The URL can be used to link to this page

Home My WebLink AboutAssociation of Bay Area Governments 03-01-06 CROSS-REF FM REAL PROP 2006-03-01Jones Hall, A Professional Law Corporation FINAL b&t,L A/C, 03010(r' INSTALLMENT SALE AGREEMENT Dated as of March 1, 2006 between the ASSOCIATION OF BAY AREA GOVERNMENTS, as Seller CITY OF UKIAH, as Purchaser and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee Relating to $75,060,000 Association of Bay Area Governments 2006 Water and Wastewater Revenue Bonds, Series A SECTION 1.1. SECTION 1.2. SECTION 2.1. SECTION 2.2. SECTION 3.1. SECTION 3.2. SECTION 3.3. SECTION 3.4. SECTION 3.5. SECTION 3.6. SECTION 3.7. SECTION 4.1. SECTION 4.2. SECTION 4.3. SECTION 4.4. SECTION 4.5. SECTION 4.6. SECTION 4.7. SECTION 4.8. SECTION 4.9. SECTION 5.1. SECTION 5.2. SECTION 5.3. SECTION 5.4. SECTION 5.5. SECTION 5.6. SECTION 5.7. SECTION 5.8. SECTION 5.9. SECTION 5.10. TABLE OF CONTENTS Page ARTICLE I Definitions ; Rules of Interpretation Definitions 2 Interpretation 6 ARTICLE II Representations, Covenants and Warranties Representations, Covenants and Warranties of the City 7 Representations, Covenants and Warranties of Authority 8 ARTICLE III Issuance of Bonds; Application of Proceeds The Bonds 9 Deposit and Application of Funds. 9 Acquisition and Construction of the Project 9 Appointment of City as Agent 9 Plans and Specifications 9 Project Fund 10 Certificate of Project Completion 10 ARTICLE IV Sale of Project Installment Payments Sale 10 Term 10 Title 10 Installment Payments 11 Pledge and Application of Net Revenues 12 Rate Stabilization Fund 13 Reserve Fund 13 Additional Payments 14 Special Obligation of the City; Obligations Absolute 14 ARTICLE V Covenants of the City Disclaimer of Warranties 15 Release and Indemnification Covenants 15 Sale or Eminent Domain of Wastewater System 16 Insurance 16 Records and Accounts 16 Rates and Charges 17 Superior and Subordinate Obligations 17 Issuance of Parity Debt 18 Operation of Wastewater System in Efficient and Economical Manner 18 Tax Covenants 18 SECTION 5.11. SECTION 5.12. SECTION 5.13. SECTION 5.14. SECTION 6.1. SECTION 6.2. SECTION 6.3. SECTION 6.4. SECTION 6.5. SECTION 6.6. SECTION 7.1. SECTION 7.2. SECTION 7.3. SECTION 8.1. SECTION 8.2. SECTION 8.3. SECTION 8.4. SECTION 8.5. SECTION 8.6. SECTION 8.7. SECTION 8.8. SECTION 8.9. SECTION 8.10. APPENDIX A APPENDIX B APPENDIX C Continuing Disclosure 19 Assignment and Amendment Hereof 19 Information to Bond Insurer 20 Further Assurances 20 ARTICLE VI Events of Default Events of Default Defined 20 Remedies on Default 21 No Remedy Exclusive 22 Agreement to Pay Attorneys' Fees and Expenses 22 No Additional Waiver Implied by One Waiver 22 Trustee, the Bond Insurer and Bond Owners to Exercise Rights 22 ARTICLE VII Prepayment of Installment Payments Security Deposit 23 Optional Prepayment 23 Credit for Amounts on Deposit 23 ARTICLE VIII Miscellaneous Investment of Funds 24 Notices 24 Governing Law 25 Binding Effect 25 Severability of Invalid Provisions 25 Article and Section Headings and References 25 Payment on Non - Business Days 25 Execution of Counterparts 26 Waiver of Personal Liability 26 Bond Insurer as Third Party Beneficiary 26 Schedule Of Installment Payments Description Of Project Form of Project Fund Requisition INSTALLMENT SALE AGREEMENT This INSTALLMENT SALE AGREEMENT (this "Agreement "), dated as of March 1, 2006, is between the ASSOCIATION OF BAY AREA GOVERNMENTS, a joint exercise of powers authority duly organized and existing under the laws of the State of California (the "Authority "), as seller, the CITY OF UKIAH, a municipal corporation duly organized and existing under the laws of the State of California (the "City "), as purchaser, and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee "). BACKGROUND: 1. The City presently owns and operates facilities and property for the collection, treatment and disposal of wastewater within the service area of the City (the "Wastewater System "), and the City wishes to provide funds at this time to finance improvements to the Wastewater System consisting generally of the rehabilitation, upgrade and expansion of the existing treatment plant (the "Project "). 2. The Authority has the power to assist the City in the financing of facilities and property useful to the City, and the Authority has proposed to enter into this Agreement with the City under which the Authority has agreed to provide funding for the Project and sell the completed Project to the City in consideration of the agreement by the City to pay the purchase price of the Project in semiannual installments (the "Installment Payments "). 3. For the purpose of obtaining the moneys required to finance the Project in accordance with the terms hereof, the Authority has assigned and transferred certain of its rights under this Agreement to the Trustee under an Indenture of Trust dated as of March 1, 2006, between the Authority and the Trustee, under which the Authority has authorized the issuance of its 2006 Water and Wastewater Revenue Bonds, Series A in the aggregate principal amount of $75,060,000 (the "Bonds ") which are secured by a pledge of certain revenues including the Installment Payments. 4. The City has determined to secure the Installment Payments with a pledge of and lien on the Net Revenues from the Wastewater System, on a parity with the pledge and lien which secures the loan obligations of the City under Contract No. N -808- 550-0 dated August 15, 1994, between the City and the State of California, acting by and through the State Water Resources Control Board. 5. The payment of principal of and interest on the Bonds is insured by a municipal bond insurance policy issued by XL Capital Assurance Inc. (the "Bond Insurer "), and the Bond Insurer will issue its debt service reserve insurance policy for the account of the reserve fund which is established hereunder. AGREEMENT: In consideration of the foregoing and the material covenants hereinafter contained, the City, the Trustee and the Authority formally covenant, agree and bind themselves as follows: ARTICLE I DEFINITIONS ; RULES OF INTERPRETATION SECTION 1.1. Definitions. Unless the context clearly otherwise requires or unless otherwise defined herein, the capitalized terms in this Agreement have the respective meanings given them in Appendix A to the Indenture. In addition, when used in this Agreement the following terms have the following defined meanings: "Additional Revenues" means, with respect to the issuance of any Parity Debt, any or all of the following amounts: (i) An allowance for Net Revenues from any additions or improvements to or extensions of the Wastewater System to be made by the City following the issuance of such Parity Debt, in an amount equal to 90% of the estimated additional average annual Net Revenues to be derived in the first full year of operation of such additions, improvements and extensions, all as shown by the certificate or opinion of a Fiscal Consultant. (ii) An allowance for Net Revenues arising from any increase in the rates and charges made for service from the Wastewater System which have been adopted prior to the incurring of such Parity Debt but which, during all or any part of the most recent completed Fiscal Year for which audited financial statements of the City are available, or for any more recent consecutive 12 month period selected by the City under Section 5.8(b), was not in effect, in an amount equal to the total 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, all as shown by the certificate or opinion of a Fiscal Consultant. "City Representative" means the Mayor, the City Manager or the Finance Director of the City, or any other person authorized by resolution of the City Council of the City to act on behalf of the City under or with respect to this Agreement. "District" means the Ukiah Valley Sanitation District, a county sanitation district duly organized and existing under the Sanitation District Act of the State of California. "Event of Default" means an event of default hereunder, as described in Section 6.1. "Financing Agreement" means the Financing Agreement between the City and the District dated March 1, 2006, including any amendments thereto or modifications thereof. "Fiscal Consultant" means any consultant or firm of such consultants appointed by the City and who, or each of whom: (a) is judged by the City to have experience in matters relating to the financing of Wastewater System enterprises; (b) is in fact independent and not under domination of the City; (c) does not have any substantial interest, direct or indirect, with the City other than as purchaser of the Bonds or any Parity Debt; and (d) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. "Fiscal Year" means the twelve -month period beginning on July 1 of any year and ending on June 30 of the next succeeding year, or any other twelve -month period selected by the City as its fiscal year. "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 Wastewater System or otherwise arising from the Wastewater System, including but not limited to: (a) all amounts levied by the City as a fee for connecting to the Wastewater System, as such fee is established from time to time under the laws of the State of California; (b) all income, rents, rates, fees, capital improvement fees (including facilities capacity and pump zone fees), charges or other moneys derived from the services, facilities and commodities sold (including recycled water), furnished or supplied through the facilities of the Wastewater System; (d) the earnings on and income derived from the investment of such income, rents, rates, fees, charges or other moneys to the extent that the use of such earnings and income is limited by or under applicable law to the Wastewater System; (e) the proceeds derived by the City directly or indirectly from the sale, lease or other disposition of a part of the Wastewater System as permitted in this Agreement; and (f) amounts collected by the City under the Financing Agreement. The term "Gross Revenues" does not include (i) customers' deposits or any other deposits subject to refund until such deposits have become the property of the City, and (ii) the proceeds of any special assessments or special taxes levied upon real property within any improvement City for the purpose of paying special assessment bonds or special tax obligations of the City relating to the Wastewater System. "Installment Payment" means all payments required to be paid by the City on any date under Section 4.4(a), including any amounts payable upon delinquent installments and including any prepayment thereof under Section 7.2. -3- "Installment Payment Date" means, with respect to any Interest Payment Date, the 5th Business Day preceding such Interest Payment Date. "Installment Payment Fund" means the fund which is established and held by the Trustee under Section 4.4(b). "Maximum Annual Debt Service" means, as of the date of any calculation, the maximum sum obtained for the current or any future Fiscal Year: (a) the aggregate amount of the Installment Payments coming due and payable in such Fiscal Year hereunder, except to the extent payable from any security deposit under Section 7.1; (b) the principal amount of all outstanding Parity Debt, if any, coming due and payable by their terms in such Fiscal Year, provided that if any such issue of Parity Debt has principal coming due and payable solely at maturity, such principal shall be deemed to be amortized over the full term of such Parity Debt in a manner that results in approximately equal annual installments of principal and interest in each Fiscal Year; and (c) the amount of interest which would be due during such Fiscal Year on the aggregate principal amount of all outstanding Parity Debt, if any, which would be outstanding in such Fiscal Year if such Parity Debt are retired as scheduled; provided, however, that with respect to any Parity Debt which bear interest at an adjustable rate, such interest shall be calculated at an assumed rate equal to the average rate of interest per annum for each of the five previous whole calendar years as shown by the J. J. Kenny Index (or, in the event and to the extent such index is not maintained for all or any portion of such period, any similar index of variable rate interest for tax - exempt obligations as may be selected by the City in its sole discretion). "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 Costs becoming payable during such period. "Operation and Maintenance Costs" means the reasonable and necessary costs paid or incurred by the City for maintaining and operating the Wastewater System, determined in accordance with generally accepted accounting principles, including but not limited to (a) all reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Wastewater System in good repair and working order, and (b) all administrative costs of the City that are charged directly or apportioned to the operation of the Wastewater System, such as salaries and wages of employees, overhead, taxes (if any) and insurance. "Operating and Maintenance Costs" do not include (i) administrative costs of the Certificates which the City is required to pay hereunder, (ii) payments of debt service on bonds, notes or other obligations issued by the City with respect to the Wastewater System, (iii) depreciation, replacement and obsolescence charges or reserves therefor, and (iv) amortization of intangibles or other bookkeeping entries of a similar nature. -4- "Overdue Rate" means the highest rate of interest represented by any of the Outstanding Bonds. "Parity Debt Documents" means, collectively, (a) the contract authorizing the Prior State Loan, and (b) the indenture of trust, trust agreement or other document authorizing the issuance of any other Parity Debt or any securities which evidence other Parity Debt. "Parity Debt" means (a) the Prior State Loan, and (b) any bonds, notes, leases, installment sale agreements or other obligations of the City payable from and secured by a pledge of and lien upon any of the Net Revenues on a parity with the Installment Payments, entered into or issued under and in accordance with Section 5.8. "Participation Agreement" means the Participation Agreement between the City and the District dated July 19, 1995, as amended by Amendment No. 1 and Amendment No. 2, thereto, including any further amendments thereto or modifications thereof. "Prior State Loan" means the loan obligations of the City under Contract No. 4- 808 -550 -0 dated August 15, 1994, between the City and the State of California, acting by and through the State Water Resources Control Board, in the aggregate original principal amount of $6,592,944. "Project" means the facilities, improvements and other property described more fully in Appendix B attached hereto, as that Appendix may be amended from time to time. "Project Costs" means, with respect to the Project, all costs of the acquisition, construction and installation thereof which are paid from moneys on deposit in the Project Fund, including but not limited to: (a) all costs required to be paid to any person under the terms of any agreement for or relating to the acquisition, construction and installation of the Project; (b) obligations incurred for labor and materials in connection with the acquisition, construction and installation of the Project; (c) the cost of performance or other bonds and any and all types of insurance that may be necessary or appropriate to have in effect in connection with the acquisition, construction and installation of the Project; (d) all costs of engineering, architectural, legal, environmental, design and other consulting services, including the actual out -of- pocket costs for test borings, surveys, estimates, plans and specifications and preliminary investigations therefor, development fees, sales commissions, and for supervising construction, as well as for the performance of all other duties required by or consequent to the proper acquisition, construction and installation of the Project; (e) any sums required to reimburse the City for advances made for any of the above items or for any other costs incurred and for work done -5- (f) (g) which are properly chargeable to the acquisition, construction of the Project. all financing costs incurred in connection with the acquisition, construction and installation of the Project; and the interest components of the Installment Payments during the period of acquisition, construction and installation of the Project. "Project Fund" means the fund by that name established and held by the Trustee under Section 3.6. "Qualified Reserve Fund Credit Instrument" means the Municipal Bond Debt Service Reserve Insurance Policy issued by the Bond Insurer and deposited with the Trustee on the Closing Date for the credit of the Reserve Fund under Section 4.7. "Rate Stabilization Fund" means any fund established and held by the City as a fund for the stabilization of rates and charges imposed by the City with respect to the Wastewater System, which fund is established, held and maintained in accordance with Section 4.6. "Reserve Fund" means the fund by that name established and held by the Trustee under Section 4.7. "Reserve Requirement" means, as of the date of calculation, an amount equal to the maximum amount of Installment Payments payable by the City in the current or any future Fiscal Year. As of the Closing Date, the Reserve Requirement is equal to $4,915,575.00. "Wastewater Fund" means the fund or funds established and held by the City with respect to the Wastewater System for the receipt and deposit of Gross Revenues. "Wastewater System" means the entire system of the City for the collection, treatment and disposal of wastewater 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. The term "Wastewater System" also includes those facilities of the Ukiah Valley Sanitation District which are operated and maintained by the City under the Participation Agreement. SECTION 1.2. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and includes the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and do not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES SECTION 2.1. Representations, Covenants and Warranties of the City. The City represents, covenants and warrants to the Authority and the Bond Insurer as follows: (a) Due Organization and Existence. The City is a municipal corporation duly organized and validly existing under the laws of the State, has full legal right, power and authority under said laws to enter into this Agreement and to carry out and consummate all transactions contemplated hereby and thereby, and by proper action the City Council of the City has duly authorized the execution and delivery of this Agreement. (b) Due Execution. The representatives of the City executing this Agreement are fully authorized to execute the same. (c) Valid, Binding and Enforceable Obligations. This Agreement has been duly authorized, executed and delivered by the City and constitutes the legal, valid and binding agreement of the City enforceable against the City in accordance with its terms; except as the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and except as such enforceability may be subject to the exercise of judicial discretion in accordance with principles of equity. (d) No Conflicts. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated and the fulfillment of or compliance with the terms and conditions hereof, do not and will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, lease, contract or other agreement or instrument to which the City is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the City, which conflict, violation, breach, default, lien, charge or encumbrance would have consequences that would materially adversely affect the consummation of the transactions contemplated by this Agreement or the financial condition, assets, properties or operations of the -7- City, including but not limited to the performance of the City's obligations under this Agreement. (e) Consents and Approvals. No consent or approval of any trustee or holder of any indebtedness of the City or of the voters of the City, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in connection with the execution and delivery of this Agreement or the consummation of any transaction herein contemplated, except as have been obtained or made and as are in full force and effect. (f) (g) No Litigation. To the best knowledge of the undersigned representatives of the City, there is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending or, to the knowledge of the City after reasonable investigation, threatened against or affecting the City or the assets, properties or operations of the City which, if determined adversely to the City or its interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of this Agreement or upon the financial condition, assets, properties or operations of the City, and the City is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially adversely affect the consummation of the transactions contemplated by this Agreement, or the financial conditions, assets, properties or operations of the City, including but not limited to the payment and performance of the City's obligations under this Agreement. Prior Indebtedness. The City has not issued or incurred any obligations which are currently outstanding having any priority in payment out of the Gross Revenues or the Net Revenues over the payment of the Installment Payments as provided herein, other than the Prior State Loan. SECTION 2.2. Representations, Covenants and Warranties of Authority. The Authority represents, covenants and warrants to the City and the Bond Insurer as follows: (a) Due Organization and Existence. The Authority is a joint exercise of powers authority organized and existing under the laws of the State, and has power to enter into this Agreement and to perform the duties and obligations imposed on it hereunder and thereunder. The Executive Board of the Authority has duly authorized the execution and delivery of this Agreement. (b) Due Execution. The representatives of the Authority executing this Agreement are fully authorized to execute the same. (c) Valid, Binding and Enforceable Obligations. This Agreement have been duly authorized, executed and delivered by the Authority and -8- constitute the legal, valid and binding agreements of the Authority with the Authority, enforceable against the Authority in accordance with their respective terms; except as the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and except as such enforceability may be subject to the exercise of judicial discretion in accordance with principles of equity. ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS SECTION 3.1. The Bonds. The Authority shall issue the Bonds under the Indenture in the aggregate principal amount of $75,060,000. The City hereby approves the Indenture, the assignment thereunder to the Trustee of certain rights of the Authority, and the issuance of the Bonds. SECTION 3.2. Deposit and Application of Funds. On the Closing Date, the Trustee shall deposit a portion of the proceeds of sale of the Bonds in the amount of $74,200,000 into the Project Fund, to be applied to finance the acquisition, construction and improvement of the Project as provided in this Agreement. SECTION 3.3. Acquisition and Construction of the Project. The City, as agent of the Authority under Section 3.4, hereby agrees with due diligence to supervise and provide for, or cause to be supervised and provided for, the acquisition, construction and installation of the Project in accordance with the plans and specifications, purchase orders, construction contracts and other documents relating thereto and approved by the City under all applicable requirements of law. All contracts for, and all work relating to, the acquisition, construction and installation of the Project are subject to all applicable provisions of law relating to the acquisition and construction of public works by the City. The failure to complete the Project by the estimated completion date thereof does not constitute an Event of Default hereunder or a grounds for termination hereof, nor will such failure result in the diminution, abatement or extinguishment of the obligations of the City hereunder to pay the Installment Payments when due. The Authority has no responsibility, and shall incur no liability or obligations, for the performance by the City of its obligations under this Section 3.3. SECTION 3.4. Appointment of City as Agent. The Authority hereby appoints the City as its agent to carry out all phases of the acquisition, construction and installation of the Project under and in accordance with the provisions hereof. The City hereby accepts such appointment and assumes all rights, liabilities, duties and responsibilities of the Authority regarding the acquisition, construction and installation of the Project. As agent of the Authority hereunder, the City will enter into, administer and enforce all purchase orders or other contracts relating to the Project. SECTION 3.5. Plans and Specifications. The City has the right to specify the exact scope, nature and identification of the Project and the respective components thereof. Before any payment is made for the Project or any component thereof from amounts on deposit in the Project Fund, the City must prepare detailed plans and specifications relating thereto. The City may from time to time amend any such plans -9- and specifications, and thereby change or modify the description of the Project or any component thereof. SECTION 3.6. Project Fund. The Trustee shall establish and maintain a separate fund (the "Project Fund ") from which the City shall make disbursements from time to time to pay Project Costs (or to reimburse the City for payment of Project Costs). The Trustee shall maintain accurate records showing all disbursements from the Project Fund, including the amount of each disbursement, the amount to whom each disbursement is made and the purpose for which funds are disbursed. The Trustee shall disburse amounts in the Project Fund from time to time upon the receipt of written requisitions of the City in substantially the form attached hereto as Appendix C. Amounts on deposit in the Project Fund shall be invested by the Trustee at the written direction of the City in accordance with Section 8.1. Upon the filing by the City of a written certificate of a City Representative under Section 3.7 stating that the Project has been substantially completed, the Trustee will withdraw all amounts remaining on deposit in the Project Fund and transfer such amounts to the Installment Payment Fund. If and to the extent so directed in writing by a City Representative, the Trustee shall apply all or a portion of the amounts so transferred from the Project Fund to the Installment Payment Fund to the prepayment of Installment Payments under Section 7.2. SECTION 3.7. Certificate of Project Completion. Upon the completion of the Project, but in any event not later than 30 days following such completion, the City Representative must execute and deliver to the Authority, the Bond Insurer and the Trustee a written certificate of the City Representative which (a) states that the construction of the Project has been substantially completed, (b) identifies the total Project Costs thereof, and (c) identifies the amounts, if any, to be reserved in the Project Fund for payment of future Project Costs. ARTICLE IV SALE OF PROJECT; INSTALLMENT PAYMENTS SECTION 4.1. Sale. The Authority hereby sells the Project to the City and the City hereby purchases the Project from the Authority, upon the terms and conditions set forth in this Agreement. SECTION 4.2. Term. The Term of this Agreement commences on the Closing Date, and ends on February 1, 2036, or such later or earlier date on which all of the Installment Payments, Additional Payments and other amounts due hereunder have been paid or prepaid. Notwithstanding the foregoing provisions of this Section 4.2, the Term of this Agreement will not end so long as any amounts are owed to the Bond Insurer with respect to the Bond Insurance Policy. SECTION 4.3. Title. Title to the Project, and each component thereof, will be deemed conveyed by the Authority to and vested in the City upon the completion