Credit Facility. Bond Law means the Marks-Roos Local Bond Pooling Act, commencing with Section 6584 of the California Government Code. Business Day means (i) any day other than (a) a Saturday or Sunday or legal holiday or a day on which banking institutions in the city or cities in which the Trust Office of the Trustee is located are authorized by law or executive order to close or (b) a day on which the New York Stock Exchange is closed, or (c) a day on which the offices of the Tender Agent at which the duties hereunder are to be performed or the office of the Bank at which draws under the Credit A-1

42 Facility are presented are authorized or required by law to close; or (ii) during an Auction Period, solely for purposes of conducting an Auction, any other day or days as may be agreed to in writing by the Auction Agent, the Broker-Dealers, the Trustee and the City. Capitalized Interest Account means the account by that name in the Installment Payment Fund established in accordance with Trust Agreement. Certificate of the Authority means an instrument in writing signed by an Authorized Official. Certificate of the City means an instrument in writing signed by a City Representative. "City" means the City of Corcoran, California, a municipal corporation duly organized and existing under the Constitution and laws of the State. "City Representative" means the Mayor, the City Manager, Assistant City Manager or the Finance Director of the City, or any other person authorized to act on behalf of the City under or with respect to the Trust Agreement and/or the Installment Sale Agreement and identified as such to the Trustee. Closing Date means March 27, Commercial Paper Dealer means E. J. De La Rosa & Co., Inc., or, in lieu thereof, its affiliates or successors, provided that any such entity is a commercial paper dealer. Commercial Paper Rate means the Interest Rate Mode in which the interest rate is determined with respect to a 2008 Certificate during each Commercial Paper Rate Period applicable to that 2008 Certificate, as provided in the Trust Agreement. Commercial Paper Rate Period means, with respect to any 2008 Certificate evidencing interest at a Commercial Paper Rate, each period, which may be from one day to 180 days determined for such 2008 Certificate as provided in the Trust Agreement. Conversion means, any conversion from time to time in accordance with the terms of the Trust Agreement of the 2008 Certificates from one Interest Rate Mode to another Interest Rate Mode. Conversion Date means the date on which any Conversion becomes effective. Costs of Issuance means all the costs of issuing any 2008 Certificates, including, but not limited to, all printing and document preparation expenses in connection with the Trust Agreement, any 2008 Certificates and any preliminary official statement and final official statement pertaining to any 2008 Certificates; rating agency fees; fees and expenses of the Bank; CUSIP Service Bureau charges; market study fees; legal fees and expenses of counsel to the City and the Authority; any computer and other expenses incurred in connection with any 2008 Certificates; the fees and expenses of the Trustee, the Remarketing Agent, and any Broker-Dealer and Auction Agent; and other fees and expenses incurred in connection with the execution of the 2008 Certificates or the refunding of the 2005 Certificates to be refunded with proceeds of the 2008 Certificates, to the extent such fees and expenses are approved by the Authority or the City. A-2

43 Cost of Issuance Fund means the fund by that name established in accordance with the Trust Agreement. County means the County of Kings, a county duly organized and existing under the laws of the State of California. Credit Facility means, initially the irrevocable direct pay letter of credit No M dated March 27, 2008, and any extension and renewal thereof, issued by the initial Bank naming the Trustee beneficiary and delivered on the date of issuance and delivery of the Certificates pursuant to the Letter of Credit and Reimbursement Agreement for the account of the City or the Authority, and in the event such Credit Facility is no longer available for the 2008 Certificates, any subsequent Alternate Credit Facility. Credit Facility Account means the account by that name in the Installment Payment Fund established in accordance with the Trust Agreement. Daily Rate means the Interest Rate Mode in which the interest rate with respect to the 2008 Certificates is determined on each Business Day in accordance with the Trust Agreement. Daily Rate Period means any period, each consisting of one Business Day, beginning on, and including, the Conversion Date for a Conversion to the Daily Rate until the day preceding the earlier of the Conversion to a different Interest Rate Mode or the maturity of the 2008 Certificates. Debt Service means, for any computation period (the Computation Period ), the sum of (1) the interest accruing on all 2008 Certificates and Parity Debt (the term 2008 Certificates, as used in this definition of Debt Service, shall include Parity Debt) during such Computation Period, assuming that all 2008 Certificates are retired as scheduled, plus (2) the principal amount (including Sinking Fund Installment payments) allocable to all 2008 Certificates in such Computation Period, calculated as if such principal amounts were deemed to accrue daily during such Computation Period in equal amounts from, in each case, each payment date for principal or the date of delivery of such 2008 Certificates (provided that principal shall not be deemed to accrue for greater than a 365-day period prior to any payment date), as the case may be, to the next succeeding payment date for principal; provided, that the following adjustments shall be made to the foregoing amounts in the calculation of Debt Service: (a) with respect to any such 2008 Certificates evidencing or comprising interest at other than a fixed interest rate, the rate of interest used to calculate Debt Service shall be (i) with respect to such 2008 Certificates then outstanding, one hundred ten percent (110%) of the greater of (1) the daily average interest rate on such 2008 Certificates during the twelve (12) calendar months next preceding the date of such calculation (or the portion of the then current Computation Period that such 2008 Certificates has borne interest) and (2) the most recent effective interest rate on such 2008 Certificates prior to the date of such calculation or (ii) the average of The Bond Buyer Net Revenue Bond Index over the prior 12 months with respect to such 2008 Certificates then proposed to be issued; (b) with respect to any such 2008 Certificates having twenty percent (20%) or more of the aggregate principal amount thereof due in any one Computation Period, Debt Service shall be calculated for the Computation Period of determination as if the interest with respect to and principal of such 2008 Certificates were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of thirty (30) years from the date of such 2008 A-3

44 Certificates; provided, however, that the full amount of such 2008 Certificates shall be included in Debt Service if the date of calculation is within 24 months of the actual maturity of the payment; (c) with respect to any such 2008 Certificates or portions thereof evidencing no interest but which are sold at a discount and which discount accretes with respect to such 2008 Certificates or portions thereof, such accreted discount shall be treated as due when scheduled to be paid; (d) Debt Service shall only be calculated on Outstanding 2008 Certificates, and shall not include interest, if any, on 2008 Certificates which is to be paid from amounts constituting capitalized interest; and (e) notwithstanding subsections (a), (b), (c) or (d) above, with respect to any variable interest rate Parity Bonds or any commercial paper, if (A) the interest rate on such variable interest rate Parity Bonds or commercial paper, plus (B) the payments received and made by the Authority under a Swap Agreement or a swap arrangement with respect to such variable interest rate Parity Bonds or commercial paper, are expected to produce a synthetic fixed rate to be paid by the Authority (e.g., a swap arrangement under which the Authority pays a fixed rate and receives a variable rate which is expected to equal or approximate the rate of interest on such variable interest rate Parity Bonds or commercial paper), the variable interest rate Parity Bonds or commercial paper, as the case may be, shall be treated as bearing such synthetic fixed rate for the duration of the synthetic fixed rate; provided that (Y) when there is a default under the Swap Agreement or a swap arrangement, or (Z) after a termination event has occurred with respect to the Authority under the Swap Agreement or a swap arrangement, such variable interest rate Bonds or commercial paper shall be assumed to bear interest at an interest rate equal to the higher of: (1) the synthetic fixed rate, or (2) the assumed interest rate calculated as described in subsections (a), (b), (c) and (d) above. Defeasance Obligations means (a) cash, (b) non-callable direct obligations of the United States of America ( Treasuries ), (c) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated or (d) pre-refunded municipal obligations rated AAA and Aaa by S&P and Moody s, respectively (or any combination thereof). Electronic Means means telecopy, telegraph, telex, , facsimile transmission or other similar electronic means of communication, including a telephonic communication confirmed by writing or written transmission. Event of Default means any occurrence or event specified in and defined in the Installment Sale Agreement. Favorable Opinion of Special Counsel means an opinion of Special Counsel, addressed to the City, the Authority and the Trustee to the effect that the action proposed to be taken is authorized or permitted by the Trust Agreement and will not result in the inclusion of interest with respect to the 2008 Certificates in gross income for federal income tax purposes. A-4

45 Federal Securities means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America); and (b) obligations of any department, agency or instrumentality of the United States of America the timely payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America. Fiscal Year means the period commencing on July 1 of each year and terminating on the next succeeding June 30, or any other annual accounting period prescribed by law for local public agencies in the State of California. "Gross Revenues" means all gross charges (including surcharges, if any) received for, and all other gross income and receipts derived by the City from, the ownership and operation of the Water System or otherwise arising from the Water System, including but not limited to (a) connection charges, and (b) investment earnings on amounts held in the Water Fund or in any other fund established with respect to the Water System. Gross Revenues does not include (i) refundable deposits made to establish credit, (ii) the proceeds of any ad valorem property taxes, and (iii) the proceeds of any special assessments or special taxes levied upon real property within any improvement district served by the City for the purpose of paying special assessment bonds or special tax obligations of the City relating to the Water System. Improvement means any addition, extension, improvement, equipment, machinery or other facilities to or for the Water System. Independent Certified Public Accountant means any certified public accountant or firm of such accountants appointed and paid by the Authority or the City, and who, or each of whom- (a) is in fact independent and not under domination of the Authority or the City; (b) does not have any substantial identity of interest, direct or indirect, with the Authority or the City; and (c) is not and no member of which is connected with the Authority or the City as an officer or employee of the Authority or the City, but who may be regularly retained to make annual or other audits of the books of or reports to the Authority or the City. Independent Consultant means any financial or engineering consultant (including without limitation any Independent Certified Public Accountant) with an established reputation in the field of municipal finance or firm of such consultants appointed and paid by the Authority or the City, and who, or each of whom- (a) is in fact independent and not under domination of the Authority or the City; (b) does not have any substantial identity of interest, direct or indirect, with the Authority or the City; and A-5

46 (c) is not and no member of which is connected with the Authority or the City as an officer or employee of the Authority or the City, but who may be regularly retained to provide services to the Authority or the City. "Installment Payment" means the installment payments payable pursuant to the Installment Sale Agreement. "Installment Payment Date" means three Business Days prior to each Interest Payment Date; provided that, while the Credit Facility is in effect, Installment Payments shall be made to the Bank on the dates required by the Reimbursement Agreement. "Installment Payment Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. "Installment Sale Agreement" means the Installment Sale Agreement, dated as March 1, 2008 by and between the Authority and the City, and any duly authorized and executed amendment or supplement thereto. Interest Payment Date means, with respect to the 2008 Certificates, (a) (i) if the Interest Rate Mode for the 2008 Certificates is the Daily Rate or the Weekly Rate, the first Business Day of each month, (ii) if the Interest Rate Mode for the 2008 Certificates is the Commercial Paper Rate, the first Business Day following the last day of each Commercial Paper Rate Period for the 2008 Certificates and (iii) if the Interest Rate Mode for the 2008 Certificates is the Long-Term Rate, January 1 and July 1, provided, however, that if any January 1 and July 1 which is a Conversion Date for Conversion to the Daily Rate, the Weekly Rate or the Commercial Paper Rate, is not a Business Day, then the first Business Day immediately succeeding such January 1 and July 1, as applicable; (b) if the Interest Rate Mode for the 2008 Certificates is the Auction Rate, Interest Payment Date shall be as defined in Exhibit B attached to the Trust Agreement; (c) Period; and the Conversion Date or the effective date of a change to a new Long-Term Rate (d) with respect to Bank Certificates, any date designated as an interest payment date in the Reimbursement Agreement. In any case, the final Interest Payment Date shall be the maturity date of the 2008 Certificates. Interest Period means the period from, and including, each Interest Payment Date for such 2008 Certificates to, and including, the day next preceding the next Interest Payment Date for such 2008 Certificates, provided, however, that the first Interest Period for any 2008 Certificates shall begin on (and include) the Issue Date of the 2008 Certificates and the final Interest Period shall end the day next preceding the maturity date of the 2008 Certificates. Interest Rate Calculation Date means the date or dates on which the Interest Rate(s) for the next succeeding Interest Payment Date(s) are determined. A-6

47 Interest Rate Mode means the Commercial Paper Rate, the Daily Rate, the Auction Rate, the Weekly Rate and the Long-Term Rate. Interest Requirement means the amount of interest due and payable with respect the 2008 Certificates on the next occurring Interest Payment Date. Insurance and Condemnation Fund means the fund by that name established in accordance with the Trust Agreement. Issue Date means, as to any 2008 Certificates, the date on which such 2008 Certificates are delivered to the Purchaser thereof. Long-Term Conversion Date means the date on which the interest with respect to the 2008 Certificates begins to be calculated at a Long-Term Rate pursuant to the provisions of the Trust Agreement. Long-Term Rate means the Interest Rate Mode in which the interest with respect to the 2008 Certificates is determined in accordance with the Trust Agreement. Long-Term Rate Period means any period established by the City pursuant to the Trust Agreement and beginning on, and including, the Conversion Date for a Conversion to the Long- Term Rate and ending on, and including, the day preceding the last Interest Payment Date for such period and, thereafter, each successive period, if any, of substantially the same duration as that established period until the day preceding the earliest of the change to a different Long- Term Rate Period, the Conversion to a different Interest Rate Mode or the maturity of the 2008 Certificates. Mandatory Purchase Date means any date upon which any 2008 Certificates have been called for mandatory tender for purchase in accordance with the Trust Agreement. Mandatory Sinking Account Payment means the principal amount of 2008 Certificates required to be paid on July 1, 2010 and on each July 1 thereafter pursuant to the Trust Agreement. Mandatory Sinking Account Payment Date means July 1 of each year commencing in 2010 and terminating in Maximum Annual Debt Service means, as of the date of calculation, the maximum amount of Debt Service for the current or any future Fiscal Year. Maximum Rate means, (a) as to 2008 Certificates evidencing interest at a rate other than an Auction Rate, other than Bank Certificates, the lesser of 12% and the maximum rate allowable under applicable law, (b) as to 2008 Certificates evidencing interest at an Auction Rate, the meaning assigned to such term in Exhibit B attached hereto, (c) [[with respect to Bank Certificates, the Maximum Lawful Rate as defined in the Reimbursement Agreement.]] Moody's means Moody's Investors Service, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors or assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term Moody's shall be deemed to refer to any A-7

