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Home My WebLink About5 Water Certificates Agenda Item RU . . Public Utility District Memorandum To: Board of Directors From: Peter Holzmeister Date: September 15, 2006 Subject: Resolution related to issuance of 2006 water Certificates of Participation Why this matter is before the Board:issuance of series 2006 water system Certificates rdttinvolves adopting resolution approving of various documents that implement Participation. Only the Board can adopt this resolution History: There is a long history to the Board's discussion of this matter. The purpose of issuing COPs at this time is to provide funds to pay for: • Replacement of leaking water lines in Tahoe Donner and elsewhere in the District during the next four years, • Construction of the Brockway Road pipeline, • Restoring funds to the Land Sale Trust Fund that had been temporarily borrowed to reconstruct the Donner Lake water system, • Purchase generators • Upgrade SCADA • Refinance 1996 water COPs A finance team has been assembled to help us issue the new COPs. The team consists of McDonald Partners as financial advisor, Stradling Yoca Carlson and Roth as bond counsel, Stone and Youngberg as underwriter, and Bank of New York as Trustee. This team has been working with staff to prepare the needed documents to complete the borrowing. New information: Attached is a resolution prepared by bond counsel for your consideration. By adopting the resolution you are adopting a serried of documents that implement the issuance of COPs. The referenced documents are also attached for your review. As you will quickly see, the documents are legalistic and are quite similar to documents we have adopted in issuing prior COPs. Members of the finance team will be present at Wednesday's meeting to describe the documents and answer questions. Recommendation: I recommend that the Board adopt the Resolution Authorizing the Execution and Delivery of Refunding Revenue Certificates of Participation, an Official Statement, Preliminary Official Statement and approving the execution and delivery of certain documents in Connection Therewith and Certain Other Matters. i # D... • District RESOLUTION NO. 06- RESOLUTION OF THE TRUCKEE DONNER PUBLIC UTILITY DISTRICT AUTHORIZING THE EXECUTION AND DELIVERY OF REFUNDING REVENUE CERTIFICATES OF PARTICIPON9 AN OFFICIAL AND APPROVING THE EXECUTION PRELIMINARY OFFICIAL STATEMENT AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION THEREWITH AND CERTAIN OTHER MATTERS WHEREAS, the Truckee Donner Public Utility District (the "District'), a public utility district duly organized and existing under and pursuant to the Constitution and laws of the State of California (the "State"), including the Public Utility District Act (the "Act'), Division 7 of the Public Utilities Code (the "Code"), is authorized under the Constitution and laws of the State, including without limitation, Section 16431 of the Code, to acquire equipment and facilities as the Board of the Directors of the District (the "Board") determines is in the best interests of the District; 3 of Part 1 of WHEREAS, the District e of the s authorized Stateuner Article oa California,11 of including Chapter laws amendatory Division thereof or Title 5 of the Government Cod supplemental thereto, to refinance the acquisition of property for its water system; WHEREAS, this Board proposes to undertake the refinancing of certain water system equipment and facilities refinanced in 1996 and proposes to finance certain water system equipment and facilities; WHEREAS, this Board has determined it is in the best interests of the District to refinance and finance such equipment and facilities; WHEREAS, this Board has determined that it is in the best interest of the District to cause Refunding Revenue Certificates of Participation ("Certificates") to be executed and delivered to refinance and finance such equipment and facilities and to approve certain documents in connection therewith; and NOW, THEREFORE, the Board of the District does hereby resolve as follows: 1. The Installment Purchase Agreement, in substantially the form attached hereto as Exhibit A and, upon execution as authorized below, made a part hereof as though set forth in full herein, be and the same is hereby approved. In accordance with Section 16033 of the Code, the President of the Board (the "President') is hereby authorized and directed to execute and deliver the Installment Purchase Agreement on behalf of the District with such changes, insertions and omissions as may be recommended by General Counsel or Special Counsel and approved by the President executing the same, said execution being conclusive evidence of such approval, and in accordance with Section 16115 of the Code, the Clerk of the Board of the District (the "Clerk") is hereby authorized and directed to countersign the Installment Purchase Agreement. 