of the acquisition, construction and installation thereof. The Authority and the City will execute, -10- deliver and cause to be recorded any and all documents reasonably required by the City to consummate such transfer of title. SECTION 4.4. Installment Payments. (a) Obligation to Pay. The City hereby agrees to pay to the Authority, as the purchase price of the Project hereunder, the aggregate principal amount of $75,060,000 together with interest (calculated on the basis of a 360 -day year of twelve 30 -day months) on the unpaid principal balance thereof, payable in semiannual Installment Payments in the respective amounts and on the respective Installment Payment Dates specified in Appendix A. The Installment Payments shall be secured by and payable solely from the sources specified in Section 4.5. Notwithstanding anything herein or in the Indenture to the contrary, amounts paid by the Bond Insurer under the Bond Insurance Policy do not relieve the City from its obligations hereunder to pay the Installment Payments when due. (b) Installment Payment Fund. The Trustee shall establish and maintain a separate fund to be known as the "City of Ukiah 2006 Installment Payment Fund ". On each Installment Payment Date, the City shall deposit with the Trustee an amount which, together with amounts then held by the Trustee in the Installment Payment Fund, is equal to the full amount of such Installment Payment coming due and payable on such Installment Payment Date. On each Installment Payment Date, the Trustee shall withdraw the full amount of the Installment Payment coming due and payable on such Installment Payment Date and transfer such amount to the Revenue Fund which is established and held by the Trustee under the Indenture. (c) Effect of Prepayment. If the City prepays all remaining Installment Payments in full under Section 7.2, the City's obligations under this Agreement will thereupon cease and terminate, including but not limited to the City's obligation to pay Installment Payments under this Section 4.4; provided, however, that the City's obligations to compensate and indemnify the Trustee under Sections 4.8 and 5.2 will survive such prepayment. If the City prepays the Installment Payments in part but not in whole under Section 7.2 or Section 7.3, the principal component of each succeeding Installment Payment will be reduced as provided in such Sections, and the interest component of each remaining Installment Payment will be reduced by the aggregate corresponding amount of interest which would otherwise be payable on the Bonds which are thereby redeemed under the applicable provisions of Section 4.01 of the Indenture. (d) Rate on Overdue Payments. If the City fails to make any of the payments required in this Section 4.4 and Section 4.8, the payment in default will continue as an obligation of the City until fully paid, and the City shall pay the same with interest thereon, from the date of default to the date of payment, at the Overdue Rate. (e) Assignment. The City understands and agrees that certain rights of the Authority, including but not limited to the right of the Authority to receive payment of the Installment Payments, have been assigned by the Authority to the Trustee in trust under the Indenture, for the benefit of the Bond Insurer and the Owners of the Bonds, and the City hereby consents to such assignment. SECTION 4.5. Pledge and Application of Net Revenues. (a) Pledge. All of the Net Revenues and all moneys on deposit in any of the funds and accounts established and held by the Trustee under the Indenture are hereby irrevocably pledged to the punctual payment of the Installment Payments. Such pledge constitutes a security interest in and lien on the Net Revenues and such other moneys for the payment of the Installment Payments in accordance with the terms hereof, on a parity with the pledge and lien which secures the Parity Debt. (b) Deposit of Net Revenues Into Wastewater Fund; Transfers to Make Payments. The City has heretofore established the Wastewater Fund, which the City agrees to continue to hold and maintain for the purposes and uses set forth herein. The City will deposit all of the Gross Revenues in the Wastewater Fund immediately upon receipt, and will apply the amounts in the Wastewater Fund as set forth in this Agreement and in any Parity Debt Documents. In addition to the transfers required to be made under any Parity Debt Documents, the City will apply amounts on deposit in the Wastewater Fund to pay when due the following amounts in the following order of priority: (i) all Operation and Maintenance Costs; (ii) the Installment Payments, except to the extent payable from amounts transferred from the Capitalized Interest Fund to the Revenue Fund under the Indenture; (iii) to the Trustee the amount of any deficiency in the Reserve Fund and in any reserve fund established for any Parity Debt, the notice of which deficiency has been to the City; (iv) any other payments required to comply with the provisions of this Agreement and any Parity Debt Documents; and (v) any other purposes authorized under subsection (d) of this Section. (c) No Preference or Priority. Payment of the Installment Payments and the principal of and interest on the Parity Debt shall be made without preference or priority between the Installment Payments and such Parity Debt. If the amount of Net Revenues on deposit in the Wastewater Fund are any time insufficient to enable the City to pay when due the Installment Payments and the principal of and interest on any Parity Debt, such payments shall be made on a pro rata basis. (d) Other Uses of Net Revenues Permitted. The City will manage, conserve and apply the Net Revenues on deposit in the Wastewater Fund in such a manner that all deposits required to be made under the preceding subsection (b) are made at the times and in the amounts so required. Subject to the foregoing sentence, so long as no Event of Default has occurred and is continuing hereunder, the City may use and apply moneys in the Wastewater Fund for (i) the payment of any subordinate obligations or any unsecured obligations, (ii) the acquisition and construction of improvements to the Wastewater System, (iii) the prepayment of any other obligations of the City relating to the Wastewater System, or (iv) any other lawful purposes of the City. (e) Budget and Appropriation of Installment Payments. During the Term of this Agreement, the City will adopt all necessary budgets and make all necessary appropriations of the Installment Payments from the Net Revenues. If any Installment Payment requires the adoption by the City of any supplemental budget or appropriation, the City will promptly adopt the same. The covenants on the part of the City contained in this subsection (e) are duties imposed by law and it is the duty of each and every public official of the City to take such actions and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this subsection (e). SECTION 4.6. Rate Stabilization Fund. The City has the right at any time to establish a fund to be held by it and administered in accordance with this Section 4.6, for the purpose of stabilizing the rates and charges imposed by the City with respect to the Wastewater System. From time to time the City may deposit amounts in the Rate Stabilization Fund, from any source of legally available funds, including but not limited to Net Revenues which are released from the pledge and lien which secures the Installment Payments and any Parity Debt, as the City may determine. The City may, but is not be required to, withdraw from any amounts on deposit in the Rate Stabilization Fund and deposit such amounts in the Wastewater Fund in any Fiscal Year for the purpose of paying the Installment Payments or the principal of and interest on any Parity Debt coming due and payable in such Fiscal Year. Amounts so transferred from the Rate Stabilization Fund to the Wastewater Fund in any Fiscal Year will constitute Gross Revenues for such Fiscal Year (except as otherwise provided herein), and will be applied for the purposes of the Wastewater Fund. Amounts on deposit in the Rate Stabilization Fund are not pledged to and do not secure the Installment Payments or any Parity Debt. All interest or other earnings on deposits in the Rate Stabilization Fund will be retained therein or, at the option of the City, be applied for any other lawful purposes. The City may any time to withdraw any or all amounts on deposit in the Rate Stabilization Fund and apply such amounts for any other lawful purposes of the City. SECTION 4.7. Reserve Fund. The Trustee shall establish and maintain a special fund designated as the "City of Ukiah 2006 Reserve Fund" to be held by the Trustee in trust for the benefit of the City and the Owners of the Bonds. Amounts in the Reserve Fund will be held in trust as a reserve for the payment when due of the Installment Payments on behalf of the City. Semiannually on or prior to each Installment Payment Date, the Trustee shall transfer any moneys in the Reserve Fund in excess of the Reserve Requirement to the Installment Payment Fund to be credited towards the Installment Payment coming due and payable on such Installment Payment Date. If on any Installment Payment Date the moneys available in the Installment Payment Fund are not at least equal to the amount of the Installment Payment then coming due and payable, the Trustee shall apply the moneys available in the Reserve Fund