48 other nationally recognized securities rating agency selected by the City and approved by the Bank. Net Proceeds, when used with reference to the 2008 Certificates, means the face amount of the 2008 Certificates, plus accrued interest and premium, if any, less original issue discount and less proceeds deposited in the 2008 Reserve Account; Net Proceeds, when used with reference to any insurance or condemnation award or sale of property, means the gross proceeds from the sale of property or insurance or condemnation award with respect to which that term is used remaining after payment of all expenses (including attorneys' fees and any extraordinary expenses of the Trustee) incurred in the collection of such gross proceeds. "Net Revenues" means, for any period, an amount equal to all of the Gross Revenues received during such period minus the amount required to pay all Operation and Maintenance Expenses becoming payable during such period. "Operation and Maintenance Expenses" means the reasonable and necessary costs and expenses paid by the City to maintain and operate the Water System, including but not limited to (a) costs of acquisition of water to be supplied by the Water System, (b) costs of electricity and other forms of energy supplied to the Water System, (c) the reasonable expenses of management and repair and other costs and expenses necessary to maintain and preserve the Water System in good repair and working order, and (d) the reasonable administrative costs of the City attributable to the operation and maintenance of the Water System. Operation and Maintenance Expenses do not include (i) debt service payable on obligations incurred by the City with respect to the Water System, including but not limited to the Installment Payments and any Parity Debt, (ii) depreciation, replacement and obsolescence charges or reserves therefor, and (iii) amortization of intangibles or other bookkeeping entries of a similar nature. Opinion of Special Counsel means a written opinion of Special Counsel. Outstanding, when used as of any particular time with reference to 2008 Certificates, means (subject to the provisions of the Trust Agreement) all Certificates theretofore executed and delivered by the Authority under the Trust Agreement except (a) 2008 Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (b) 2008 Certificates paid or deemed to have been paid as described under TRUST AGREEMENT Discharge of Trust Agreement below; and (c) 2008 Certificates in lieu of or in substitution for which other Certificates shall have been executed, issued and delivered by the Authority pursuant to the Trust Agreement or any Parity Debt Instrument. Owner means any person who shall be the registered owner of any Outstanding 2008 Certificate as indicated in the registration books of the Trustee. Parity Debt means the 2003 Installment Payments and indebtedness or other obligations (including leases and installment sale agreements) hereafter issued or incurred and secured by a pledge of and lien on Net Revenues equally and ratably with the Installment Payments, including the Reimbursement Agreement and the Swap Agreement (only to the extent of Swap Periodic Payments), of the City payable from and secured by a pledge of and A-8

49 lien upon any of the Net Revenues issued or incurred pursuant to the Installment Payment Agreement. Parity Debt Instrument means the resolution, trust indenture, swap agreement, installment sale agreement adopted, entered into or executed and delivered by the City, and under which Parity Debt is issued. Participating Underwriter has the meaning ascribed thereto in the Continuing Disclosure Certificate. Permitted Investments means any of the following to the extent then permitted by applicable laws and any investment policies of the City: (a) Federal Securities. (b) Certificates, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): (i) certificates of beneficial ownership of the Farmers Home Administration; (ii) Federal Housing Administration debentures; (iii) participation certificates of the General Services Administration; (iv) guaranteed mortgage-backed bonds or guaranteed pass-through obligations of the Government National Mortgage Association; (v) guaranteed Title XI financings of the U.S. Maritime Administration; and (vi) project notes, local authority bonds, new communities debentures and U.S. public housing notes and bonds of the U.S. Department of Housing and Urban Development. (c) Certificates, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities only as stripped by the agency itself): (i) senior debt obligations of the Federal Home Loan Bank System; (ii) participation certificates and senior debt obligations of the Federal Home Loan Mortgage Corporation; (iii) mortgaged-backed securities and senior debt obligations of the Federal National Mortgage Association; (iv) senior debt obligations of the Student Loan Marketing Association; (v) obligations of the Resolution Funding Corporation; and (vi) consolidated system-wide bonds and notes of the Farm Credit System. (d) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of at least AAAm-G, AAAm or AAm, and a rating by Moody s of Aaa, Aa1 or Aa2 (such funds may include funds for which the Trustee, its affiliates, parent or subsidiaries provide investment advisory or other management services). (e) Certificates of deposit (including those of the Trustee, its parent and its affiliates) secured at all times by collateral described in (a) or (b) above, which have a maturity not greater than one year from the date of investment and which are issued by commercial banks, savings and loan associations or mutual savings banks whose short-term obligations are rated A-1+ or better by S&P and Prime-1 by Moody s, which collateral must be held by a third party and provided that the Trustee must have a perfected first security interest in such collateral. (f) Certificates of deposit, savings accounts, deposit accounts or money market deposits (including those of the Trustee and its affiliates) which are fully insured by FDIC, including BIF and SAIF. A-9

50 (g) Investment agreements, either (a) between the Trustee and a financial institution whose long-term debt is assigned a long-term rating of Aa or AA or better from S&P or Moody's or a short-term rating which is in the highest general rating category of S&P and Moody's, in any event determined without regard to any refinement or gradation of such rating by a numerical modifier, a plus or a minus sign, or otherwise, or (b) collateralized in accordance with the requirements of the Rating Agency then rating the Certificates in order to maintain the then current rating on the Certificates. (h) Commercial paper rated Prime-1 by Moody s and A-1+ or better by S&P. (i) Certificates or notes issued by any state or municipality which are rated by Moody s and S&P in one of the two highest rating categories assigned by such agencies. (j) Federal funds or bankers acceptances with a maximum term of one year of any bank which an unsecured, uninsured and unguaranteed obligation rating of Prime-1 or A3 or better by Moody s, and A-1+ by S&P. (k) The Local Agency Investment Fund which is administered by the California Treasurer for the investment of funds belonging to local agencies within the State of California, provided for investment of funds held by the Trustee, the Trustee is entitled to make investments and withdrawals in its own name as Trustee. "Prepayment" means any payment applied towards the prepayment of the Installment Payments, in whole or in part, pursuant to the Installment Sale Agreement. Prepayment Account means the account by that name established and held by the Trustee pursuant to the Trust Agreement. Prepayment Price means, with respect to any 2008 Certificate, the principal amount thereof, plus the applicable premium, if any, plus interest accrued to the prepayment date, if any, payable upon prepayment thereof pursuant to the Trust Agreement. Prevailing Market Conditions means, without limitation, the following factors: existing short-term market rates for securities; indices of such short-term rates; the existing market supply and demand and the existing yield curves for short-term and long-term securities for obligations of credit quality comparable to the 2008 Certificates; general economic conditions and financial conditions that may affect or be relevant to the 2008 Certificates; and such other facts, circumstances and conditions as the Remarketing Agent, in its sole discretion, shall determine to be relevant to the remarketing of the 2008 Certificates, at the principal amount thereof. "Principal Payment" means with respect to any particular Principal Payment Date, an amount equal to the sum of (i) the aggregate principal amount of Outstanding Serial 2008 Certificates payable on such Principal Payment Date (but not including Sinking Fund Installments) and (ii) the aggregate of Sinking Fund Installments with respect to all Outstanding Term Certificates payable on such Principal Payment Date as determined hereby. Principal Payment Date means (i) with respect to the 2008 Certificates, prior to the Long-Term Conversion Date, July 1, commencing July 1, 2010; and (ii) with respect to any 2008 Certificates evidencing interest at a Long-Term Rate, July 1, commencing with the July 1 A-10

51 immediately following the Long-Term Conversion Date or otherwise as in accordance with a Supplemental Trust Agreement entered into pursuant to the terms of the Trust Agreement. Project means the improvements to the Water System financed by the 2005 Certificates. Purchase Contract means that certain Contract of Purchase, dated March 26, 2008, by and between the Purchaser and the Authority relating to the 2008 Certificates. Purchaser means, E.J. De La Rosa & Co., Inc., the underwriter and purchaser of the 2008 Certificates pursuant to the Purchase Contract. Rate Period means any period during which a single interest rate is in effect for the 2008 Certificates. Reimbursement Agreement means the Reimbursement Agreement dated as of March 1, 2008, by and among the City and the Bank, or any similar agreement with respect to an Alternate Credit Facility. Related Documents means the 2008 Certificates, the Purchase Contract, the Remarketing Agreement, the Reimbursement Agreement, the Swap Agreement and the Assignment Agreement. Remarketing Agent means the remarketing agent appointed in accordance with the Trust Agreement, initially E. J. De La Rosa & Co., Inc. Remarketing Agreement means the Remarketing Agreement, dated as of March 1, 2008, between the City and the Remarketing Agent, providing for the remarketing of 2008 Certificates tendered for purchase, as the same may be amended from time to time, and any remarketing agreement between the City and a successor Remarketing Agent. Request of the Authority means a request in writing signed by an Authorized Official. Request of the City means a request in writing signed by a City Representative. Reserve Requirement means an amount equal to the least of (i) the Maximum Annual Debt Service on the Outstanding 2008 Certificates, (ii) 10% of the proceeds of the 2008 Certificates or (iii) 125% of the average annual Debt Service on Outstanding 2008 Certificates. Serial 2008 Certificates means any 2008 Certificates which evidence interest at a Long-Term Rate and which mature on consecutive semi-annual or annual dates other than by reason of Sinking Fund Installments. Serial Maturity Dates means the dates on which the Serial 2008 Certificates mature. "Sinking Fund Installment" means, with respect to any particular date, the amount of money required hereby to be paid by the Authority on such date toward the retirement of any particular 2008 Certificates prior to their respective stated maturities. S&P means Standard & Poor's Corporation, a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors or assigns, except A-11

52 that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term S&P shall be deemed to refer to any other nationally recognized securities rating agency selected by the City and approved by the Bank. State means the State of California. "Subordinate Debt" means indebtedness or other obligations (including leases and installment sale agreements) hereafter issued or incurred and secured by a pledge of and lien on Net Revenues subordinate to the Installment Payments and Parity Debt. Supplemental Trust Agreement means an agreement amending or supplementing the terms of the Trust Agreement or entered into pursuant to the terms of the Trust Agreement or any Parity Debt Instrument. Swap Agreement means collectively, the ISDA Master Agreement (including the Schedule thereto), Credit Support Annex and Confirmation, each dated October 20, 2005, between Piper Jaffray Financial Products, Inc. ( Piper ) and the City, and the Replacement Swap Undertaking dated October 20, 2005, among the City, Piper and Morgan Stanley Capital Services Inc. ( MSCS ) and the Replacement Swap Agreement deemed to be entered into pursuant to such Replacement Swap Undertaking as of the date thereof, between MSCS and the City, and any replacement transactions thereunder, as amended the Amended and Restated Schedule to the Master Agreement dated as of October 2005 and amended and restated as of March 27, 2008, the Amended and Restated Credit Support Annex to the Schedule to the Master Agreement dated as of October 2005 and amended and restated as of March 27, 2008, and the Amended and Restated Confirmation related thereto, originally dated October 20, 2005, initially Amended and Restated as of July 1, 2007 and further Amended and Restated as of March 27, 2008, and as to any other Parity Bonds, an agreement or agreements providing for a swap of the interest rates payable by the Authority with respect on such Parity Bonds. Swap Counterparty means Piper Jaffray Financial Products, Inc. and its successors and assigns, and as to any Parity Bonds, the counterparty or counterparties to an agreement or agreements providing for a swap of the interest rates payable by the Authority with respect on such Parity Bonds. Swap Periodic Payment means the periodic payments (which do not include any payment due upon early termination of the Swap Agreement or the transfer of Eligible Credit Support pursuant to the Credit Support Document, as defined in the Swap Agreement) due to or from the City and the Swap Counterparty under the Swap Agreement. Tax Certificate means any certificate executed by the City at the time of execution and delivery of the 2008 Certificates relating to the requirements of Section 148 of the Tax Code, as such certificate may be amended or supplemented. Tax Code means the Internal Revenue Tax Code of 1986, as amended, and the regulations of the United States Department of the Treasury issued thereunder, and in this regard reference to any particular section of the Tax Code shall include reference to all successors to such section of the Tax Code. Tax Regulations means temporary and permanent regulations promulgated under the Tax Code. A-12