2. The Trust Agreement, in substantially the form attached hereto as Exhibit B and, upon execution as authorized below, made a part hereof as though set forth in full herein, be and the same is hereby approved. In accordance with Section 16033 of the Code, the President is hereby authorized and directed to execute and deliver the Trust Agreement on behalf of the District with such changes, insertions and omissions as may be recommended by General Counsel or Special Counsel and approved by the President executing the same, said execution being conclusive evidence of such approval, and in accordance with Section 16115 of the Code, the Clerk is hereby authorized and directed to countersign the Trust Agreement. Resolution 2006-XX 3. The Escrow Agreement, in substantially the form attached hereto as Exhibit C and, upon execution as authorized below, made a part hereof as though set forth in full herein, be and the same is hereby approved. In accordance with Section 16033 of the Code, the President is hereby authorized and directed to execute and deliver the Escrow Agreement on behalf of the District with such changes, insertions and omissions as may be recommended by General Counsel or Special Counsel and approved by the President executing with Sc on 16115 of thed execution Code, the Clerk g conclusive evidence of such hereby authorized and directed approval, and in accordance to countersign the Escrow Agreement. 4. The Board hereby authorizes the preparation, sale and delivery of the Certificates in an aggregate principal amount not to exceed $28,000,000 (except such amount may be increased with the approval of the General Manager to provide for original issue discount to the extent such original issue discount will result in a lower interest rate or yield to maturity with respect to the Certificates) in accordance with the terms and provisions of the Trust Agreement. 5. The Purchase Contract between the District and Stone &Youngberg LLC, in substantially the form attached hereto as Exhibit D and, upon execution as authorized below, made a part hereof as though set forth in full herein, be and the same is hereby approved. In accordance with Section 16033 of the Code, the President is hereby authorized and directed to execute and deliver the Purchase Contract on behalf of the District with such changes, insertions and omissions as may be recommended by General Counsel or Special Counsel and approved by the President executing the same, said execution being conclusive evidence of such approval, and in accordance with Section 16115 of the Code, the Clerk is hereby authorized and directed to countersign the Purchase Contract; provided, however that in no event shall the principal amount exceed $28,000,000 (except such amount may be increased with the approval of the General Manager as provided in Section 4 above with respect to original issue discount), nor shall the underwriting discount exceed 1%. 6. The preparation and distribution of the Preliminary Official Statement, in the form attached hereto as Exhibit E, be and the same is hereby approved. The General Manager is hereby authorized to sign a certificate pursuant to Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 relating to the Preliminary Official Statement and the President and General Manager are hereby authorized and directed to execute, approve and deliver the Official Statement in the form of the Preliminary Official Statement which, upon execution as authorized below, is made a part hereof as though set forth in full herein, with such changes, insertions and omissions as may be recommended by General Counsel or Special Counsel and approved by the President and General Manager executing the same, said execution being conclusive evidence of such approval. The underwriter is hereby authorized to distribute copies of said Preliminary and s dirJeOcteldito deliver copies ofatement to sons who may any final Official Statemend in t to the eactual al purchase of the Certificates initial purchasers of the Certificates. 7. The Continuing Disclosure Certificate, in substantially the form attached hereto as Exhibit F and, upon execution as authorized below, made a part hereof as though set forth in full herein, be and the same is hereby approved. In accordance with Section 16033 of the Code, the President is hereby authorized and directed to execute and deliver the Continuing Disclosure Certificate on behalf of the District with such changes, insertions and omissions as may be recommended by General Counsel or Special Counsel and approved by the President executing the same, said execution being conclusive evidence of such approval, and in accordance with Section 16115 of the Code, the Clerk is hereby authorized and directed to countersign the Continuing Disclosure Certificate. 8. The Board hereby authorizes the General Manager to select a municipal bond insurer to insure payments of interest with respect to and principal of all or a portion of the Certificates so long as the General Manager determines that obtaining the municipal bond insurance policy provided thereby will result in a lower interest rate or yield to maturity with respect to such Certificates. Special Counsel is hereby directed to make all changes to the Installment Purchase Agreement, the Trust Agreement, the Resolution 2006-XX 2 Purchase Contract, the Preliminary Official Statement and the Continuing Disclosure Certificate as are necessary to reflect the selection of a municipal bond insurer and the reasonable comments thereof. g. The Board hereby authorizes the General Manager to select a municipal bond insurer to provide a reserve fund surety bond to be deposited into the reserve fund for the Certificates, so long as the General Manager determines that obtaining the reserve fund surety will result in a lower debt service with respect to the Certificates than the total debt service with respect to the Certificates with a cash funded reserve fund. Special Counsel is hereby directed to make all changes to the Installment Purchase Agreement, the Trust Agreement, the Purchase Contract, the Preliminary Official Statement and the Continuing Disclosure Certificate as are necessary to select a municipal bond insurer to provide a reserve fund surety bond to be deposited into the reserve fund for the Certificates. In accordance with Section 16033 of the Code, the President is hereby authorized to execute and deliver any customary agreement with the municipal bond of he Code, hroviding e Clerk ise reserve fund surety bond approval, and in hereby author accordance with Section 16ed and directed to countersign any such agreement. 