to make such payments on behalf of the City by transferring the amount necessary for this purpose to the Installment Payment Fund. Upon the termination of this Agreement and so long as all Installment Payments and other amounts due hereunder have been paid in full, the Trustee shall withdraw all amounts in the Reserve Fund and, at the written request of the City, pay those amounts to the City. Amounts on deposit in the Reserve Fund shall be invested by the Trustee at the written direction of the City in accordance with Section 8.1. On the Closing Date, the Trustee shall take delivery of the Qualified Reserve Fund Credit Instrument and shall credit it to the account of the Reserve Fund. The Trustee shall draw amounts under the Qualified Reserve Fund Credit Instrument in accordance with the terms thereof for the purpose of making transfers to the Installment Payment Fund as required by the preceding paragraph. On the Closing Date, the City shall execute a Financial Guaranty Agreement with the Bond Insurer for the purpose of securing the obligations of the City in respect of the Qualified Reserve Fund Credit Instrument. Upon the expiration of the Qualified Reserve Fund Credit Instrument, the City will either (a) replace such Qualified Reserve Fund Credit Instrument with a new Qualified Reserve Fund Credit Instrument, or (b) deposit with the Trustee an amount of funds equal to the Reserve Requirement, to be derived from any source of legally available funds of the City. SECTION 4.8. Additional Payments. In addition to the Installment Payments, the City shall pay when due the following amounts to the following parties: (a) to the Authority, all costs and expenses incurred by the Authority to third parties which are required to comply with the provisions of this Agreement and the Indenture, to the extent the Authority determines that such costs and expenses are allocable to the City; (b) to the Authority, an annual administrative fee equal to .01% of the outstanding principal balance of the Installment Payments, in an amount not to exceed $1,000, which fee shall be calculated and billed in advance to the City by the Trustee not later than February 15 in each year based on the outstanding principal balance of the Installment Payments as of the previous February 2, such amount to be billed without the need for an invoice or other statement from the Authority; and (c) to the Trustee upon request therefor, all of its reasonable costs and expenses payable as a result of the performance of and compliance with its duties hereunder or under the Indenture or any related documents. The Additional Payments are payable from, but are not secured by a pledge or lien upon, the Net Revenues. The rights of the Trustee and the Authority under this Section 4.8, and the obligations of the City under this Section 4.8, survive the termination of this Agreement. SECTION 4.9. Special Obligation of the City; Obligations Absolute. The City's obligation to pay the Installment Payments and any other amounts coming due and payable hereunder is a special obligation of the City limited solely to the Net Revenues. Under no circumstances is the City required to advance moneys derived from any source of income other than the Net Revenues and other sources specifically identified herein for the payment of the Installment Payments and such other amounts. No other funds or property of the City are liable for the payment of the Installment Payments and any other amounts coming due and payable hereunder. The obligations of the City to make the Installment Payments from the Net Revenues and to perform and observe the other agreements contained herein are absolute and unconditional and are not subject to any defense or any right of set -off, -14- counterclaim or recoupment arising out of any breach by the Authority or the Trustee of any obligation to the City or otherwise with respect to the Wastewater System, whether hereunder or otherwise, or out of indebtedness or liability at any time owing to the City by the Authority or the Trustee. Until such time as all of the Installment Payments, all of the Additional Payments and all other amounts coming due and payable hereunder have been fully paid or prepaid, the City (a) will not suspend or discontinue payment of any Installment Payments, Additional Payments or such other amounts, (b) will perform and observe all other agreements contained in this Agreement, and (c) will not terminate this Agreement for any cause, including, without limiting the generality of the foregoing, the occurrence of any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the Wastewater System, failure to complete the acquisition and construction of the Project by the estimated completion date thereof, default by the District in any of its obligations under the Participation Agreement or the Financing Agreement, sale of the Wastewater System, the taking by eminent domain of title to or temporary use of any component of the Wastewater System, commercial frustration of purpose, any change in the tax law or other laws of the United States of America or the State or any political subdivision of either thereof or any failure of the Authority or the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Indenture or this Agreement. ARTICLE V COVENANTS OF THE CITY SECTION 5.1. Disclaimer of Warranties. The Trustee and the Authority make no warranty or representation, either express or implied, as to the value, design, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the City of the Project or any component thereof, or any other representation or warranty with respect to any of the Project or any component thereof. The Trustee and the Authority are not liable for incidental, indirect, special or consequential damages, in connection with or arising out of this Agreement or the Indenture for the existence, furnishing, functioning or use of the Project. SECTION 5.2. Release and Indemnification Covenants. The City agrees to indemnify the Authority, the Trustee and the Bond Insurer, and their respective officers, agents, successors and assigns, against all claims, losses and damages, including legal fees and expenses, arising out of (a) the use, maintenance, condition or management of, or from any work or thing done on or about the Wastewater System by the City, (b) any breach or default on the part of the City in the performance of any of its obligations under this Agreement or the Indenture, (c) any act or omission of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Wastewater System, and (d) any act or omission of any lessee of the City with respect to the Wastewater System. No indemnification is made under this Section 5.2 or elsewhere in this Agreement for willful misconduct or gross negligence under this Agreement by the Authority, the Trustee or the Bond Insurer, or their respective members, officers, agents, employees, successors or assigns. The provisions of this Section 5.2 survive the expiration of the Term of this Agreement. SECTION 5.3. Sale or Eminent Domain of Wastewater System. Except as provided herein, the City covenants that the Wastewater System shall not be encumbered, sold, leased, pledged, any charge placed thereon, or otherwise disposed of, as a whole or substantially as a whole if such encumbrance, sale, lease, pledge, charge or other disposition would materially impair the ability of the City to pay the Installment Payments or the principal of or interest on any Parity Debt, or would materially adversely affect its ability to comply with the terms of this Agreement or any Parity Debt Documents. The City may not enter into any agreement which impairs the operation of the Wastewater System or any part of it necessary to secure adequate Net Revenues to pay the Installment Payments or any Parity Debt, or which otherwise would impair the rights of the Bond Owners or the Trustee with respect to the Net Revenues. If any substantial part of the Wastewater System is sold, the payment therefor shall either (a) be used for the acquisition or construction of improvements and extensions or replacement facilities or (b) be applied on a pro rata basis to (i) prepay the Installment Payments on the next available prepayment date under Section 7.2, and (ii) prepay any Parity Debt in accordance with the related Parity Debt Documents. Any amounts received as awards as a result of the taking of all or any part of the Wastewater System by the lawful exercise of eminent domain, if and to the extent that such right can be exercised against such property of the City, shall either (a) be used for the acquisition or construction of improvements and extension of the Wastewater System, or (b) be applied on a pro rata basis to (i) prepay the Installment Payments on the next available prepayment date under Section 7.2, and (ii) prepay any Parity Debt in accordance with the related Parity Debt Documents. SECTION 5.4. Insurance. The City shall at all times maintain with responsible insurers all such insurance on the Wastewater System as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to the Wastewater System. All amounts collected from insurance against accident to or destruction of any portion of the Wastewater System shall be used, at the option of the City, either (a) to repair or rebuild such damaged or destroyed portion of the Wastewater System, or (b) to prepay on a pro rata basis (i) the Installment Payments on the next available prepayment date under Section 