53 Tender Agent means the Trustee, or any successor tender agent appointed under the Trust Agreement. "Term of the Installment Sale Agreement" means the time during which the Installment Sale Agreement is in effect, as provided in the Installment Sale Agreement. Trust Agreement means the Trust Agreement, as originally executed or as it may from time to time be supplemented, modified or amended. Trustee means U.S. Bank National Association, a national banking corporation association, duly organized and existing under the laws of the United States of America and having a principal corporate trust office located at San Francisco, California, and any other bank or trust company which may at any time be substituted in the place of the Trustee, as provided in the Trust Agreement. Trust Office means the corporate trust office of the Trustee at One California Street, Suite 2100, San Francisco, CA 94111, or such other or additional offices as may be specified to the City by the Trustee in writing Certificates or Series 2008 Certificates means the Corcoran Joint Powers Finance Authority Variable Rate Demand 2008 Refunding Certificates of Participation, (Water System Project) issued under the Trust Agreement Reserve Account means the account by that name established in accordance with the Trust Agreement Certificates means the 2005 Certificates of Participation (Water System Project) dated October 20, 2005, executed and delivered by the Trustee on behalf of the City in the aggregate principal amount of $21,990, Trust Agreement means the Trust Agreement, dated as of October 1, 2005, by and among the Trustee, the City and the Authority providing for the execution and delivery of the 2005 Certificates. "Water Revenue Fund" means the fund of that name established and held by the City in connection with the 2003 Certificates, into which all Gross Revenues are deposited. Water System means the entire existing system of the City for the supply, storage, treatment and distribution of water within the service area of the City, including but not limited to all facilities, properties, lands, rights, entitlements and other property useful in connection therewith, together with all extensions thereof and improvements thereto at any time acquired, constructed or installed by the City. Weekly Rate means the Interest Rate Mode in which the interest rate on the 2008 Certificates is determined weekly in accordance with the Trust Agreement. Weekly Rate Period means the period beginning on, and including, the Conversion Date for a Conversion to the Weekly Rate and ending on, and including, the next Wednesday and thereafter the period beginning on, and including, any Thursday and ending on, and A-13

54 including, the earliest of the following Wednesday, the day preceding the Conversion of the 2008 Certificates to a different Interest Rate Mode or the maturity of the 2008 Certificates. TRUST AGREEMENT The Trust Agreement sets forth the terms of the 2008 Certificates, the nature and extent of the security, various rights of the owners of the 2008 Certificates, rights duties and immunities of the Trustee and the rights and obligations of the Authority. Although certain provisions of the Trust Agreement are summarized below, this summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Trust Agreement. Pledge and Assignment of Revenues and Rights under the Loan Agreement. The Authority has, pursuant to the Assignment Agreement, transferred, assigned and set over to the Trustee all of its rights, title and interest in the Installment Sale Agreement (excepting only certain rights therein), including but not limited to all of the Authority s rights to receive and collect all of the Installment Payments, the Prepayments and all other amounts required to be deposited in the Installment Payment Fund pursuant to the Installment Sale Agreement or pursuant hereto. All Installment Payments, Prepayments and such other amounts which the Authority may at any time be entitled to shall be paid directly to the Trustee and all Installment Payments collected or received by the Authority shall be deemed to be held or to have been collected or received by the Authority for the benefit of the Trustee. Establishment of Installment Payment Fund. The Trustee shall establish a special fund designated as the "Installment Payment Fund" and shall establish subaccounts therein designated as the Capitalized Interest Subaccount and Credit Facility Account. All moneys at any time deposited by the Trustee in the Installment Payment Fund shall be held by the Trustee in trust for the benefit of the Bank and the Owners of the Certificates. So long as any Certificates are Outstanding, neither the City nor the Authority shall have any beneficial right or interest in the Installment Payment Fund or the moneys deposited therein, except only as provided in the Trust Agreement, and such moneys shall be used and applied by the Trustee as described under Application of Moneys below. Deposits. The Trustee shall make a deposit to the Capitalized Interest Subaccount on the Closing Date; and there shall be deposited in the Installment Payment Fund all Installment Payments and Prepayments received by the Trustee under the Installment Sale Agreement, and any other moneys required to be deposited therein pursuant to the Installment Sale Agreement or pursuant to the Trust Agreement. There shall be deposited in the Credit Facility Account into which all moneys drawn under the Credit Facility for the purpose of paying principal, interest and prepayment premiums (if any) with respect to the 2008 Certificates as the same shall become due and payable, in accordance with the Trust Agreement, shall be deposited and disbursed. The Authority and the City shall not have any right title or interest in the Credit Facility Account. The Credit Facility Account shall be established and maintained by the Trustee and held uninvested and in trust apart from all other moneys and securities held under the Trust Agreement or otherwise, and over which the Trustee shall have the exclusive and sole right of withdrawal for the exclusive benefit of the Owners of the 2008 Certificates with respect to which such drawing was made. Application of Moneys. All amounts in the Installment Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying principal, interest and prepayment A-14

55 premiums (if any) with respect to the 2008 Certificates as the same shall become due and payable, in accordance with the provisions of the Trust Agreement. So long as the Trustee draws on the Credit Facility for payments of principal and interest with respect to the 2008 Certificates, such principal and interest shall be paid from the Credit Facility Account and amounts in the Installment Payment Fund shall first be used to reimburse the Bank for draws on the Credit Facility used to pay such principal and interest. Amounts in the Capitalized Interest Subaccount shall be used and withdrawn by the Trustee for the purpose of paying principal and interest with respect to the Certificates and interest rate differential amounts owed under the Swap Agreement, as the same shall become due and payable, until the moneys in the Capitalized Interest Subaccount shall be exhausted, at which time the subaccount shall be closed. Investment of Moneys in Funds and Accounts. All moneys in the Installment Payment Fund (other than the Credit Facility Account), the 2008 Reserve Account and Cost of Issuance Fund shall be invested by the Trustee solely in Permitted Investments, as directed pursuant to a Request of the City. In the absence of any such Request of the City, the Trustee shall invest any such moneys in Permitted Investments described in clause (d) of the definition thereof. Obligations purchased as an investment of moneys in any Fund or Account shall be deemed to be part of such fund or account, and all interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the Fund or Account from which such investment was made; and shall be accounted for and applied as provided in the Trust Agreement. For purposes of acquiring any investments hereunder, the Trustee may commingle funds held by it hereunder with the written approval of the City. The Trustee may act as principal or agent in the acquisition of any investment. The Trustee shall incur no liability for losses arising from any investments made pursuant to the Trust Agreement. Notwithstanding anything to the contrary in the Trust Agreement, moneys held by the Trustee or the Tender Agent that are remarketing proceeds or draws on a Credit Facility shall be held uninvested and uncommingled with other moneys. Establishment of Insurance and Condemnation Fund; Application of Net Proceeds of Insurance Award. Any Net Proceeds of insurance against accident to or destruction of any structure constituting any part of the Water System collected by the City in the event of any such accident or destruction shall be transferred by the City to the Trustee pursuant to the Installment Sale Agreement and the Trustee shall deposit such moneys in a special fund designated as the "Insurance and Condemnation Fund" to be applied and disbursed by the Trustee as described under INSTALLMENT SALE AGREEMENT Application of Net Proceeds from Insurance Award below. Application of Net Proceeds of Eminent Domain Award. If all or any part of the Water System shall be taken by eminent domain (or sold to a government threatening to exercise the power of eminent domain) the Net Proceeds therefrom allocable to the Installment Payments shall be transferred by the City to the Trustee for deposit in the Insurance and Condemnation Fund pursuant to the Installment Sale Agreement and shall be applied and disbursed by the Trustee as follows: If the City determines that such eminent domain proceedings have not materially affected the operation of the Water System, or the ability of the City to meet any of its obligations under the Installment Sale Agreement and any Parity Debt, and if the City determines that such proceeds are: (i) not needed for repair, replacement or rehabilitation of the Water System, upon receipt of a written certificate from the City the Trustee shall transfer such A-15

56 proceeds to the Installment Payment Fund to be credited towards the Prepayments required to be paid pursuant to the Installment Sale Agreement and applied to the prepayment of 2008 Certificates, or (ii) needed for repair or rehabilitation of the Water System, upon receipt of a written certificate from the City the Trustee shall pay to the City, or to its order, from said proceeds such amounts as the City may expend for such repair or rehabilitation, upon the filing with the requisitions of the City Representative, substantially in the form of a requisition requesting disbursement executed by a City Representative setting forth the amounts to be disbursed for payment of for such repair or rehabilitation and the person or persons to whom said amounts are to be disbursed and that the amounts to be disbursed constitute for repair or rehabilitation of the Project, that said amounts are required to be disbursed pursuant to a contract entered into therefor by or on behalf of the Authority or the City, or were necessarily and reasonably incurred, and that said amounts are not being paid in advance of the time, if any, fixed for payment. If (i) less than all of the Water System shall have been taken in such eminent domain proceedings, and if the City determines that such eminent domain proceedings have materially affected the operation of the Water System or the ability of the City to meet any of its obligations under the Installment Sale Agreement or (ii) all of the Water System shall have been taken in such eminent domain proceedings, then upon receipt of written instruction from the City the Trustee shall transfer such proceeds to the Installment Payment Fund to be credited toward the Prepayment required to be paid pursuant to the Installment Sale Agreement and applied to the prepayment of 2008 Certificates. Rebate Requirement. Under the Trust Agreement, the Authority or the City shall take any and all actions necessary to assure compliance with section 148(f) of the Tax Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the 2008 Certificates. Tax Covenants. Under the Trust Agreement, the Authority and the City shall take all actions necessary to assure the exclusion of interest with respect to the 2008 Certificates from the gross income of the Owners of the 2008 Certificates to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the date of issuance of the 2008 Certificates. Amendment by Consent of Owners. The Trust Agreement and the rights and obligations of the Authority, the City and of the Owners of the 2008 Certificates may be modified or amended at any time by a Supplemental Trust Agreement which shall become binding when the written consent of the Bank (so long as the Credit Facility is outstanding and the Bank is not wrongfully dishonoring any properly presented and conforming drawings thereunder or any amounts for reimbursement of draws under the Credit Facility remain owing to the Bank) and the Owners of a majority in aggregate principal amount of the 2008 Certificates then Outstanding (except the consent of the Holders shall not be necessary so long as the Credit Facility is outstanding and the Bank is not wrongfully dishonoring any drawings thereunder), exclusive of 2008 Certificates disqualified, are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any 2008 Certificate or otherwise alter or impair the obligation of the Authority to pay the principal, interest or prepayment premiums at the time and place and at the rate and in the currency provided therein of any 2008 Certificate without the express written consent of the Bank and the Owner of such 2008 Certificate, (b) reduce the percentage of 2008 Certificates required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee. A-16

57 Amendment Without Consent of 2008 Owners. The Trust Agreement and the rights and obligations of the Authority, the City and of the Owners of the 2008 Certificates may also be modified or amended at any time by a Supplemental Trust Agreement which shall become binding upon execution and delivery, without consent of any Owners but with the prior written consent of the Bank, but only to the extent permitted by law and only for any one or more of the following purposes- (a) to add to the covenants and agreements of the Authority and the City in the Trust Agreement contained, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power reserved to or conferred upon the Authority or the City; or (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Trust Agreement, or in any other respect whatsoever as the Authority or the City may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not adversely affect the interests of the Bank, the Owners of the 2008 Certificates or the Swap Counterparty; (c) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest with respect to the 2008 Certificates. Supplements to Trust Agreement. Additionally, the Trust Agreement may, without the consent of, or notice to, any of the Owners, be supplemented and amended, in such manner as shall not be inconsistent with the terms and provisions of the Trust Agreement, for any one or more of the following purposes: (i) to add to the agreements, conditions, covenants and terms required by the Authority or the City to be observed or performed in the Trust Agreement or other agreements, conditions, covenants and terms thereafter to be observed or performed by the City and the Authority, or to surrender any right or power reserved to or conferred on the City or the Authority in the Trust Agreement, and which in either case shall not materially adversely affect the interests of the Owners; or (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained in the Trust Agreement or in regard to questions arising which the City or the Authority may deem desirable or necessary and not inconsistent herewith, and which shall not materially adversely affect the interests of the Owners; or (iii) for any other reason, provided such amendment or supplement does not materially adversely affect the interests of the Owners, provided, further that the City, the Authority and the Trustee may rely in entering into any such amendment or supplement upon an Opinion of Special Counsel stating that the requirements described in subsection (iii) have been met with respect to such amendment or supplement; or (iv) (v) (vi) to provide for the issuance of one or more additional series of bonds; or to implement a conversion of the Interest Rate Mode; or to provide for a Credit Facility or clarify certain terms of a Credit Facility. A-17

58 (vii) to modify, alter, amend or supplement the Trust Agreement in any other respect including amendments which would otherwise be described under Amendment with Consent of Owners, if such amendments will take effect: (1) on a mandatory tender date in connection with the purchase of tendered 2008 Certificates; (2) on a Conversion Date; or (3) during a Weekly Rate if notice of the proposed supplemental amendment or supplement is given to 2008 Certificate Owners (in the same manner as notices of redemption are given) at least 30 days before the effective date of such amendment, modification, alteration or supplement and, on or before such effective date, the 2008 Certificate Owners have the right to demand purchase of the 2008 Certificates. Events of Default; Acceleration. If an Event of Default, as set forth under INSTALLMENT SALE AGREEMENT- Events of Default below, shall happen, then and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available hereunder pursuant to law or granted pursuant to the Installment Sale Agreement. Upon the occurrence of an Event of Default, the Trustee may, and shall, at the written direction of the Owners of a majority of the principal amount of 2008 Certificates then Outstanding or at the written direction of the Bank, by written notice to the City, declare the principal of the Installment Payments to be immediately due and payable, whereupon that portion of the principal of the Installment Sale Agreement 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 the Trust Agreement or in the Installment Payments to the contrary notwithstanding. Upon any such declaration the Trustee shall immediately draw upon any then existing Credit Facility in accordance with the terms thereof and apply the amount so drawn to pay the Installment Payments so declared to be due and payable. Any other provisions of this Indenture notwithstanding, the Trustee shall not be entitled to require indemnification as a precondition to declaring such Installment Payments immediately due and payable or to drawing upon the Credit Facility. Notwithstanding any other provision of the Trust Agreement, the Trustee may not declare an event of default, accelerate the Installment Payments or exercise any remedy above without the written consent of the Bank (so long as the Credit Facility is in effect and the Bank has not dishonored any properly presented and conforming draw thereunder or any amounts for reimbursement of draws under the Credit Facility remain owing to the Bank). Remedies shall be cumulative with respect to the Trustee, the Bank and the Owners. If any remedial action is discontinued or abandoned, the Trustee, the Bank and the Owners shall be restored to their former positions. A-18