10. The Bank of New York Trust Company, N.A., is hereby appointed to act as trustee under the Trust Agreement and is appointed to act as escrow agent under the Escrow Agreement. 11. The President or Clerk or the General Manager or the designee and any other proper officer of the District, acting singly, be and each of them hereby is authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the transactions contemplated by the Trust Agreement, the Installment Purchase Agreement, the Purchase Contract, the Continuing Disclosure Certificate, the Official Statement, the Escrow Agreement and this resolution. 12. Unless otherwise defined herein, all terms used herein and not otherwise defined shall have the meanings given such terms in the Trust Agreement unless the context otherwise clearly requires. 13. This resolution shall take effect immediately. I DO HEREBY CERTIFY that the foregoing is a true and correct copy of the Resolution adopted by a majority vote of the Board of Directors of the Truckee Donner Public Utility District as required by Section 16072 of the Code on September 20, 2006. AYES: NOES: ABSENT: TRUCKEE DONNER PUBLIC UTILITY DISTRICT J. Ron Hemig, President [SEAL] ATTEST: Peter L. Holzmeister, District Clerk Resolution 2006-XX 3 Stradling Yocca Carlson &Rauth Draft of 9114106 o PRELIMINARY OFFICIAL STATEMENT DATED SEPTEMBER_,2006 a� •7 ° NEW ISSUE—BOOK-ENTRY ONLY ° INSURED RATING: S&P: "AAA" UNINSURED RATING: S&P: T (See"RATINGS") L 4r E w ° In the opinion of Stradling Yocca Carlson &Rauth, a Professional Corporation, Special Counsel, under existing statutes, regulations, i ° rulings and judicial decisions and assuming certain representations and compliance with certain covenants and requirements described in a 9 this Official Statement, the portion of each Installment Payment constituting interest(and original issue discount)is excluded from the gross r' ° 'y income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax o ❑ C .a $ imposed on individuals and corporations. In the further opinion of Special Counsel, the portion of each Installment Payment constituting w .L interest(and original issue discount) is exempt from State of California personal income tax. See "TAX MATTERS"herein with respect to U ° •o� tax consequences with respect to the Certificates. E o y TRUCKEE DONNER PUBLIC UTILITY DISTRICT b ° . REFUNDING REVENUE CERTIFICATES OF PARTICIPATION (WATER SYSTEM IMPROVEMENT PROJECTS)SERIES 2006 ° o Dated: Date of Delivery Due: November 15,as shown on the inside cover g w The Certificates are being executed and delivered to(i)provide funds to prepay the outstanding Truckee Donner Public Utility District E „ Refunding Revenue Certificates of Participation (Water System Improvement Projects) Series 1996, (ii)to finance capital improvements to a o the District Water System,(iii)to make a deposit to the Reserve Fund,and(iv)pay certain costs of delivery. o $ Interest due with respect to the Certificates is payable semi-annually on May 15 and November IS in each year commencing May l5, ti 2007. The Certificates will be executed and delivered in book-entry form,without coupons,initially registered in the name of Cede&Co.,as .� nominee of The Depository Trust Company,New York,New York. Purchasers of the Certificates will not receive physical certificates from the District representing their interests in the Certificates purchased. DTC will act as securities depository for the Certificates. The principal ° and interest with respect to the Certificates are payable directly to DTC by The Bank of New York Trust Company, N.A., Los Angeles, o California, as Trustee. Upon receipt of payments of such principal and interest, DTC is obligated to remit such principal and interest tot e o. participants in DTC for subsequent disbursement to the beneficial owners of the Certificates. Individual purchases will be made in principal 0 w amounts of$5,000 and integral multiples thereof. 3 The Certificates are subject to optional and extraordinary prepayments prior to maturity as further described in this Official c • Statement. o ._ The Certificates are payable from Installment Payments payable by the District and amounts on deposit in certain funds and accounts q established by the Trust Agreement. The obligation of the District to make Installment Payments is a special obligation of the District o �a 3 payable solely from Net Revenues of the Water System of the District. The District may incur additional obligations payable from Net o Revenues of the Water System on a parity with the Installment Payments, subject to the terms and conditions set forth in the Installment N o Purchase Agreement. 