7.2, and (ii) prepay any Parity Debt in accordance with the related Parity Debt Documents. The City will maintain, with responsible insurers, worker's compensation insurance and insurance against public liability and property damage to the extent reasonably necessary to protect the interests of the City, the Authority, the Trustee and the Owners of the Bonds. Any policy of insurance required under this Section 5.4 may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of self- insurance by the City or in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. SECTION 5.5. Records and Accounts. The City will keep proper books of record and accounts of the Wastewater System in which complete and correct entries shall be made of all transactions relating to the Wastewater System. Said books shall, upon prior request, be subject to the reasonable inspection of the Bond Insurer and the Owners of not less than 10% of the Outstanding Bonds, or their representatives authorized in writing, upon not less than 2 Business Days' prior notice to the City. -16- The City will cause the books and accounts of the Wastewater System to be audited annually by an Independent Accountant not more than 9 months after the close of each Fiscal Year, and shall make a copy of such report available for inspection by the Bond Insurer and the Bond Owners at the office of the City. Such report may be part of a combined financial audit or report covering all or part of the City's finances. SECTION 5.6. Rates and Charges. (a) Gross Revenue Covenant. The City will fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Wastewater System during each Fiscal Year, which are at least sufficient, after making allowances for contingencies and error in the estimates, to yield Gross Revenues (excluding amounts derived from the Rate Stabilization Fund) sufficient to pay the following amounts in the following order of priority: (i) All Operation and Maintenance Costs estimated by the City to become due and payable in such Fiscal Year; (ii) All Installment Payments and principal of and interest on Parity Debt coming due and payable during such Fiscal Year, except to the extent payable from capitalized interest, 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. (b) Net Revenue Covenant. In addition, the City will fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Wastewater System during each Fiscal Year which are sufficient to yield Net Revenues which are at least equal to 120% of the amount described in the preceding clause (a)(ii) coming due and payable in such Fiscal Year. Any amount transferred from the Rate Stabilization Fund to the Wastewater Fund in any Fiscal Year, to the extent in excess of the amount of Net Revenues received by the City in that Fiscal Year and deposited into the Rate Stabilization Fund, will be included in the calculation of Net Debt Service under this subsection (b). SECTION 5.7. Superior and Subordinate Obligations. The City may not issue or incur any additional bonds or other obligations during the Term of this Agreement having any priority in payment of principal or interest out of the Gross Revenues or the Net Revenues over the Installment Payments. Nothing herein limits or affects the ability of the City to issue or incur (a) Parity Debt under Section 5.8, or (b) obligations which are either unsecured or which are secured by an interest in the Net Revenues which is junior and subordinate to the pledge of and lien upon the Net Revenues established hereunder. SECTION 5.8. Issuance of Parity Debt. Except for obligations incurred to prepay or discharge the Installment Payments or any Parity Debt, the City may not issue or incur any Parity Debt during the Term hereof unless: (a) No Event of Default has occurred and is continuing; (b) The Net Revenues (excluding any amounts derived from the Rate Stabilization Fund), calculated in accordance with sound accounting principles, as shown by the books of the City for the most recent completed Fiscal Year for which audited financial statements of the City are available, or for any more recent consecutive 12 month period selected by the City, in either case verified by an Independent Accountant or a Fiscal Consultant or shown in the audited financial statements of the City, plus (at the option of the City) any Additional Revenues, at least equal 120% of Maximum Annual Debt Service (taking into account the Parity Debt then proposed to be issued); and (c) Except in the case of Parity Debt representing a loan from the State or any agency of the State, or a loan from the federal government or any agency thereof, there shall be established from the proceeds of such Parity Debt a reserve fund for the security of such Parity Debt, in an amount equal to the lesser of (i) the maximum amount of debt service required to be paid by the City with respect to such Parity Debt during any Fiscal Year, or (ii) the maximum amount then permitted under the Tax Code; and (d) The trustee or fiscal agent for such Parity Debt (if any) is the same entity performing the functions of Trustee under the Indenture. SECTION 5.9. Operation of Wastewater System in Efficient and Economical Manner. The City covenants and agrees to operate the Wastewater System in an efficient and economical manner and to operate, maintain and preserve the Wastewater System in good repair and working order. SECTION 5.10. Tax Covenants. (a) Generally. The City shall not take any action or permit to be taken any action within its control which would cause or which, with the passage of time if not cured would cause, interest on the Bonds to become includable in gross income for federal income tax purposes. (b) Private Activity Bond Limitation. The City shall assure that the proceeds of the Bonds are not used in a manner which would cause the Bonds to become "private activity bonds" within the meaning of Section 141(a) of the Tax Code, or which would meet the private loan financing test of Section 141(c) of the Tax Code. (c) 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 the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code. (d) 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 Bond proceeds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken on the Closing Date would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the Tax Code. (e) Rebate Requirement. The City will calculate or cause to be calculated all amounts of excess investment earnings with respect to the Bonds which are required to be rebated to the United States of America under Section 148(f) of the Tax Code, at the times and in the manner required under the Tax Code. The City will pay when due an amount equal to excess investment earnings to the United States of America in such amounts, at such times and in such manner as may be required under the Tax Code, such payments to be made from Gross Revenues or any other source of legally available funds of the City. The City will keep or cause to be kept, and retain or cause to be retained for a period of 6 years following the retirement of the Bonds, records of the determinations made under this subsection (e). The Authority has no duty or responsibility to monitor or ensure compliance by the City with its obligations under this subsection (e). (f) Maintenance of Tax - Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds 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 Bonds. SECTION 5.11. Continuing Disclosure. The City hereby covenants and agrees that it will execute and deliver the Continuing Disclosure Certificate on the Closing Date, and that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate and provide to the Bond Insurer a copy of any materials disseminated by the City in compliance therewith. Notwithstanding any other provision of this Agreement, failure of the City to comply with the Continuing Disclosure Certificate will not constitute an Event of Default hereunder; provided, however, that any Participating Underwriter (as such term is defined in the Continuing Disclosure Certificate) or any Owner or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the City to comply with its obligations under this Section 5.11. SECTION 5.12. Covenants Regarding Financing Agreement and Participation Agreement. The City shall promptly collect all amounts due under the Financing Agreement and shall enforce its rights thereunder. The City will not amend, modify or terminate any of the terms of the Participation Agreement or the Financing Agreement, or consent to any such amendment, modification or termination, if such amendment, modification or termination would materially adversely affect the interests of the Bond Owners. SECTION 5.13. Assignment and Amendment Hereof. This Agreement may not be assigned by the City in whole or in part. This Agreement may be amended by the City and the Authority, but only (a) for the purpose of providing for the issuance of any Parity Debt under and in accordance with Section 5.8, or (b) with the prior written consent of the Bond Insurer but without the consent of any Bond Owners, to the extent permitted by law but only for any one or more of the following purposes: (i) to add to the covenants and agreements of the City contained in this Agreement, other covenants and agreements hereafter to be observed, to pledge or assign additional security for the Installment Payments, or to surrender any right or power herein reserved to or conferred upon the City; (ii) to cure any ambiguity, inconsistency or omission, or correct any defective provision, contained in this Indenture, or in any other respect whatsoever, as the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners in the opinion of Bond Counsel filed with the City, the Authority, the Bond Insurer and the Trustee; (iii) to amend any provision hereof relating to the Tax Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest on any of the Bonds under the Tax Code, in the opinion of Bond Counsel filed with the City, the Authority, the Bond Insurer and the Trustee. SECTION 5.14. Information to Bond Insurer. The City shall cooperate with the Bond Insurer in all regards as may be required to comply with the terms and provisions of the Bond Insurance Policy and as required to enable the Trustee to receive payments under the Bond Insurance Policy. The City shall provide such information to the Bond Insurer from time to time as the Bond Insurer may reasonably request in writing. SECTION 5.15. Further Assurances. The City will execute and deliver any and all such further agreements, instruments, financing statements or other assurances as may be reasonably necessary or requested by the Authority, the Bond Insurer or the Trustee to carry out the intention or to facilitate the performance of this Agreement, including, without limitation, to perfect and continue the security interests herein intended to be created. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. Events of Default Defined. The following are Events of Default: (a) Failure by the City to pay any Installment Payment when due and payable hereunder. (b) Failure by the City to pay any Additional Payment when due and payable hereunder, and the continuation of such failure for a period of 30 days. (c) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in the preceding clauses (a) or (b), for a period of 60 -20- days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority, the Bond Insurer or the Trustee; provided, however, that if the City notifies the Authority and the Trustee that in its reasonable opinion the failure stated in the notice can be corrected, but not within such 60 -day period, such failure will not constitute an event of default hereunder if the City commences to cure such failure within such 60 day period and thereafter diligently and in good faith cures the failure in a reasonable period of time. (d) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may hereafter be enacted. (e) The occurrence of any event defined to be an event of default under any Parity Debt Documents. For purposes of determining whether any Event of Default has occurred under and as described in the preceding clause (a), no effect will be given to payments made by the Bond Insurer under the Bond Insurance Policy. SECTION 6.2. Remedies on Default. Whenever any Event of Default has occurred and is continuing, the Trustee as assignee of the Authority has the right, at its option and without any further demand or notice, to take any one or more of the following actions: (a) Declare all principal components of the unpaid Installment Payments, together with accrued interest thereon at the Overdue Rate from the immediately preceding Interest Payment Date on which payment was made, to be immediately due and payable, whereupon the same shall immediately become due and payable. Notwithstanding the foregoing provisions of this subsection (a), however, if, at any time after the principal components of the unpaid Installment Payments have been so declared due and payable under this subsection (a), and before any judgment or decree for the payment of the moneys due has been obtained or entered, the City deposits with the Trustee a sum sufficient to pay all principal components of the Installment Payments coming due prior to such declaration and all matured interest components (if any) of the Installment Payments, with interest on such overdue principal and interest components calculated at the Overdue Rate, and the reasonable expenses of the Trustee (including any fees and expenses of its attorneys), and any and all other defaults known to the Trustee (other than in the payment of the principal and interest components of the Installment Payments due and payable solely by reason of such declaration) have been made good, then, and in -21- every such case, the Trustee will rescind and annul such declaration and its consequences. However, no such rescission and annulment extends to or affects any subsequent default, or impairs or exhausts any right or power consequent thereon. As provided in Section 6.6, the Trustee is required to exercise the remedies provided herein in accordance with the Indenture. (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 this Agreement, or enforce performance and observance of any obligation, agreement or covenant of the City under this Agreement. (c) As a matter of right, in connection with the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and the Bond Owners hereunder, cause the appointment of a receiver or receivers of the Gross Revenues and other amounts pledged hereunder, with such powers as the court making such appointment may confer. SECTION 6.3. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Authority is intended to be exclusive and every such remedy will be cumulative and in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default impairs any such right or power or will be construed to be a waiver thereof. Each right and power may be exercised from time to time and as often as the Trustee deems expedient. In order to entitle the Authority to exercise any remedy reserved to it in this Article VI, it is not necessary to give any notice, other than such notice as may be required in this Article VI or by law. SECTION 6.4. Agreement to Pay Attorneys' Fees and Expenses. If either party to this Agreement defaults under any of the provisions hereof and the nondefaulting party, the Trustee or the Owner of any Bonds employs attorneys or incurs other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained, the defaulting party agrees that it will on demand therefor pay to the nondefaulting party, the Trustee or such Owner, as the case may be, the reasonable fees of such attorneys and such other expenses so incurred. The provisions of this Section 6.4 survive the expiration of the Term of this Agreement. SECTION 6.5. No Additional Waiver Implied by One Waiver. If any agreement herein is breached by either party and is thereafter waived by the other party, such waiver is limited to the particular breach so waived and does not waive any other breach. SECTION 6.6. Trustee, the Bond Insurer and Bond Owners to Exercise Rights. Such rights and remedies as are given to the Authority under this Article VI have been assigned by the Authority to the Trustee under the Indenture, to which assignment the City hereby consents. The Trustee, the Bond Insurer and the Owners of the Bonds will exercise such rights and remedies as provided in the Indenture. ARTICLE VII PREPAYMENT OF INSTALLMENT PAYMENTS SECTION 7.1. Security Deposit. Notwithstanding any other provision hereof, the City may on any date secure the payment of Installment Payments, in whole or in part, by irrevocably depositing with the Trustee an amount of cash which, together with other available amounts, is either (a) sufficient to pay all such Installment Payments, including the principal and interest components thereof, when due under Section 4.4(a), or (b) invested in whole or in part in non - callable Federal Securities in such amount as will, in the opinion of an Independent Accountant (which opinion is addressed and delivered to the Trustee and the Bond Insurer), together with interest to accrue thereon and together with any cash which is so deposited, be fully sufficient to pay all such Installment Payments when due under Section 4.4(a) or when due on any optional prepayment date under Section 7.2, as the City instructs at the time of said deposit. If the City posts a security deposit under this Section for the payment of all remaining Installment Payments, all obligations of the City hereunder, and the pledge of Net Revenues and all other security provided by this Agreement for said obligations, will cease and terminate, excepting only the obligation of the City to make, or cause to be made, all Installment Payments from such security deposit. Said security deposit constitutes a special fund for the payment of such Installment Payments in accordance with the provisions hereof. Payments made by the Bond Insurer under the Bond Insurance Policy will not be considered in determining whether the City has paid and discharged any or all of the Installment Payments under the preceding provisions of this Section 7.1. SECTION 7.2. Optional Prepayment. The City may exercise its option to prepay the principal components of the Installment Payments in whole or in part on any date on which the Bonds are subject to optional redemption under Section 2.03(a) of the Indenture. Such option shall be exercised by payment of a prepayment price equal to the sum of (a) the aggregate principal components of the Installment Payments to be prepaid, (b) the interest component of the Installment Payment required to be paid on or accrued to such date, and (c) the premium (if any) then required to be paid upon the corresponding redemption of the Bonds under Section 2.03(a) of the Indenture. If the City prepays the Installment Payments in part but not in whole, the principal components will be prepaid between such maturities and in such integral multiples of $5,000 as the City designates in written notice to the Trustee. SECTION 7.3. Credit for Amounts on Deposit. If the City prepays the Installment Payments in full under this Article VII, such that the Indenture is discharged by its terms, and upon payment in full of all Additional Payments and other amounts then due and payable hereunder, all available amounts then on deposit in the funds and accounts established under this Agreement will be credited towards the amounts then required to be so prepaid. ARTICLE VIII MISCELLANEOUS SECTION 8.1. Investment of Funds. All moneys in the Reserve Fund, the Installment Payment Fund and the Project Fund shall be invested by the Trustee solely in Permitted Investments under the written direction of the City. In the absence of any such direction from the City, the Trustee shall invest any such moneys in clause (i) of the definition of Permitted Investments. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. 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. For purposes of acquiring any investments hereunder, the Trustee may commingle funds held by it hereunder. The Trustee may (but is not obligated to) act as principal or agent in the acquisition or disposition of any investment. The Trustee shall incur no liability for losses arising from any investments made under this Section. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the City periodic transaction statements which include detail for all investment transactions made by the Trustee hereunder; provided that the Trustee is not obligated to provide an accounting for any fund or account that (a) has a balance of $0.00 and (b) has not had any activity since the last reporting date. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. All Permitted Investments acquired under this Section 8.1 shall be valued in accordance with the provisions of Section 4.05 of the Indenture. SECTION 8.2. Notices. Any notice, request, complaint, demand or other communication under this Agreement must be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or by telecopier or other form of telecommunication, at its number set forth below. Notice is effective either (a) upon transmission by fax or other form of telecommunication, (b) upon actual receipt after deposit in the United States of America mail, postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The Authority, the City, the Trustee or the Bond Insurer may, by written notice to the other parties, from time to time modify the address or number to which communications are to be given hereunder. If to the Authority: Association of Bay Area Governments 101 Eighth Street Oakland, California 94607 Attention: Public Finance Director Fax: (510) 464 -8468 If to the City: City of Ukiah 300 Seminary Avenue Ukiah, California 95482 Attention: City Manager Fax: (707) 463 -6204 If to the Trustee: Wells Fargo Bank, National Association 555 Montgomery Street, 10`h Floor San Francisco, California 94111 Attention: Corporate Trust Services Fax: (415) 395 -9064 If to the Bond Insurer: XL Capital Assurance, Inc. 1221 Avenue of the Americas New York, New York 10020 Fax: (212) 944 -3777 Attention: Surveillance SECTION 8.3. Governing Law. This Agreement is construed in accordance with and governed by the laws of the State. SECTION 8.4. Binding Effect. This Agreement inures to the benefit of and is binding on the Authority, the City, the Bond Insurer and their respective successors and assigns, subject to the limitations contained herein. SECTION 8.5. Severability of Invalid Provisions. If any one or more of the provisions contained in this Agreement is for any reason held invalid, illegal or unenforceable in any respect, then such provision or provisions will be deemed severable from the remaining provisions contained in this Agreement and such invalidity, illegality or unenforceability will not affect any other provision of this Agreement, and this Agreement will be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority and the City each hereby declares that it would have entered into this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Agreement may be held illegal, invalid or unenforceable. SECTION 8.6. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, are solely for convenience of reference and do not affect the meaning, construction or effect of this Agreement. All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof; and words of the masculine gender shall mean and include words of the feminine and neuter genders. SECTION 8.7. Payment on Non - Business Days. Whenever any payment is required to be made hereunder on a day which is not a Business Day, such payment will be made on the immediate preceding Business Day. SECTION 8.8. Execution of Counterparts. This Agreement may be executed in any number of counterparts, each of which is an original and all of which together constitute one and the same instrument. SECTION 8.9. Waiver of Personal Liability. No member of the City Council, officer, agent or employee of the City has any individual or personal liability for the payment of Installment Payments or Additional Payments or be subject to any personal liability or accountability by reason of this Agreement. Nothing herein relieves any such member of the City Council, officer, agent or employee from the performance of any official duty provided by law or by this Agreement. SECTION 8.10. Bond Insurer as Third Party Beneficiary. The Bond Insurer is hereby made a third party beneficiaries hereof and is entitled to the benefits of this Agreement with the same force and effect as if the Bond Insurer were a party hereto. IN WITNESS WHEREOF, the Authority, the Trustee and the City have caused this Agreement to be executed in their respective names by their duly authorized officers, all as of the date first above written. ATTEST: By City Clerk ASSOCIATION OF BAY AREA GOVERNMENTS, as Seller oser` . Chan, Finance Director CITY OF UKIAH, as Purchaser By Mayor WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By Authorized Officer IN WITNESS WHEREOF, the Authority, the Trustee and the City have caused this Agreement to be executed in their respective names by their duly authorized officers, all as of the date first above written. ASSOCIATION OF BAY AREA GOVERNMENTS, as Seller By Joseph K. Chan, Finance Director CITY OF UKIAH, as Purchaser ATTEST: City Clerk City Manager WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By Authorized Officer IN WITNESS WHEREOF, the Authority, the Trustee and the City have caused this Agreement to be executed in their respective names by their duly authorized officers, all as of the date first above written. ATTEST: By City Clerk ASSOCIATION OF BAY AREA GOVERNMENTS, as Seller By Joseph K. Chan, Finance Director CITY OF UKIAH, as Purchaser By Mayor WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By \-/r.% Authorized Officer APPENDIX B DESCRIPTION OF PROJECT The Project consists of the construction of the new treatment plant and the rehabilitation, upgrade and expansion of the existing treatment plant. The Project has been designed to produce a wastewater treatment plant that can reliably meet effluent requirements for the design year 2025 and produce Class A biosolids. A new influent pump station will be built to address deficiencies of the existing one. Two climber -type bar screens and a bypass channel will be used to remove coarse solids. Four aerated grit tanks will be added and the existing secondary clarifiers will be converted to primary clarifiers. A new trickling filter will provide plant redundancy and a pre- aeration tank will be converted to an equipment gallery to house the snail separation and dewatering facilities. The existing primary clarifiers will be converted to solids contact tanks to meet current and future discharge requirements. APPENDIX C FORM OF REQUISITION WRITTEN REQUISITION NO. FOR DISBURSEMENT FROM THE PROJECT FUND The undersigned hereby states and certifies: (i) that I am the duly appointed, qualified and acting of the City of Ukiah (the "City "), and as such, I am familiar with the facts herein certified and am authorized and qualified to certify the same; (ii) that I am a duly designated "City Representative" of the City, as such term is defined in that certain Installment Sale Agreement dated as of March 1, 2006 (the "Installment Sale Agreement "), among the Association of Bay Area Governments, the City and Wells Fargo Bank, National Association, as trustee, as trustee (the "Trustee "); (iii) that the Trustee is hereby requested to disburse this date from the Project Fund established under Section 3.6 of the Installment Sale Agreement to the payees set forth on Exhibit A attached hereto and by this reference incorporated herein, the respective sum set forth opposite each such payee, for the purposes identified therein; (iv) that each item to be paid pursuant to this Requisition has been properly incurred, is a proper charge against the Project Fund and has not been the basis of any previous disbursement; and (v) that each amount to be disbursed herein is for payment of a Project Cost. Capitalized terms used herein and not otherwise defined have the meanings given them in the Installment Sale Agreement. Dated: , 200 CITY OF UKIAH By: Name: Title: EXHIBIT A PROJECT COST DISBURSEMENTS Payee Name and Address Purpose of Obligation Amount