59 Discharge of Trust Agreement. If the Authority shall pay and discharge any or all of the Outstanding 2008 Certificates in the Long-Term Rate Period and the interest installments therefor at the maturity or prepayment date thereof, or for any other 2008 Certificates in any Interest Period (except for any Long-Term Rate Period through maturity) on the first available call or tender date (which shall include both optional or mandatory tenders) by setting aside moneys in any one or more of the following ways, which are held by the Trustee for the payment or prepayment of any 2008 Certificates, such 2008 Certificates shall be deemed to be paid: (a) by well and truly paying or causing to be paid the principal of and interest and premium (if any) on such 2008 Certificates, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established pursuant to the Trust Agreement, is fully sufficient to pay such 2008 Certificates, including all principal, interest and prepayment premiums; or (c) by depositing with a qualified escrow holder, in trust, Defeasance Obligations in such amount as the Authority (verified by an Independent Certified Public Accountant) shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the Funds and Accounts established pursuant to the Trust Agreement, be fully sufficient to pay and discharge the indebtedness on such 2008 Certificates (including all principal, interest and prepayment premiums, if any) at or before their respective Maturity Dates; and if such 2008 Certificates are to be prepaid prior to the maturity thereof notice of such prepayment shall have been mailed or provision satisfactory to the Trustee shall have been made for the mailing of such notice, then, at the election of the Authority, and notwithstanding that any of such 2008 Certificates shall not have been surrendered for payment, the pledge of the Net Revenues and other funds provided for in the Trust Agreement with respect to such 2008 Certificates, and all other pecuniary obligations of the Authority under the Trust Agreement with respect to all such 2008 Certificates, shall cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such 2008 Certificates not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid, and all expenses and costs of the Trustee. Notice of such election shall be filed with the Trustee. Any funds thereafter held by the Trustee, which are not required for said purposes, shall be paid over to the City. Refunding bonds may be issued at any time without regard to whether an Event of Default exists. To accomplish defeasance the Authority shall cause to be delivered (i) a report of an Independent Certified Public Accountant verifying the sufficiency of the escrow established to pay the 2008 Certificates in full on the maturity or earlier prepayment date ( Verification ), (ii) an escrow deposit agreement, and (iii) an opinion of nationally recognized bond counsel to the effect that the 2008 Certificates are no longer Outstanding under the Trust Agreement; each Verification and defeasance opinion shall be acceptable in form and substance, and addressed, to the Authority and the Trustee. A-19

60 Limited Liability of the Authority and the City. Notwithstanding anything in the Trust Agreement contained, the Authority and the City shall not be required to advance any moneys derived from any source of income other than the Net Revenues for the payment of the Swap Periodic Payments, the principal of or interest with respect to the 2008 Certificates, or any premiums upon the prepayment thereof, the amounts due the Bank, or for the performance of any covenants contained in the Trust Agreement (except to the extent any such covenants are expressly payable hereunder from the Net Revenues). The City or the Authority may, however, advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose and may be used by the City or the Authority for such purpose without incurring indebtedness. INSTALLMENT SALE AGREEMENT Under the Installment Sale Agreement, the City will purchase the Project from the Authority and will make installment payments to the Authority in order to make sure purchase. Although certain provisions of the Installment Sale Agreement are summarized below, this summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Installment Sale Agreement. Term of the Installment Sale Agreement. The Term of the Installment Sale Agreement shall commence as of the Closing Date and shall end on July 1, 2040, unless such term is extended or sooner terminated. If on July 1, 2040, the Trust Agreement and the Swap Agreement shall not be discharged by their terms, then the Term of the Installment Sale Agreement shall be extended until the date on which the Trust Agreement shall be discharged by its terms. If prior to July 1, 2040, the Trust Agreement and the Swap Agreement shall be discharged by their terms, the Term of the Installment Sale Agreement shall end on the later date of such discharge. Installment Payments. (a) Obligation to Pay. The City agrees to pay to the Authority, its successors and assigns, as the purchase price of the Project, the Installment Payments, consisting of components of principal and interest, on the Installment Payment Dates and in the amounts specified in the Installment Sale Agreement, except such amounts shall be reduced by moneys on deposit in the Installment Payment Fund and credited to the payment of Installment Payments next due. The Installment Payments shall be payable solely from Net Revenues and shall begin to accrue on the Closing Date. (b) Reduction Upon Partial Prepayment. In the event the City prepays less than all of the remaining principal components of the Installment Payments, the amount of such prepayment shall be applied to reduce the principal component of the subsequent remaining Installment Payments such that the remaining principal components of Installment Payments match the principal components of the 2008 Certificates which will remain outstanding following such prepayment, determined as provided in the Trust Agreement, and the interest component of each subsequent remaining Installment Payment shall be reduced by the aggregate corresponding amount of interest which would otherwise be payable with respect to the 2008 Certificates prepaid as a result of such prepayment. (c) Rate on Overdue Payments. In the event the City should fail to make any of the Installment Payments so that there are insufficient moneys on hand in the Installment Payment A-20

61 Fund to pay any Installment Payment in full on an Installment Payment Date, the Installment Payment 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 thereof at the rate of interest payable with respect to the 2008 Certificates. (d) Assignment. The City understands and agrees that the Authority has assigned its right, title and interest (but not its duties or obligations) in the Installment Sale Agreement to the Trustee pursuant to the Assignment Agreement for the benefit of the Bank and the Owners and the City assents to such assignment. In the Installment Sale Agreement, the Authority directs the City, and the City agrees, to pay to the Trustee at the Trustee s corporate trust office or at such other place as the Trustee shall direct in writing, all payments payable by the City pursuant to the Installment Sale Agreement. Deposit of Gross Revenues. The City covenants to deposit all Gross Revenues into the Water Revenue Fund, as and when received, and shall pay all Operation and Maintenance Expenses from said fund. Application of Net Revenues; Transfer to Pay Installment Payments. Net Revenues shall be applied exclusively for the following purposes, and in the following order of priority: 1) to pay Installment Payments, obligations to the Bank under the Reimbursement Agreement, Debt Service on Parity Debt and all payments other than termination payments due from the City under the Swap Agreement as the same become due and payable; and 2) to replenish the 2008 Reserve Account in accordance with the Trust Agreement. 3) to pay termination payments due from the City under the Swap Agreement. In order to provide for the payment of Installment Payments and Debt Service on Parity Debt when due, the City shall, on or before each Installment Payment Date, transfer to the Trustee for deposit into the Installment Payment Fund the amount indicated in Exhibit B attached to the Installment Sale Agreement as required for the next occurring Installment Payment Date. Notwithstanding Exhibit B attached the Installment Sale Agreement, the City shall be obligated to make Installment Payments sufficient to pay all principal and interest due with respect to the 2008 Certificates. Release from Lien. Following the application of Net Revenues described under Application of Net Revenues; Transfer to Pay installment Payments above, with respect to the Installment Payment Date last occurring in each June, Net Revenues in excess of amounts required above in that Fiscal Year shall be released from the lien of the Installment Sale Agreement and shall be available for any lawful purpose of the City. Other Covenant of the City. Maintenance, Utilities, Taxes and Assessments. The City covenants to operate the Water System in an efficient and economical manner and operate, maintain and preserve the Water System in good repair and working order. A-21

62 The City shall also pay or cause to be paid all taxes and assessments of any type or nature charged to the Authority or the City or levied, assessed or charged against the Water System 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 the Installment Sale Agreement as and when the same become due. The City shall not be required to pay any federal, state or local income, inheritance, estate, succession, transfer, gift, franchise, gross receipts, profit, excess profit, capital stock, corporate, or other similar tax payable by the Authority, its successors or assigns, unless such tax is made in lieu of or as a substitute for any real estate or other tax upon property. The City may, at the City s 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 unless the Authority shall notify the City that, in the opinion of legal counsel, by nonpayment of any such items, or the Project or any part thereof will be subject to loss or forfeiture, in which event the City shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority. Modification of Project. The City shall, at its own expense, have the right to remodel the Project or to make additions, modifications and improvements thereto. All such additions, modifications and improvements shall thereafter comprise part of the Project and be subject to the provisions of the Installment Sale Agreement. Insurance. The City shall at all times maintain insurance on the Water System as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to the Water System, either in the form of self-insurance or with responsible insurers. All amounts collected from insurance against accident to or destruction of any portion of the Water System shall be used either to repair or rebuild such damaged or destroyed portion of the Water System or to prepay the 2008 Certificates as described under Application of Net Proceeds from Insurance Award below. The City shall also maintain worker's compensation insurance and insurance against public liability and property damage to the extent reasonably necessary to protect the City, the Trustee and the Bank and the Owners of the 2008 Certificates, either in the form of self-insurance or with responsible insurers. The Trustee is not responsible for the adequacy of such insurance. Installation of City s Equipment. 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 other items of equipment or other personal property in or upon the Project. All such items shall remain the sole property of the City, in which neither the Authority nor the Trustee shall have any interest, and may be modified or removed by the City at any time. Nothing in the Installment Sale Agreement shall prevent the City from purchasing items to be installed under a conditional sale or lease purchase contract, or subject to a vendor s lien or security agreement, as security for the unpaid portion of the purchase price thereof. Operation of the Water System. The City covenants to operate, or cause to be operated, the Water System in accordance with customary standards and practices applicable to similar facilities. A-22

63 Maintaining Credit Facility. During any Interest Rate Mode other than an Auction Rate or a Long-Term Rate, the City shall obtain and maintain a Credit Facility as required by the Trust Agreement. Tax Covenants of the City. Private Activity Bond Limitation. The City shall assure that the proceeds of the Certificates are not so used as to cause the Certificates to satisfy the private business tests of section 141(b) of the Tax Code or the private loan financing test of section 141(c) of the Tax Code. Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Certificates to be "federally guaranteed" within the meaning of section 149(b) of the Tax Code. Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section 148(f) of the Tax Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Certificates. No Arbitrage. The City shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Certificates which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of original execution and delivery of the Certificates would have caused the Certificates to be "arbitrage bonds" within the meaning of section 148 of the Tax Code. Maintenance of Tax-Exemption. The City shall take all actions necessary to assure the exclusion of the component of Installment Payments comprising interest with respect to the Certificates from the gross income of the Owners of the Certificates to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the date of the original execution and delivery of the Certificates. Application of Net Proceeds from Insurance Award. The Net Proceeds of any insurance award resulting from any damage to or destruction of the Water System by fire or other casualty shall be allocated pro-rata by the City among all outstanding Parity Debt and the portion allocable to the obligations under this Installment Sale Agreement shall be deposited in the Insurance and Condemnation Fund by the Trustee promptly upon receipt thereof and, if the City Representative notifies the Trustee in writing of the City s determination that the replacement, repair, restoration, modification or improvement of the Water System is not economically feasible or in the best interest of the City, then such Net Proceeds shall be promptly transferred by the Trustee to the Installment Payment Fund to be applied as provided in the Installment Sale Agreement. All Net Proceeds deposited in the Insurance and Condemnation Fund and not so transferred shall be applied to the prompt replacement, repair, restoration, modification or improvement of the Water System by the City, upon receipt of a requisition, signed by the City Representative stating with respect to each payment to be made (i) the requisition number, (ii) the name and address of the person, firm or corporation to whom payment is due, (iii) the amount to be paid and (iv) that each obligation mentioned therein has been properly incurred, is a proper charge against the Insurance and Condemnation Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation. Any balance of the Net Proceeds remaining after such work has been completed shall be transferred to the Installment Payment Fund. The City covenants that it will commence such replacement, A-23

64 repair, restoration, modification or improvement or indicate that such replacement, repair, restoration, modification or improvement is not economically feasible within 180 days of receipt of such Net Proceeds. Application of Net Proceeds from Eminent Domain Award. The Net Proceeds of any eminent domain award shall be allocated pro-rata by the City among all outstanding Parity Debt and the portion allocable to the obligations under this Installment Sale Agreement shall be deposited in the Insurance and Condemnation Fund to be held and applied by the Trustee pursuant to the Trust Agreement. Events of Default. The following shall be events of default under the Installment Sale Agreement and the terms events of default and default shall mean, whenever they are used in the Installment Sale Agreement, any one or more of the following events: (a) Failure by the City to pay any Installment Payment by the Installment Payment Date or failure to make any other payment required to be paid under the Installment Sale Agreement at the time specified; or (b) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed in the Installment Sale Agreement or the Trust Agreement, other than as referred to in clause (a) above, for a period of thirty (30) days, the Trustee, the Bank or the Owners of not less than twenty-five percent (25%) in aggregate principal amount of 2008 Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Authority, the Trustee, the Bank or such Owners, as applicable, with the consent of the Insurer, shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected; or (c) The filing by the City of a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or the approval by a court of competent jurisdiction of a petition filed with or without the consent of the City seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction assumes custody or control of the City or of the whole or any substantial part of its property; or (d) An event of default shall have occurred and be continuing with respect to any Parity Debt; or (e) If the Bank gives written notice to the Trustee that an event of default has occurred and is continuing under the Reimbursement Agreement and instructing the Trustee to accelerate the 2008 Certificates. Remedies on Default. Whenever any event of default referred to above shall have happened and be continuing, the Authority shall have the right, at its option and without any further demand or notice, and with the consent of the Bank, to: (a) declare all principal components of the unpaid Installment Payments, together with accrued interest at the rate or rates specified in the respective Outstanding Certificates from the A-24