7 o THE OBLIGATION OF THE DISTRICT TO MAKE THE INSTALLMENT PAYMENTS IS AN IRREVOCABLE OBLIGATION Y OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES BUT DOES NOT CONSTITUTE AN OBLIGATION OF THE DISTRICT FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE DISTRICT TO MAKE INSTALLMENT PAYMENTS UNDER THE INSTALLMENT PURCHASE AGREEMENT DOES NOT CONSTITUTE A DEBT OR AN c Z INDEBTEDNESS OF THE DISTRICT, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN .E o CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. c o a 7 Payment of the principal at the stated maturity and interest with respect to the Certificates will be guaranteed by a financi guaranty o .2 insurance policy to be issued by simultaneously with the execution and delivery of the Certificates by: w° 3 [LOGO] E •c This cover page contains certain information for quick reference only. It is not a summary of this issue. Potential investors E g 2 must read the entire Official Statement to obtain information essential to the making of an informed investment decision. y MATURITY SCHEDULE -o iu .>_ (See inside front cover) � T ° The Certificates are offered when, as and if delivered and received by the Underwriter, subject to the approval of the validity of the E E Installment Purchase Agreement by Stradling Yocca Carlson& Rauth, a Professional Corporation, Special Counsel, and certain other � � N matters. Certain legal matters will be passed upon for the Underwriter by Fulbright& Jaworski L.L.P., Los Angeles, California, 66 E •E u Underwriter's Counsel, for the District and the Corporation by Porter Simon, General Counsel to the District and the Corporation, for the Trustee by its counsel and for the Insurer by its counsel. It is anticipated that the Certificates will be available for delivery through the " "° °' facilities of The Depository Trust Company on or about October_,2006. O a w Stone & Youngberg LLC .E U b Dated: October—,2006 E Preliminary,subject to change. DOC S S F/60223 v 6/022925-0017 M TRUCKEE DONNER PUBLIC UTILITY DISTRICT REFUNDING REVENUE CERTIFICATES OF PARTICIPATION (WATER SYSTEM IMPROVEMENT PROJECTS)SERIES 2006 MATURITY SCHEDULE Maturity Principal Maturity Principal (November 15) Amount Interest Rate Yield (November 15) Amount Interest Rate Yield Preliminary,subject to change. DOCS S F/60223v6/022925-0017 TRUCKEE DONNER PUBLIC UTILITY DISTRICT BOARD OF DIRECTORS J.Ron Hemig,President Tim Taylor,Vice President Joseph R.Aguera Patricia S.Sutton William L.Thomason DISTRICT STAFF Peter L.Holzmeister,General Manager Mary Chapman,Administrative Services Manager and Treasurer SERVICES General Counsel Porter Simon Truckee,California Special Counsel Stradling Yocca Carlson&Rauth,A Professional Corporation San Francisco,California Financial Advisor McDonald Partners,Inc. Alamo,California Trustee The Bank of New York Trust Company,N.A. Los Angeles, California Verification Agent [TO COME] DOCSSF/60223 v6/022925-0017 Table of Contents Page INTRODUCTION..................................................................................................................................................... 1 REFUNDINGPLAN................................................................................................................................................2 General................................................................................................................................................................2 Verification.........................................................................................................................................................3 THE2006 PROJECT................................................................................................................................................3 Estimated Sources and Uses of Funds.................................................................................................................4 THECERTIFICATES..............................................................................................................................................4 Termsof the Certificates.....................................................................................................................................4 Prepaymentof Certificates..................................................................................................................................5 DTCand Book-Entry Only System.....................................................................................................................5 Transfer and Exchange Upon Abandonment of Book-Entry Only System.........................................................6 InstallmentPayments..........................................................................................................................................6 SECURITYFOR THE CERTIFICATES.................................................................................................................7 RevenuePledge...................................................................................................................................................8 RateCovenant.....................................................................................................................................................8 RateStabilization Fund.......................................................................................................................................9 Limitations on Parity and Superior Obligations;Subordinate Obligations.........................................................9 ReserveFund.....................................................................................................................................................10 CERTIFICATEINSURANCE................................................................................................................................ 11 THEDISTRICT...................................................................................................................................................... 11 General..............................................................................................................................................................11 Governanceand Management...........................................................................................................................12 DistrictPowers..................................................................................................................................................12 Employeesand Employee Benefits...................................................................................................................12 BudgetProcess..................................................................................................................................................13 DistrictInsurance..............................................................................................................................................13 THEWATER SYSTEM OF THE DISTRICT........................................................................................................ 13 Water Supply 13 TheWater System.............................................................................................................................................14 LargestCustomers.............................................................................................................................................17 WaterSystem Rates and Charges......................................................................................................................17 FutureWater System Improvements.................................................................................................................20 Outstanding Water System Indebtedness..........................................................................................................21 Water System Financial Information.................................................................................................................21 Historic Operating Results and Debt Service Coverage....................................................................................21 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES.............................................24 ArticleXIIIB.....................................................................................................................................................24 Proposition218.................................................................................................................................................24 FutureInitiatives...............................................................................................................................................26 i DOCS S F/60223 v6/022925-0017 Table of Contents (continued) Page THECORPORATION............................................................................................................................................26 TAXEXEMPTION.................................................................................................................................................26 CERTAINLEGAL MATTERS..............................................................................................................................27 LITIGATION..........................................................................................................................................................28 CONTINUINGDISCLOSURE..............................................................................................................................28 RATINGS................................................................................................................................................................28 FINANCIALADVISOR.................................................................... ....................................................................28 UNDERWRITING..................................................................................................................................................29 MISCELLANEOUS................................................................................................................................................29 APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.......................... APPENDIX B AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDING DECEMBER31,2005 ................................................................................................................B-1 APPENDIX C FORM OF LEGAL OPINION....................................................................................................C-1 APPENDIX D FINANCIAL GUARANTY INSURANCE POLICY................................................................D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE......................................................E-1 APPENDIX F DTC AND BOOK-ENTRY ONLY SYSTEM............................................................................F-1 ii DOGS SF/60223v6/022925-0017 DOCSOC\1018608v 17\24151.0009 No dealer,broker, salesperson or other person has been authorized by the District,the Corporation or the Underwriter to give any information or to make any representations other than those contained in this Official Statement in connection with the offering made hereby and, if given or made, such other information or representations must not be relied upon as having been authorized by the District, the Corporation or the Underwriter. 