65 immediately preceding Installment Payment Date on which payment was made, to be immediately due and payable, whereupon the same shall become due and payable; and (b) take whatever action at law or in equity may appear necessary or desirable to collect the Installment Payments then due or thereafter to become due during the Term of the Installment Sale Agreement, or enforce performance and observance of any obligation, agreement or covenant of the City under the Installment Sale Agreement. Notwithstanding any other provisions of the Installment Sale Agreement, the Bank shall have the right, so long as it is not in default under the Credit Facility, to direct the remedies to be taken upon any Event of Default hereunder and the Bank s consent shall be required for remedial action taken by the Trustee or the Authority under the Installment Sale Agreement. Amendment of the Loan Agreement. Without the written consent of the Trustee and the Bank, the City will not alter, modify or cancel or agree or consent to alter, modify or cancel the Installment Sale Agreement; excepting only as such alteration or modification may be permitted by the Trust Agreement. A-25

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67 APPENDIX B FORM OF LETTER OF CREDIT No M March 27, 2008 U.S. Bank National Association One California Street, Suite 2100 San Francisco, California Attention: Corporate Trust Department Dear Sirs: We hereby establish, at the request and for the account of The City of Corcoran (the City ) in your favor, as Trustee under the Trust Agreement, dated as of March 1, 2008 (the Trust Agreement ) among the Corcoran Joint Powers Finance Authority (the Authority ), the City and you, pursuant to which, initially, $19,900,000 in aggregate principal amount of the Variable Rate Demand 2008 Refunding Certificates of Participation (Water System Project) (the Certificates ), were executed and delivered, our Irrevocable Letter of Credit No M, in the amount of $21,193,500, effective immediately and expiring at the close of banking business at our Monterey Park office referred to below on March 26, 2013 or on such later date to which such expiration date may be extended from time to time by amendment of this Letter of Credit (the Maturity Date ), unless terminated earlier pursuant to the terms hereof. We hereby irrevocably authorize you to draw on us, in an aggregate amount not to exceed the amount of this Letter of Credit as set forth above and in accordance with the terms and conditions and subject to the reductions in amount as hereinafter set forth, (1) in one or more drawings by one or more of your drafts (in the form of Exhibit 1 attached hereto), each drawn on us payable at sight on a Banking Day, and accompanied by your written and completed certificate signed by you in substantially the form of Annex A attached hereto (such draft accompanied by such certificate being your Payment Draft ); and (2) in one or more drawings by one or more of your drafts (in the form of Exhibit 1 attached hereto), each drawn on us payable at sight on a Banking Day, and accompanied by your written and completed certificate signed by you in substantially the form of Annex B attached hereto (any such draft accompanied by such certificate being your Tender Draft ). B-1

68 The Payment Draft accompanied by a certificate substantially in the form of Annex A attached hereto with the first box in paragraph (2), entitled Interest Drawing, checked shall be hereinafter referred to as Interest Draft; the Payment Draft accompanied by a certificate substantially in the form of Annex A attached hereto with the second box in paragraph (2), entitled Partial Prepayment Drawing, checked shall be hereinafter referred to as Partial Prepayment Draft; and the Payment Draft accompanied by a certificate substantially in the form of Annex A attached hereto with the third box in paragraph (2), entitled Final Drawing, checked shall be hereinafter referred to as Final Draft. The amount of each Interest Draft shall not exceed $1,293,500, the aggregate amount of Partial Prepayment Drafts shall not exceed $21,193,500 and the amount of the Final Draft shall not exceed $21,193,500. REDUCTIONS AND REINSTATEMENTS If you shall draw on us by your Interest Draft under clause (1) of the immediately preceding paragraph and you shall not have received from us, by the close of business on the fifth Banking Day following the date of such drawing, a notice to the effect that we have not been reimbursed for such drawing and that accordingly the Interest Portion of this Letter of Credit will not be reinstated for the amount of such drawing, your right to draw on us in a single drawing by your Interest Draft under said clause (1) shall be automatically reinstated along with the amount drawn on us by your Interest Draft and, effective the sixth Banking Day from the date of such drawing, you shall again be authorized to draw on us by your Interest Draft in accordance with said clause (1) and the other terms and conditions referred to or set forth in the immediately preceding paragraph; and this automatic reinstatement of your right to draw on us by your Interest Draft as well as the reinstatement of the amount drawn on us by your Interest Draft shall be applicable to successive drawings by your Interest Drafts under clause (1) of the immediately preceding paragraph so long as this Letter of Credit shall not have terminated as set forth below. The amount of this Letter of Credit shall be decreased, upon our receipt of your written and completed certificate signed by you in substantially the form of Annex C attached hereto (relating to a redemption or defeasance of less than all the Certificates outstanding), by an amount equal to the amount stated in said certificate, and the amounts available to be drawn by you by any subsequent Payment Draft or Tender Draft shall be decreased, upon our receipt of such certificate, to the amounts stated in such certificate. Upon our honoring any Tender Draft or Partial Prepayment Draft presented by you hereunder, the amount of this Letter of Credit and the amounts available to be drawn hereunder by you by any subsequent Tender Draft, Partial Prepayment Draft or Final Draft shall be automatically decreased by an amount equal to the amount of such Tender Draft or Partial Prepayment Draft. The amount of this Letter of Credit and the amounts from time to time available to be drawn by you hereunder by any subsequent Tender Draft, Partial Prepayment Draft or Final Draft shall be increased when and to the extent, but only when and to the extent, that we are reimbursed by the City or by you on behalf of the City for any amount drawn hereunder by any Tender Draft. Any amount received by us from or on behalf of the City in reimbursement of amounts drawn hereunder shall, if we also receive your certificate completed and signed by you in substantially the form of Annex D attached hereto, be applied to the extent of the amount indicated therein to reimburse us for amounts drawn hereunder by your Tender Drafts. B-2

69 PRESENTMENT Funds under this Letter of Credit are available to you against (1) your Interest Draft referring thereon to the number of this Letter of Credit and accompanied by your written and completed certificate signed by you in substantially the form of Annex A attached hereto with the first box in paragraph (2), entitled Interest Drawing, checked, (2) your Tender Draft referring thereon to the number of this Letter of Credit and accompanied by your written and completed certificate signed by you in substantially the form of Annex B attached hereto, (3) your Partial Prepayment Draft referring thereon to the number of this Letter of Credit and accompanied by your written and completed certificate signed by you in substantially in the form of Annex A attached hereto with the second box in Paragraph (2), entitled Partial Prepayment Drawing, checked, and (4) your Final Draft referring thereon to the number of this Letter of Credit and accompanied by your written and completed certificate signed by you in substantially in the form of Annex A attached hereto with the third box in paragraph (2), entitled Final Drawing, checked. Each such draft and certificate shall be presented at our office (the Bank's Office ) located at 1980 Saturn Street, Monterey Park, California , Attention: SC-TSO, Standby Letters of Credit (or at any other office which may be designated by us by written notice delivered to you) on or before the day (which shall be a Banking Day) of our making funds available to you hereunder, but in no event, later than 9:00 a.m. (Pacific time) on the day of our making funds available to you. If we receive any of your drafts and certificates at such office, all in strict conformity with the terms and conditions of this Letter of Credit, not later than 9:00 a.m. (Pacific time) on a Banking Day up to and including the Stated Termination Date hereof, we will honor the same on the same day (not later than 11:00 a.m. Pacific time). If we receive any of your drafts and certificates at such office, all in strict conformity with the terms and conditions of this Letter of Credit, after 9:00 a.m. (Pacific time) on a Banking Day, but prior to 5:00 p.m. (Pacific time), up to and including the Stated Termination Date hereof, we will honor the same on the next succeeding Banking Day (not later than 10:00 a.m., Pacific time) in accordance with your payment instructions. Your certificate may indicate a later date on which your draft is to be honored in which case, if your drafts and certificates are in strict conformity with the terms and conditions of this Letter of Credit, we will honor the same not later than 10:00 a.m. Pacific time on the date you requested in accordance with your payment instructions, provided that such date is a Banking Day and occurs prior to the Maturity Date. Drafts to be presented hereunder, including the required Annexes, may be presented by telecommunications through telefax number (323) and the Bank shall be entitled to rely thereon as if such Drafts and Annexes were presented in person, provided such Drafts, including the required Annexes, are in conformance with the requirements for the same as set forth herein, but for the requirement of an original signature, with originally executed Drafts and Annexes to follow immediately thereafter, via overnight mail or courier service. The Bank shall have no duty and will not examine original documents confirming presentation by telecommunications. In the event of presentation by telecommunications, the telecommunication is considered the sole original presentation. All payments made by us under this Letter of Credit will be made in immediately available funds and will be disbursed from our own funds. If requested by you, payment under this Letter of Credit may be made by wire transfer of Federal Reserve Bank of San Francisco funds to your account in a bank on the Federal Reserve wire system. B-3

70 EXPIRATION Upon the earliest of (i) the date on which we receive written notice from you that there are no longer any Certificates Outstanding within the meaning of the Trust Agreement, (ii) at the end of business on the date on which we receive written notice from you that an Alternate Credit Facility has been issued within the meaning of the Trust Agreement, (iii) the date on which we honor a Final Draft, (iv) the Long-Term Conversion Date or the date on which the Certificates earn interest at an Auction Rate, as described in written notice to us from you delivered at least five (5) Banking Days prior to such date, and (v) the Maturity Date, this Letter of Credit shall automatically terminate ( Stated Termination Date ). TRANSFER This Letter of Credit is transferable in its entirety only to any transferee who you certify to us has succeeded or replaced you as Trustee under the Trust Agreement and, notwithstanding Article 48 of the UCP, defined below, may be successively transferred. Transfer of the available balance under this Letter of Credit to such transferee shall be effected by the presentation to us of this Letter of Credit and any amendments thereto, accompanied by a completed certificate in substantially the form of Annex E attached hereto. Upon such presentation we shall issue a letter of credit to your transferee with provisions therein consistent with this Letter of Credit, excepting only necessary changes as to: 1. Identity and address of your transferee, as beneficiary; 2. The date thereof; and 3. The amount. GOVERNING LAW This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (2007 Revision), International Chamber of Commerce, Publication No. 600), except for Articles 32 and 38. For purposes of Article 6(d), the place of presentation for payment shall be the Bank's Office. In addition, the Bank agrees, notwithstanding the second sentence of Article 36, if the Maturity Date occurs upon a Banking Day on which the Bank s Office is closed by virtue of an interruption of the nature described in Article 36, the Maturity Date will be extended to the next Banking Day on which the Bank s Office is open. As to matters not governed thereby, this Letter of Credit shall be governed by the Uniform Commercial Code as in effect in the State of California. MISCELLANEOUS This Letter of Credit sets forth in full our undertaking and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein (including, without limitation, the Certificates), except only the certificates and the drafts referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except for such certificates and such drafts. B-4

71 For all purposes of this Letter of Credit, the term Banking Day means any day other than a Saturday, Sunday or other day on which banks are authorized or required to be closed in the State of California. Communications with respect to this Letter of Credit shall be in writing and shall be addressed to us at 1980 Saturn Street, Monterey Park, California , Attention: SC-TSO, Standby Letters of Credit, with a copy to us at 445 South Figueroa Street, G16-450, Los Angeles, California 90071, specifically referring to the number of this Letter of Credit. Very truly yours, UNION BANK OF CALIFORNIA, N.A. By: B-5

72 Exhibit 1 Date: Drawn under Union Bank of California, N.A. Irrevocable Letter of Credit No M Union Bank of California, N.A. Southern California International Operations Center 1980 Saturn Street, V Monterey Park, California Attn: Standby Letter of Credit Section This sight draft is presented to you for the amount of $ for the purposes set forth in the accompanying Certificate., as trustee (the Trustee ) under the Trust Agreement dated as of March 1, 2008 among the Trustee, the Authority and the City. By: Title: B-6

73 Annex A PAYMENT DRAWING To: Union Bank of California, N.A Saturn Street Monterey Park, California Attention: SC-TSO, Standby Letters of Credit Irrevocable Letter of Credit No M The undersigned, a duly authorized officer of the undersigned Trustee (the Trustee ), hereby certifies to Union Bank of California, N.A. (the Bank ), with reference to Irrevocable Letter of Credit No M (the Letter of Credit ), issued by the Bank in favor of the Trustee, as follows: (1) The Trustee is the Trustee under the Trust Agreement for the holders of the Certificates. *(2) Interest Drawing. (i) The Trustee is making a drawing under the Letter of Credit with respect to a payment of interest on the Certificates, which payment is due on the day on which this certificate and the Interest Draft it accompanies are being presented to the Bank, if presented before 9:00 a.m. (Pacific time), or on the next Banking Day after such day unless a later date is specified as follows for payment:. None of such Certificates is held of record by the Authority or the City or by the undersigned for the account of the Authority or the City. (ii) [The Interest Draft accompanying this certificate is the first Interest Draft presented by the Trustee under the Letter of Credit.]** [The Interest Draft last presented by the Trustee under the Letter of Credit was honored and paid by the Bank and the Trustee did not, within ten Banking Days, receive a notice from the Bank that the Bank has not been reimbursed.]*** * Please check a box as appropriate. ** To be used in the Draw Certificate relating to the first Interest Draft only. *** To be used in each Draw Certificate relating to each Interest Draft other than the first Interest Draft. B-7