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 Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The information and expression 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 District since the date hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND "FORWARD-LOOKING STATEMENTS." NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED HEREIN WILL BE ACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS DESCRIBED HEREIN. IN THIS RESPECT, THE WORDS "ESTIMATE," "PROJECT," "ANTICIPATE," "EXPECT," "INTEND," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALL PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE CERTIFICATES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. The District maintains a website, however, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Certificates. DOCS SF/60223 v6/022925-0017 TRUCKEE DONNER PUBLIC UTILITY DISTRICT VICINITY MAP DOCSSF/60223v6/022925-0017 TRUCKEE DONNER PUBLIC UTILITY DISTRICT REFUNDING REVENUE CERTIFICATES OF PARTICIPATION (WATER SYSTEM IMPROVEMENT PROJECTS)SERIES 2006 INTRODUCTION General. This Official Statement sets forth information concerning the execution and delivery of the Refunding Revenue Certificates of Participation (Water System Improvement Projects) Series 2006 (the "Certificates") to be delivered by The Bank of New York Trust Company, N.A., as trustee (the "Trustee"). See the caption"THE CERTIFICATES"herein. Purposes of the Certificates. The Certificates are being executed and delivered to(i)provide funds to prepay the $8,465,000 outstanding principal amount of Truckee Donner Public Utility District Refunding Certificates of Participation (Water System Improvement Projects) Series 1996 (the "Refunded Certificates"), (ii)finance capital improvements to the District Water System (as more particularly described under the caption "THE 2006 PROJECT" (the "2006 Project")), (iii)make a deposit to the Reserve Fund, and (iv)pay certain costs of delivery. Authority for Certificates. The Certificates are executed and delivered under a Trust Agreement, dated as of September 1, 2006(the"Trust Agreement"),by and among the Trustee,the Truckee Donner Public Utility District (the "District") and Truckee Donner Public Utility District Financing Corporation (the "Corporation"). The Corporation has assigned to the Trustee, for the benefit of the Owners, the right of the Corporation to receive and collect the Installment Payments due from the District to the Corporation under the Installment Purchase Agreement dated as of September 1, 2006 (the "Installment Purchase Agreement") and other amounts payable by the District to the Corporation pursuant to the Assignment Agreement dated as of September 1, 2006,by and between the Trustee and the Corporation(the"Assignment Agreement"). Sources of Payment for the Certificates. The Certificates are payable from Installment Payments payable by the District and amounts on deposit in certain funds and accounts established by the Trust Agreement. The obligation of the District to make the Installment Payments is a special obligation of the District payable solely from Net Revenues of the Water System of the District (as such terms are defined in APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS). Net Revenues of the Water System of the District include the Revenues of the Water System less Operation and Maintenance Costs (as such terms are defined in APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS). See the caption"SECURITY FOR THE CERTIFICATES"herein. The obligation of the District to pay Installment Payments does not constitute an obligation of the District for which the District is obligated to levy any form of taxation or for which the District has levied any form of taxation. The obligation of the District to make Installment Payments under the Installment Purchase Agreement does not constitute a debt or an indebtedness of the District,the State of California(the"State"), or any of the political subdivisions of the State in contravention of the Constitution or statutes of the State. Under no circumstances is the District required to advance any moneys derived from any source of income other than the funds described above, nor are any other funds or property of the District liable for the payment of the Installment Payments. See the caption"SECURITY FOR THE CERTIFICATES—Revenue Pledge"herein. "Preliminary,subject to change. 