74 The amount of the Interest Draft accompanying this certificate is $. It was computed in compliance with the terms and conditions of the Certificates and the Trust Agreement and does not include any amount of interest which is included in any Tender Draft, Partial Prepayment Draft or Final Draft presented on or prior to the date of this certificate. Partial Prepayment Drawing. (i) The Trustee is making a drawing under the Letter of Credit with respect to the payment, upon redemption or prepayment of less than all of the Certificates, of the unpaid principal amount of, and up to days' accrued and unpaid interest on, Certificates which are Outstanding within the meaning of the Trust Agreement (other than Certificates presently held of record by the Authority or the City or by the Trustee for the account of the Authority or the City), which payment is due on the day on which this Certificate and the Partial Prepayment Draft it accompanies are being presented to the Bank, if presented before 9:00 a.m. (Pacific time), or on the next Banking Day after such day unless a later date is specified as follows for payment:. (ii) The amount of the Partial Prepayment Draft accompanying this certificate is equal to the sum of (i) $ being drawn in respect of the payment of unpaid principal of Certificates (other than Certificates presently held of record by the Authority or the City or by the Trustee for the account of the Authority or the City) to be redeemed or prepaid and (ii) $ being drawn in respect of the payment of accrued and unpaid interest on such Certificates, and does not include any amount of interest on the Certificates which is included in any Interest Draft or Tender Draft or Partial Prepayment Draft presented on or prior to the date of this certificate. (iii) The amount of the Partial Prepayment Draft accompanying this certificate was computed in accordance with the terms and conditions of the Certificates and the Trust Agreement and does not exceed the amount available to be drawn under the Letter of Credit. (iv) The Trustee acknowledges that pursuant to the terms of the Letter of Credit, upon the Bank's honoring the Partial Prepayment Draft accompanying this certificate, the amount of the Letter of Credit and the amounts available to be drawn by the Trustee thereunder by any subsequent Partial Prepayment Draft or Tender Draft or Final Draft are automatically decreased by an amount equal to the amount of such Partial Prepayment Draft. Final Drawing. (i) The Trustee is making a drawing under the Letter of Credit with respect to the payment, either at stated maturity, upon acceleration or as a result of a prepayment, redemption or mandatory tender, of the unpaid principal amount of, and up to days' accrued and unpaid interest on, all of the Certificates which are Outstanding within the meaning of the Trust Agreement (other than Certificates presently held of record by the Authority or the City or by the Trustee for the account of the Authority or the City) but which are not to be remarketed again with the support of the Letter of Credit, which payment is due B-8

75 on the day on which this certificate and the Final Draft it accompanies are being presented to the Bank, if presented before 9:00 a.m. (Pacific time), or on the next Banking Day after such day unless a later date is specified as follows for payment:. (ii) The amount of the Final Draft accompanying this certificate is equal to the sum of (i) $ being drawn in respect of the payment of unpaid principal of Certificates (other than Certificates presently held of record by the Authority or the City or by the Trustee for the account of the Authority or the City) and (ii) $ being drawn in respect of the payment of accrued and unpaid interest on such Certificates, and does not include any amount of interest on the Certificates which is included in any Interest Draft or Tender Draft or Partial Prepayment Draft presented on or prior to the date of this certificate. (iii) The amount of the Final Draft accompanying this certificate was computed in compliance with the terms and conditions of the Certificates and the Trust Agreement and does not exceed the amount available to be drawn by the Trustee under the Letter of Credit. B-9

76 The terms used herein which are not specifically defined herein are defined in the Letter of Credit. IN WITNESS WHEREOF, the Trustee has executed and delivered this certificate as of the day of. as Trustee cc: Public Finance Unit 445 South Figueroa Street, G Los Angeles, California (Failure to deliver this copy will not invalidate the Draft) By [Name and Title] B-10

77 Annex B TENDER DRAWING To: Union Bank of California, N.A Saturn Street Monterey Park, California Attention: SC-TSO, Standby Letters of Credit Irrevocable Letter of Credit No M The undersigned, a duly authorized officer of the Trustee (the Trustee ), hereby certifies to Union Bank of California, N.A. (the Bank ), with reference to irrevocable Letter of Credit No M (the Letter of Credit ), issued by the Bank in favor of the Trustee, as follows: (1) The undersigned is the Trustee under the Trust Agreement for the holders of the Certificates. (2) The undersigned is making a drawing under the Letter of Credit with respect to the payment, upon a tender, of the unpaid principal amount of, and accrued and unpaid interest on, all or less than all of the Certificates which are Outstanding within the meaning of the Trust Agreement and which are to be purchased as a result of such tender (other than certificates presently held of record by the Authority or the City or by the Trustee for the account of the Authority or the City), which payment is due on the day on which this certificate and the Tender Draft it accompanies are being presented to the Bank, if presented before 9:00 a.m. (Pacific time), or on the next Banking Day after such day unless a later date is specified as follows for payment:. (3) The amount of the Tender Draft accompanying this certificate is equal to the sum of (i) $ being drawn in respect of the payment of unpaid principal of Certificates (other than Certificates presently held of record by the Authority or the City or by the Trustee for the account of the Authority or the City) to be purchased as a result of a tender and (ii) $ being drawn in respect of the payment of accrued and unpaid interest on such Certificates, and does not include any amount of interest which is included in any Interest Draft or Partial Prepayment Draft presented on or prior to the date of this certificate. (4) The amount of the Tender Draft accompanying this certificate was computed in compliance with the terms and conditions of the Certificates and the Trust Agreement and does not exceed the amount available to be drawn under the Letter of Credit. The undersigned acknowledges that pursuant to the terms of the Letter of Credit, upon the Bank's honoring of the Tender Draft accompanying this certificate, the amount of the Letter of Credit and the amounts available to be drawn thereunder by any subsequent Tender Draft or Partial Prepayment Draft or Final Draft are automatically decreased by an amount equal to the amount of such Tender Draft. The terms used herein which are not specifically defined herein are defined in the Letter of Credit. B-11

78 IN WITNESS WHEREOF, the undersigned has executed and delivered this certificate as of the day of. as Trustee By [Name and Title] cc: Public Finance Unit 445 South Figueroa Street, G Los Angeles, California (Failure to deliver this copy will not invalidate the Draft) B-12

79 Annex C CERTIFICATE FOR REDUCTION To: Union Bank of California, N.A Saturn Street Monterey Park, California Attention: SC-TSO, Standby Letters of Credit Irrevocable Letter of Credit No M The undersigned, a duly authorized officer of the undersigned Trustee (the Trustee ), hereby certifies to Union Bank of California, N.A. (the Bank ), with reference to Irrevocable Letter of Credit No M (the Letter of Credit ), issued by the Bank in favor of the Trustee, as follows: (1) The Trustee is the Trustee under the Trust Agreement for the holders of the Certificates. (2) The Trustee hereby notifies you that on or prior to the date hereof $ principal amount of the Certificates has been redeemed and paid or has been defeased pursuant to the Trust Agreement. (3) Following the redemption, payment or defeasance referred to in paragraph (2) above, the aggregate principal amount of all of the Certificates which are Outstanding within the meaning of the Trust Agreement is $. (4) The maximum amount of interest, computed in accordance with the terms and conditions of the Certificates and the Trust Agreement, which could accrue on the Certificates referred to in paragraph (3) above is $ (5) The amount available to be drawn by the Trustee under the Letter of Credit by any Interest Draft is reduced to $ (such amount being equal to the amount specified in paragraph (4) above) upon receipt by the Bank of this certificate. (6) The amount available to be drawn by the Trustee under the Letter of Credit by any Tender Draft or Partial Prepayment Draft or Final Draft is reduced to $ (such amount being equal to the sum of the amounts specified in paragraphs (3) and (4) above) upon receipt by the Bank of this certificate. (7) The amount of the Letter of Credit is reduced to $ (such amount equal to the sum of the amounts specified in paragraph (6)) above upon receipt by the Bank of this certificate. The terms used herein which are not specifically defined herein are defined in the Letter of Credit. B-13

80 IN WITNESS WHEREOF, the Trustee has executed and delivered this certificate this day of. as Trustee By [Name and Title] cc: Public Finance Unit 445 South Figueroa Street, G Los Angeles, California (Failure to deliver this copy will not invalidate the Draft) B-14

81 Annex D CERTIFICATE FOR REINSTATEMENT To: Union Bank of California, N.A Saturn Street Monterey Park, California Attention: SC-TSO, Standby Letters of Credit Irrevocable Letter of Credit No M The undersigned, a duly authorized officer of the undersigned Trustee (the Trustee ), hereby certifies to Union Bank of California, N.A. (the Bank ), with reference to Irrevocable Letter of Credit No M (the Letter of Credit ), issued by the Bank in favor of the Trustee, as follows: (1) The Trustee is the Trustee under the Trust Agreement for the holders of the Certificates. (2) The amount of $ paid to you today by the City or by the Trustee on behalf of the City is a payment made to reimburse you for amounts drawn under the Letter of Credit by Tender Drafts and is the amount by which the Letter of Credit is to be reinstated. (3) Of the amount referred to in paragraph (2), $ represents the aggregate principal amount of Certificates resold or to be resold on behalf of the City. (4) Of the amount referred to in paragraph (2), $ represents accrued and unpaid interest on Certificates calculated, in accordance with the Trust Agreement. The terms used herein which are not specifically defined herein are defined in the Letter of Credit. B-15

82 IN WITNESS WHEREOF, the Trustee has executed and delivered this certificate this day of. as Trustee By [Name and Title] cc: Public Finance Unit 445 South Figueroa Street, G Los Angeles, California (Failure to deliver this copy will not invalidate the Draft) B-16

83 Annex E INSTRUCTION TO TRANSFER 20 Union Bank of California, N.A. 445 South Figueroa Street, G Los Angeles, California Attention: Public Finance Re: Irrevocable Letter of Credit No M Gentlemen: For value received, the undersigned beneficiary hereby irrevocably transfers to: [Name of Transferee] [Address] all rights of the undersigned beneficiary to draw under the above-captioned Letter of Credit (the Letter of Credit ). The transferee has succeeded the undersigned as Trustee under the Trust Agreement (as defined in the Letter of Credit). By this transfer, all rights of the undersigned beneficiary in the Letter of Credit are transferred to the transferee and the transferee shall hereafter have the sole rights as beneficiary thereof; provided, however, that no rights shall be deemed to have been transferred to the transferee until the transfer fee of $2000 is paid to you. The Letter of Credit is returned herewith and in accordance therewith we ask that this transfer be effective and that you issue a new irrevocable letter of credit in favor of the transferee with provisions consistent with the Letter of Credit. as predecessor Trustee By [Name and Title] cc: International Operations Center 1980 Saturn Street, V Monterey Park, California (Failure to deliver this copy will not invalidate the Draft) B-17

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85 APPENDIX C GENERAL INFORMATION REGARDING THE CITY OF CORCORAN AND KINGS COUNTY The following information concerning the City of Corcoran and Kings County are included only for the purpose of supplying general information regarding the area of the City. The 2008 Certificates are not a debt of the County, the State or any of its political subdivisions, and neither the County, the State nor any of its political subdivisions is liable therefor. General Description and Background Kings County is located in the south central portion of the San Joaquin Valley. Kings County is home to the Lemoore Naval Air Station and three California State Correctional facilities, two in Corcoran and one in Avenal. The county has four incorporated communities, Avenal, Hanford, Lemoore, and Corcoran. The City of Corcoran lies in Kings County and is located on California Hwy 43, 178 miles north of Los Angeles, 230 miles south of both San Francisco and Sacramento. The City, which covers approximately 5.8 square miles, was incorporated August 11, 1914 and is a general law city. Population The following table lists population figures for the County and the State for the last five calendar years. CITY OF CORCORAN, KINGS COUNTY AND STATE OF CALIFORNIA Population Estimates Calendar Years 2003 through 2007 Calendar City of Kings State of Year Corcoran County California , ,278 35,691, , ,586 36,245, , ,110 36,728, , ,073 37,195, , ,381 37,662,518 Source: State Department of Finance. C-1

86 Employment and Industry The following table shows the average annual estimated numbers of wage and salary workers by industry for Kings County. Figures do not include proprietors, the self-employed, unpaid volunteers or family workers, domestic workers in households, and persons in labor management disputes. HANFORD-CORCORAN MSA Kings County Civilian Labor Force, Employment and Unemployment Calendar Years 2003 through 2007 Annual Averages Civilian Labor Force (1) 53,600 53,700 54,500 55,600 58,500 Employment 47,200 47,800 49,300 50,900 53,400 Unemployment 6,400 5,900 5,200 4,700 5,100 Unemployment Rate 12.0% 11.0% 9.5% 8.5% 8.7% Wage and Salary Employment: (2) Agriculture 7,100 7,100 7,700 8,700 9,300 Natural Resources, Mining, Construction 1,300 1,200 1,400 1,400 1,400 Manufacturing 3,800 3,800 3,900 3,900 4,300 Wholesale Trade Retail Trade 3,500 3,700 3,900 3,900 4,200 Trans., Warehousing and Utilities Information Finance and Insurance Real Estate and Rental and Leasing Professional and Business Services 1,300 1,300 1,200 1,200 1,100 Educational and Health Services 3,300 3,300 3,400 3,400 3,600 Leisure and Hospitality 2,500 2,500 2,700 2,700 2,800 Other Services Federal Government 1,000 1,000 1,000 1,000 1,200 State Government 5,300 5,400 5,300 5,300 5,900 Local Government 7,100 7,200 7,400 7,400 7,900 Total, All Industries (3) 39,700 40,000 41,200 43,000 45,000 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. C-2