1 DOCSSF/60223v6/022925-00 t 7 Certificate Insurance. (the "Insurer") has issued a commitment to issue, simultaneously with the delivery of the Certificates, a financial guaranty insurance policy(the"Policy")relating to the Certificates, effective as of the date of delivery of the Certificates. By the terms of the Policy, the Insurer agrees to pay that portion of the principal of and interest with respect to the Certificates which shall become due for payment but shall be unpaid to the extent that the Trustee has not received sufficient funds from the District. See the caption"CERTIFICATE INSURANCE"herein. The District and the Service Area. The District is situated in the Sierra Nevada Mountains, approximately 180 miles northeast of San Francisco, approximately 32 miles west of Reno, Nevada, and approximately 12 miles north of Lake Tahoe. The District was originally established on August 9, 1927. The District is currently comprised of approximately 45 square miles in eastern Nevada County, California and approximately L5 square miles in Placer County. The permanent estimated population of the District service area was approximately 15,737 as of July 2005. The District currently serves approximately 11,146 residential dwelling units and approximately 605 commercial units. The District estimates that approximately 59% of the dwelling units within the District service area are maintained as second homes. Professionals Involved in the Offering. The Bank of New York Trust Company, N.A. will act as Trustee with respect to the Certificates. Certain proceedings in connection with the execution and delivery of the Installment Purchase Agreement are subject to the approval of Stradling Yocca Carlson& Rauth, a Professional Corporation, San Francisco, California, Special Counsel to the District. Certain legal matters will be passed upon for the District and the Corporation by Porter Simon, Truckee, California, General Counsel to the District and the Corporation. Fulbright&Jaworski L.L.P.,Los Angeles, California, is acting as counsel to the Underwriter. McDonald Partners,Alamo, California is acting as financial advisor to the District. Other Information About this Official Statement. There follows in this Official Statement (and attached appendices) a brief description of the Certificates, the security for the Certificates, the District and certain other information relevant to the execution and delivery of the Certificates. All descriptions and summaries of various documents in this Official Statement do not purport to be comprehensive or definitive, and reference is made to each document for complete details of all terms and conditions. All statements in this Official Statement are qualified in their entirety by reference to each document. All capitalized terms used herein and not normally capitalized have the meanings assigned to them in the Trust Agreement or Installment Purchase Agreement, the summaries of which are included in Appendix A, unless otherwise stated in this Official Statement. The Appendices are integral parts of this Official Statement and must be read together with all other parts of this Official Statement. REFUNDING PLAN General The Certificates are being executed and delivered to provide a portion of the funds to prepay the Refunded Certificates. The Refunded Certificates were executed and delivered on December 4, 1996 representing an aggregate original principal amount of $10,905,000 under a Trust Agreement dated as of November 1, 1996 (the "1996 Trust Agreement"), by and among the Corporation, the District and U.S. Trust Company of California, N.A., as trustee. The Refunded Certificates are currently outstanding in the principal amount of$8,465,000. The District plans to apply a portion of the proceeds of the Certificates to prepay and refund on a current basis the Refunded Certificates. Pursuant to an Escrow Agreement dated as of September 1, 2006, by 2 DOCS S F/60223v6/022925-0017 and between the District and The Bank of New York Trust Company,N.A.(the"Escrow Agent"),as successor trustee under the 1996 Trust Agreement (the "Escrow Agreement"), the District will deliver a portion of the proceeds of the Certificates together with certain other money to the Trustee for deposit in the escrow fund established under the Escrow Agreement (the "Escrow Fund"). The Escrow Agent will [hold such amounts uninvested] [invest all amounts deposited in the Escrow Fund in the Federal Securities as set forth in the Escrow Agreement.] From [such amounts] [the maturing principal of the Federal Securities and related investment income] on deposit in the Escrow Fund, the Trustee will pay the regularly scheduled interest and principal with respect to the Refunded Certificates on November 15, 2006 and pay a prepayment price of the Refunded Certificates maturing after November 15, 2006 equal to 102% of the principal amount of the Refunded Certificates. The amounts held [and invested] by the Escrow Agent in the Escrow Fund are pledged solely to the payment of the Refunded Certificates. Neither the funds deposited in the Escrow Fund [nor the interest on the invested funds] will be available for the payment of debt service with respect to the Certificates. Verification independent certified public accountants, will verify the mathematical accuracy of the information provided to them as of the date of the closing on the Certificates relating to the adequacy of the amounts deposited in the Escrow Fund under the Escrow Agreement to pay when due the prepayment price of the Refunded Certificates plus accrued interest with respect thereto until the date of redemption thereof. THE 2006 PROJECT A brief description of each component of the 2006 Project is set forth below. Pursuant to the Installment Purchase Agreement,the District may substitute or add additional projects to the 2006 Project. The District expects to spend approximately $4,000,000 of Certificate proceeds to