87 Major Employers The table below lists the largest manufacturing and non-manufacturing employers within the County as of January 2008: KINGS COUNTY Major Employers Employer Name Location Industry California State Prison Corcoran State Govt-Correctional Institutions California State Prison Corcoran State Govt-Correctional Institutions Central Valley General Hosp Hanford Hospitals Central Valley Meat Co Inc Hanford Meat Packers (Mfrs) Con Agra Foods Hanford Food Brokers (Whol) Del Monte Foods Co Hanford Canned Specialties (Manufacturers) Exopack Llc Hanford Plastics-Foil & Coated Paper Bags (Mfrs) Hanford Community Hospital Hanford Hospitals Hanford Community Medical Ctr Hanford Hospitals J G Boswell Co Corcoran Cotton Goods-Manufacturers Kings County Community Action Hanford Non-Profit Organizations Kings County Government Ctr Hanford Government Offices-County Kmart Lemoore Department Stores Lemoore High School Lemoore Schools Leprino Foods Co Lemoore Cheese Processors (Mfrs) Leprino Foods Co Lemoore Cheese Processors (Mfrs) Tachi Palace Hotel & Casino Lemoore Entertainment Bureaus Us Naval Air Station Lemoore Federal Government-National Security Us Naval Hospital Lemoore Hospitals Wal-Mart Hanford Department Stores Wal-Mart Hanford Department Stores Wal-Mart Supercenter Hanford Department Stores Wal-Mart Supercenter Hanford Department Stores Warmerdam Packing Hanford Fruits & Vegetables-Growers & Shippers Zepeda's Farm Labor Svc Corcoran Labor Contractors Source: State of California Employment Development Department. C-3

88 Effective Buying Income Effective Buying Income is defined as personal income less personal tax and nontax payments, a number often referred to as disposable or after-tax income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor s income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as disposable personal income. The following table summarizes the total effective buying income for the County, the State and the United States for the period 2002 through KINGS COUNTY Effective Buying Income As of January 1, 2002 through 2006 Year Area Total Effective Buying Income (000 s Omitted) Median Household Effective Buying Income 2002 Kings County $1,426,645 $32,234 California 647,879,427 42,484 United States 5,340,682,818 38, Kings County $1,482,698 $33,648 California 674,721,020 42,924 United States 5,466,880,008 38, Kings County $1,637,840 $35,224 California 705,108,410 43,915 United States 5,692,909,567 39, Kings County $1,738,343 $36,548 California 705,108,410 43,915 United States 5,692,909,567 39, Kings County $1,844,403 $37,559 California 764,120,963 46,275 United States 6,107,092,244 41,255 Source: Sales & Marketing Management Survey of Buying Power for 2002 through 2004; Claritas Demographics for 2005 & C-4

89 Commercial Activity During calendar year 2006, total taxable transactions in the City were reported to be $94,698,000, a 3.8% decrease over the total taxable transactions of $98,384,000 that were reported in the City during calendar year Summaries of historic taxable sales within the City during the past five years for which data is available are shown in the following table. Annual figures are not yet available for CITY OF CORCORAN Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions $42, $70, , , , , , , , ,698 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). During calendar year 2006, total taxable transactions in the County were reported to be $1,303,907,000, a 6.9% increase over the total taxable transactions of $1,219,619,000 that were reported in the County during calendar year Summaries of historic taxable sales within the County during the past five years for which data is available are shown in the following table. Annual figures are not yet available for KINGS COUNTY Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,037 $694,661 2,032 $994, , ,897 2,086 1,007, , ,440 2,096 1,089, , ,691 2,143 1,219, , ,048 2,153 1,303,907 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). C-5

90 Construction Activity The following tables show a five year summary of the valuation of building permits issued in the City and the County. CITY OF CORCORAN Total Building Permit Valuations (Valuations in Thousands) Permit Valuation New Single-family $1,908.2 $4,017.2 $6,985.3 $8,396.2 $8,491.1 New Multi-family , Res. Alterations/Additions ,495.4 Total Residential 2, , , , ,448.2 New Commercial New Industrial New Other , Com. Alterations/Additions , Total Nonresidential $1,213.3 $652.8 $1,829.2 $3,716.1 $753.3 New Dwelling Units Single Family Multiple Family TOTAL Source: Construction Industry Research Board, Building Permit Summary. KINGS COUNTY Total Building Permit Valuations (Valuations in Thousands) Permit Valuation New Single-family $64,649.9 $93,242.0 $82,767.1 $131,107.3 $119,597.4 New Multi-family 4, , , , ,980.0 Res. Alterations/Additions 4, , , , ,701.6 Total Residential 73, , , , ,279.0 New Commercial 14, , , , ,854.4 New Industrial , New Other 8, , , , ,363.4 Com. Alterations/Additions 5, , , , ,075.8 Total Nonresidential $29,476.9 $36,850.0 $36,502.0 $64,216.3 $41,826.7 New Dwelling Units Single Family , Multiple Family TOTAL , Source: Construction Industry Research Board, Building Permit Summary. C-6

91 Transportation Transportation includes rail services by Burlington Northern Santa Fe Mainline Railway and Amtrak. Airports within 30 miles include Corcoran Private Airport, Hanford Municipal Airport and the Visalia Municipal Airport. Public transportation is provided by Corcoran Dial-A-Ride and Kings Area Rural Transit. Highways 41 and 43 connect with State Highway 99 and 198. Corcoran is 15 miles west of Highway 99 and 18 miles south of Highway 198 on Highway 43. C-7

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93 APPENDIX D THE WATER SYSTEM OF THE CITY OF CORCORAN The Water Utility The City of Corcoran operates a public water system serving the City, several small developments in unincorporated areas of the County adjacent to the City, and two California State Prisons located within the City limits. The Water System serves a total population of 25,417 through 3,253 service connections. In Calendar year 2007, the Water System produced 2,449 million gallons of water. The Water System was started in 1905 by the privately owned Corcoran Water and Gas Company. The City was incorporated in 1914 and purchased the Water System in Various Water System facilities have been constructed and abandoned since that time. The California Department of Health Services issued the first water supply permit to the City in The current permit was issued in The management of the Water System is the responsibility of the City s Public Works Department, for both construction and the maintenance and operation, and the Public Works Director has responsibility for the Department and the division. The Chief Plant Operator has the responsibility for the daily maintenance and operations of the Water Division. These responsibilities include the operation and maintenance of the treatment facility, groundwater wells, booster pump stations, storage tanks, meter reading for the system and customer service activities. There are five full-time operators assigned to this division along with one part-time employee who assists with the meter reading functions of the operation. The City Finance Department is responsible for billing and collecting all water bills. Water Supply and Transmission Groundwater is the sole source of water supply for the. The City operates a well field northeast of the City with nine wells that range in depth from less than 500 feet to over 1,000 feet, both above and below the Corcoran Clay - a major subsurface confining clay layer in the San Joaquin Valley. All nine wells are fitted with vertical turbine line shaft pumps operating with constant speed motors. Each well has a centrifugal Lakos sand separator for removal of sand prior to leaving the individual well site. Raw water is conveyed from the nine wells through three transmission systems to a raw water storage tank at the Water Treatment Plant. The production of each individual well varies from year to year as the City actively manages the contribution of each well to total water production to ensure long-term water quality and flow. A summary of the production capacity for each of the nine wells in shown in the table below. The City s total water production for calendar year 2007 was approximately 2,449 million gallons, or 31.6% of total well capacity. Depending on the growth of the City, the City believes it has sufficient water or will be able to acquire water sufficient to supply the demand on the Water System. D-1

94 The existing water supplies are shown in the table below. CITY OF CORCORAN Existing Water Supply Gallons per Minute Capacity Million Gallons per Year Well 1A 1, A 1, A 1, A 1, A 1, A 2,400 1, A 1, A 2,500 1, A 1, Total 14,730 7, Source: City of Corcoran Total water production for the last six calendar years is shown in the table below. CITY OF CORCORAN Existing Water Supply Total Water Production Year (Million Gallons) , , , , ,400 * ,449 Water Treatment * Estimate. Data not fully available for 2006 due to construction process of treatment plant and new wells. Source: City of Corcoran The Water Treatment Plant uses oxidation followed by enhanced coagulation filtration through multi-media filters. Raw water arriving at the Water Treatment Plant is first directed to a 500,000 gallon raw water mixing and blending tank. Next, water flows to a 24 diameter inline static mixer where chemicals are added, followed by rapid mixing. Sodium hypochloride is used for oxidation, and ferric chloride and a polymer filter aide are used for coagulation. Six 2,500 gpm filter feed pumps then pump the water mixture through five dual-cell horizontal pressure filter vessels with anthracite and Greensand Plus filter media. Filters are cleaned with a backwash system including a 3,500 backwash pump, two 300,000 gallon backwash reclaim tanks, and three 250 gpm backwash reclaim pumps. SCADA and Programmable Logic Control D-2

95 systems to monitor and control the treatment plant systems, filter systems, waste systems, and the nine City wells. The plant was designed and constructed so that an additional filter pressure vessel and one more booster pump could easily be added to meet any future capacity needs. Additionally the treatment plant is designed to accommodate additional facilities as required for long-term future capacity needs. Distribution System The distribution system is currently composed of a looped system being fed through four (4) 16 water mains, seven (7) booster pumps and five (5) water storage tanks at various locations that provide million gallons of treated water storage. All of the City booster station have stand-by emergency power and are controlled and monitored by the SCADA system located at the water treatment plant. Environmental Issues and Regulatory Requirements Environmental Issues. The primary environmental issue of the Water System concerns arsenic. Arsenic concentrations in the City s production wells range from 6 to 35 parts per billion (pbb), which is higher than the Federal Standard of 10 ppb that was mandated in Raw water from all wells is blended together as it reaches the Water Treatment Plant, and this blended raw water averages 22 to 25 ppb of arsenic, though it can be higher at times. The City constructed the Water Treatment Plant from the proceeds of the 2005 Certificates in order to meet this new standard. The Project was completed in October 2006, and the City reports that its arsenic levels in its treated water delivered to customers average below 3 ppb, which is below the Federal 10 ppb arsenic standard. Regulatory Requirements. The California Department of Health Services regulates the Water System. All applicable sections of the Safe Drinking Water Act, the Health and Safety Code, Water Code, Business and Professions Code and the California Code of Regulations, specifically Titles 17 & 22. The City currently believes it is in compliance with applicable regulations. The current main regulatory issue of concern is the pending lowering of the arsenic discussed above. The new Federal Standard is 10 ppb, though there is the possibility that California may at some point adopt a more stringent standard. The Water System has consistently met the 10 ppb Federal Standard since completion of the Water Treatment Plant, and the City anticipates that the Water System would also be able to meet a more stringent State standard, if one is ever adopted. D-3

96 Active Water Accounts A summary of active services is shown in the table below: CITY OF CORCORAN Active Water Services Year (June 30) Total , , , , , , , , , ,159 Source: City of Corcoran Water Department. The majority of the City s water accounts are residential, but commercial accounts represent a strong proportion of revenues. A breakout of accounts and revenues by customer class is shown in the table below. Accounts Revenue Category Number Percent Dollars Percent Single Family Residential 3, % $1,428, % Commercial ,244, Multi-Family , Industrial , Total 3, % $2,977, % Source: City of Corcoran Water Department. D-4

97 Largest Users The following table shows the top ten water users in the City based on revenue generated during fiscal year CITY OF CORCORAN Top Ten Customers by Revenue Generated Account Name Revenue Percent Corcoran State Prison $ 519, % California Substance Abuse 473, Willowlakes Apartments 75, Corcoran Unified School District 69, J.G. Boswell Company 68, Kings Estates 37, Whitley Gardens Apartments 28, Kings County Housing Authority 20, Corcoran Garden Apartments 13, Carolyn Apartments 13, Total Top 10 $1,318, % All Other Accounts 1,645, % Total All Accounts $2,963, % Source: City of Corcoran. Water System Budgets and Budgetary Accounting Budgetary Process. The City Council has the responsibility for adoption of the City s budget. Budgets are adopted for the General Fund, Special Revenue Funds, Debt Service Funds and Capital Projects Funds. From the effective date of the budget, the amounts stated as proposed expenditures become appropriations to the various City departments. The City Council may amend the budget by motion during each Fiscal Year. The City Manager is authorized to transfer funds from one major expenditure category to another within the same department and fund. Any revisions that alter the total expenditures of any fund must be approved by the City Council. The level at which expenditures may not legally exceed appropriations is therefore established at the department level. Budgeted amounts may be transferred between departments with department head approval. On or before the first day in April of each year, all departments of the City submit requests for appropriations to the City s manager so that a budget may be prepared on or by May 15, the proposed budget is presented to the City s council for review. The council holds public hearings and a final budget must be prepared and adopted no later than June 30. Billing and Collection Procedures Billing Procedure. All accounts are billed on a monthly basis, in arrears. Bills are mailed out on the last working day of the month and customers are given until the 15 th of the month to pay; after the 15 th a $2.00 late charge is added to the balance due. If an account D-5

98 becomes 45 days past due, a shut off notice is mailed to the customer and an additional $10 late charge is added to the account. Kings Credit Services is used to assist with collection of accounts where customers have moved out and left a balance. Collection of Charges. The City has historically collected approximately 95% of its utility charges each year. Water Rates General. In accordance with California law, the City may, from time to time, fix, alter or change fixed monthly system access fees, commodity charges and other fees related to the Water System. The City has the authority to establish charges for water service without the approval of any other governmental agency. It can terminate service to delinquent customers, require full payment of delinquent accounts, and impose reconnection fees to resume service. Neither the City nor the Water System is subject to the jurisdiction of, or regulation by, the California Public Utilities Commission or any other regulatory body in connection with the establishment of charges and fees related to the Water System. See 2008 CERTIFICATE OWNERS RISKS - Proposition 218 herein for a discussion of the treatment of the City s rates and charges in light of Proposition 218. Historical and Current Rates Increases. The following table sets forth a seven-year history of water rate increases. CITY OF CORCORAN Historic Water Rate Increases/Decreases for all Customer Classes Increase/ Year (Decrease) % (1) 16.0 (1) Rate increase has been adopted and becomes effective January 1, Source: City of Corcoran Department of Finance. D-6

99 In 2003, the City adopted an ordinance allowing rates to increase automatically each year by the higher of 3% or the change in the Consumer Price Index. Pursuant to a resolution adopted on October 12, 2005, annual increases in water rates of 16-24% per year over a four year period were approved for January 1, 2006, 2007, 2008 and Beginning in 2010, rate increases will revert to the inflationary increase. The tabulation below summarizes the current flat rate water rate structure. CITY OF CORCORAN Metered Water Rates Description Per Month Single family residences Up to 4,000 sq. ft $ to 50 feet in width or 4,001 5,000 sq. ft plus $0.84 per additional ft. in width or sq. ft. Greater than 50 feet in width or 5,000 sq. ft. Churches Multifamily Dwellings Corcoran Unified School District Source: City of Corcoran. The bulk of the City s water sales revenue is derived from residential services. Approximately half of all residences are billed a flat rate, while the other half are billed on a metered rate. Meters are installed on all new accounts. The two prisons also pay metered water rates. As of January 1, 2008, metered accounts pay a base rate of $35.84 for the first 600 cubic feet and $0.96 for each additional 100 cubic feet. Connection Fees The City has established connection charges pursuant to Ordinance 587 and Resolution No effective September 11, The table below summarizes the current connection charges. CITY OF CORCORAN Connection Fees (1) Description Amount 1-inch $1, inch 2,186 (1) Rate schedule includes fees for meters up to 4 inches. Source: City of Corcoran. D-7

100 The table below sets forth the last seven years of annual revenues from connection fees. Comparison Fees CITY OF CORCORAN Connection Fee Revenue Amount Fiscal Year ($000) $46, , , , , , ,975 Source: City of Corcoran. The following table is a summary of comparable water rates and connection fees between Corcoran and surrounding communities for a single family dwelling: CITY OF CORCORAN Water Rates and Connection Fee Comparison Agency 1600 cu. ft cu. ft cu. ft. Connection Fee Corcoran $44.24 $48.44 $53.48 $1,163 Hanford ,445 Lemoore ,641 (impact fee for supply, handling and distribution) Tulare ,000 (includes meter) Source: City of Corcoran. D-8

101 WATER SYSTEM FINANCIAL INFORMATION Financial Statements The rating on the 2008 Certificates is based upon the Letter of Credit to be issued by Union Bank of California, N.A., for the benefit of the Trustee, as the initial Credit Facility under the Trust Agreement. Accordingly, detailed information on the finances and operations of the City is not attached to this Official Statement. However, general financial information regarding the City s Water Enterprise Fund, including a five year Summary of Revenue and Expenses and a three year Statement of Net Assets is listed below. Enterprise Accounting The Water System is accounted for as an enterprise fund with a separate set of selfbalancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. The enterprise funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises--where the intent of the governing body is that the costs of providing goods or services to the general public on a continuing basis are to be financed or recovered primarily through user charges, or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. The City uses the accrual basis of accounting for its proprietary funds, including the Water System enterprise fund. Revenues are recognized when earned and expenses are recognized when the related liabilities are incurred. The measurement focus used to identify which transactions and events should be recorded in the respective funds is the flow of all economic resources measurement focus. All assets and liabilities associated with the operations of each respective fund are included in the balance sheet. Fund equity (net total assets) consists of contributed capital and retained earnings. In accordance with Governmental Accounting Standard Board (GASB) Statement No. 20, entitled Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the City applies all GASB Opinions and Accounting Research Bulletins issued on or before November 30, Revenues and Expenses A five-year summary of revenues and expenditures for the City s Water Utility Fund is presented in the table below. D-9

102 CITY OF CORCORAN Water Enterprise Fund Summary of Revenues and Expenses (audited) OPERATING REVENUES Charges for Service $1,713,228 $1,899,833 $2,112,786 $2,414,573 $3,031,818 Connection Fees 24,855 36,570 74,084 55,076 19,173 Total Operating Revenues 1,738,083 1,936,403 $2,186,870 $2,469,649 $3,050,991 OPERATING EXPENSES Personnel Services 228, , , , ,390 Utilities 740, Maintenance & Supplies 311,541 1,148,117 1,016,595 1,151,253 1,558,327 Depreciation 317, , , , ,135 Amortization , Administration & Allocated Costs 147, , , , ,298 Total Operating Expenses 1,745,531 1,857,895 1,749,187 2,035,803 2,624,150 Operating Income (Loss) (7,448) 78, , , ,841 NON-OPERATING REVENUE (EXPENSES) Investment Income 16,602 22,954 22, , ,825 Rental Income 9,763 7,213 7,000 15,426 26,952 Other Income ,455,261 Loss on Sale of Assets Other Expenses Interest & Fiscal Charges (147,342) (268,793) (279,018) (758,238) (1,060,839) Total Non-Operating Revenues (Expenses) (120,820) (238,626) (249,158) (363,526) 1,709,199 Net Income (Loss) (128,268) (160,118) 188,525 70,320 2,093,855 Fund Equity, July 1 st (beginning of Fiscal year) 4,838,913 4,710,645 4,551,636 4,740,161 5,361,884* Fund Equity, June 30 th (end of fiscal year) $4,710,645 $4,550,527 $4,740,161 $4,810,481 $7,455,739 *Includes a prior period adjustment of $551,403. Source: City of Corcoran Finance Department. D-10

103 Historical Fund Balances The following table sets forth the statement of net assets for the Water Fund for the last three audited Fiscal Years. Historical Audited Balance Sheets Statement of Net Assets As of June ASSETS CURRENT ASSETS: Cash and Investments: Unrestricted $ 933,003 $ 1,583,007 $ 2,509,660 Restricted 69, ,656 69,706 Cash with fiscal agent restricted 955,512 5,174,877 4,604,568 Receivables: Accounts, net 234, , ,774 Interest 6, ,710 Other 1, Due from Other Funds 26,710 26, Unamortized bond issuance cost , ,351 Unamortized bond discount 159, , ,401 TOTAL CURRENT ASSETS $ 2,386,491 $ 8,716,398 $8,685,410 NONCURRENT ASSETS: Capital assets: Nondepreciable $ 3,561,610 $20,070, ,731 Depreciable, net of accumulated depreciation 5,792,991 5,731,274 26,499,080 TOTAL NONCURRENT ASSETS 9,354,601 25,801,515 27,236,811 TOTAL ASSETS $11,741,092 $34,517,913 $35,922,221 LIABILITIES CURRENT LIABILITIES: Accounts Payable $ 406,603 $ 1,362,878 $ 39,149 Interest payable 28,371 27, ,891 Unapplied Credits 19,411 24,506 11,902 Due to other funds ,294 Compensated Absences 10,146 14,686 9,601 Long-term Debt Current Portion 155, , ,257 TOTAL CURRENT LIABILITIES $620,324 $ 1,591,714 $401,094 NON-CURRENT LIABILITIES: Compensated Absences 3, ,222 Long-Term Debt (Less Current Portion) 6,377,343 28,115,395 28,062,166 TOTAL NONCURRENT LIABILITIES 6,380,607 28,115,718 28,065,388 TOTAL LIABILITIES $7,000,931 $29,707,432 $28,466,482 NET ASSETS Invested in capital assets, net of related debt $2,821,465 (2,475,905) (988,612) Restricted Cash for Debt Service 69,706 5,564,533 4,674,274 Unrestricted 1,848,990 1,721,853 3,770,077 TOTAL NET ASSETS $4,740,161 $4,810,481 $7,455,739 Source: City of Corcoran. D-11

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105 APPENDIX E PROPOSED FORM OF SPECIAL COUNSEL OPINION [Closing Date] City of Corcoran 1033 Chittenden Avenue Corcoran, CA OPINION: $19,900,000 City of Corcoran, Variable Rate Demand 2008 Refunding Certificates of Participation (Water System Project) Members of the City Council: We have acted as special counsel in connection with the delivery by the City of Corcoran of an Installment Sale Agreement dated as of March 1, 2008 (the Installment Sale Agreement ) between the City, as purchaser and the Corcoran Joint Powers Finance Authority (the Authority ), as seller. Under a Trust Agreement (the Trust Agreement ), dated as of March 1, 2008, by and between the City, the Authority and U.S. Bank National Association, as trustee thereunder (the Trustee ), the Trustee has executed and delivered $19,900,000 aggregate principal amount of Variable Rate Demand 2008 Refunding Certificates of Participation, (Water System Project) (the 2008 Certificates ) evidencing the direct, undivided fractional interests of the Owners thereof in installment payments to be made by the City under the Installment Sale Agreement (the Installment Payments ) which have been assigned by the Authority to the Trustee under the Assignment Agreement dated as of March 1, 2008 (the Assignment Agreement ) between the Authority and the Trustee. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Installment Sale Agreement and the Trust Agreement, and in certified proceedings and other certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The City is a municipal corporation duly organized and validly existing under the laws of the State of California with the full power to enter into the Installment Sale Agreement and the Trust Agreement and to perform the agreements on its part contained therein. 2. The Installment Sale Agreement and the Trust Agreement have been duly approved by the City and constitute valid and binding obligations of the City enforceable against the City in accordance with their respective terms. 3. The 2008 Certificates have been validly executed and delivered by the Trustee under the Trust Agreement and, by virtue of the assignment made under the Assignment Agreement, the Owners of the 2008 Certificates are entitled to the benefits of the Installment Sale Agreement. E-1

106 4. The portion of the Installment Payments designated as and comprising interest and received by the Owners of the 2008 Certificates. Interest with respect to the 2008 Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the delivery of the Installment Sale Agreement in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Installment Sale Agreement and the Trust Agreement and other instruments relating to the 2008 Certificates to comply with each of such requirements. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of delivery of the Installment Sale Agreement. We express no opinion regarding other federal tax consequences arising with respect to the Installment Sale Agreement and the 2008 Certificates. 5. The portion of the Installment Payments designated as and comprising interest and received by the Owners of the 2008 Certificates is exempt from personal income taxation imposed by the State of California. The rights of the Owners of the 2008 Certificates and the enforceability of the Installment Sale Agreement, the Trust Agreement and the Assignment Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in accordance with principles of equity or otherwise in appropriate cases. Respectfully submitted, A Professional Law Corporation E-2

107 APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM The following description of the Depository Trust Company ( DTC ), the procedures and record keeping with respect to beneficial ownership interests in the 2008 Certificates, payment of principal, interest and other payments on the 2008 Certificates to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the 2008 Certificates and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the issuer of the 2008 Certificates (the Issuer ) nor the trustee, fiscal agent or paying agent appointed with respect to the 2008 Certificates (the Agent ) take any responsibility for the information contained in this Appendix. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the 2008 Certificates, (b) certificates representing ownership interest in or other confirmation or ownership interest in the 2008 Certificates, or (c) prepayment or other notices sent to DTC or Cede & Co., its nominee, as the registered Owner of the 2008 Certificates, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. 1. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the securities (the 2008 Certificates ). The 2008 Certificates will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fullyregistered 2008 Certificate will be issued for the 2008 Certificates, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, in F-1

108 turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 3. Purchases of 2008 Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2008 Certificates on DTC s records. The ownership interest of each actual purchaser of each 2008 Certificate ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2008 Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 2008 Certificates, except in the event that use of the book-entry system for the 2008 Certificates is discontinued. 4. To facilitate subsequent transfers, all 2008 Certificates deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of 2008 Certificates with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2008 Certificates; DTC s records reflect only the identity of the Direct Participants to whose accounts such 2008 Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2008 Certificates may wish to take certain steps to augment transmission to them of notices of significant events with respect to the 2008 Certificates, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of 2008 Certificates may wish to ascertain that the nominee holding the 2008 Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the 2008 Certificates within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. F-2

109 7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the 2008 Certificates unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the 2008 Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and interest payments on the 2008 Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from Issuer or Agent on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as securities depository with respect to the 2008 Certificates at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor securities depository is not obtained, 2008 Certificate certificates are required to be printed and delivered. 10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, 2008 Certificate certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof. F-3

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