construct the Brockway Transmission Pipeline("Brockway Pipeline")during 2006. The District expects that the Brockway Pipeline will be completed in 2006. The District has complied with all bidding and environmental requirements for the Brockway Pipeline. The District expects to spend approximately $12,300,000 of Certificate proceeds to replace pipelines in fiscal years 2006-2010 ("Pipeline Replacement Project"). The 2006 portion of the Pipeline Replacement Project will be completed in 2006. The District took bids for the 2006 portion of the project and expects to take bids each year from 2007 through 2010 for the remainder of the Pipeline Replacement Project. The 2006 portion of the Pipeline Replacement Project was categorically exempt from the California Environmental Quality Act("CEQA"). The District expects to comply with all environmental requirements for the remaining portions of the Pipeline Replacement Project prior to commencing construction thereon. The District expects to spend approximately $180,000 of Certificate proceeds to install emergency generators at pump stations throughout the District. Installation of such generators is expected to be completed during 2007. The District has complied with all bidding and environmental requirements for this portion of the 2006 Project. The District expects to spend approximately$400,000 of Certificate proceeds to install a new SCADA system to regulate all of the District's pump activity and tank levels. The SCADA system is expected to be installed during 2008. The District expects to comply with all bidding and environmental requirements before installing the SCADA system. The District intends to reimburse itself for approximately $1,479,272 of prior expenditures for three Donner Lake projects, including the Donner Lake 6323 Tank landscaping project and the Donner Lake 3 DOCSSF/60223v6/022925-00 P pavement restoration project ("Donner Lake Acquisition and Construction Projects"). The Donner Lake Acquisition and Construction Projects are expected to be completed in 2006. The balance of the reimbursement will be to pay the Land Sales Trust Fund for other Donner Lake projects. The District has complied with all bidding and environmental requirements on these Donner Lake projects. Estimated Sources and Uses of Funds The anticipated sources and uses of funds with respect to the Certificates are set forth below. TRUCKEE DONNER PUBLIC UTILITY DISTRICT Refunding Revenue Certificates of Participation (Water System Improvement Projects)Series 2006 Estimated Sources and Uses of Funds Sources Par amount of Certificates $ Net Original Issue Premium Distribution Contribution(t) Transfers from Funds and Accounts(2) TOTAL $ Uses Deposit to Escrow Fund $ Deposit to Acquisition Fund Deposit to Reserve Fund Underwriter's Discount Costs of Delivery(3) TOTAL $ (1) Contribution from the District representing interest[and principal]on the Refunded Certificates accrued through October 2006. 12) Transfers from certain funds and accounts created with respect to the Refunded Certificates. (3) Includes fees for Trustee,legal fees,printing costs,rating agency fees,the Financial Guaranty Insurance Policy premium for the Certificates and other costs of delivery. THE CERTIFICATES Terms of the Certificates The Certificates will be executed and delivered in the aggregate principal amount of $ The Certificates will be dated as of the date of delivery thereof and will represent interest from such date at the rates per annum and will mature on the dates set forth on the inside front cover page of this Official Statement. Interest with respect to the Certificates will be computed based on a year consisting of 360 days and twelve 30-day months. Individual purchases will be made in principal amounts of $5,000 and integral multiples thereof. Interest with respect to the Certificates is payable by check or draft of the Trustee mailed by first class mail on May 15 and November 15 each year, beginning May 15, 2007 (each an "Interest Payment Date") to the respective owners of Certificates ("Owners") of record as of the close of business on the first day of the calendar month of such Interest Payment Date (the "Record Date") at the addresses shown on the registration books, or upon the written request received by the Trustee of an Owner of at least $1,000,000 in aggregate principal amount of the Certificates by wire transfer of immediately available funds to an account in the United States designated by such Owner prior to the applicable Record Date. 4 DOCSSF/60223v6/022925-0017 Principal of the Certificates is payable in lawful money of the United States of America upon presentation and surrender thereof at the principal corporate trust office of the Trustee. Prepayment of Certificates Optional Prepayment. The Certificates with stated maturities on or after November 15, 2017* are subject to optional prepayment prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as directed by the District in a written request provided to the Trustee at least 60 days prior to such date and by lot within each maturity, in integral multiples of$5,000, on or after November 15, 2016*, from amounts prepaid by the District pursuant to the Installment Purchase Agreement at a prepayment price equal to the principal amount of the Certificates to be prepaid, plus accrued interest evidenced and represented thereby to the date fixed for prepayments without premium. Extraordinary Prepayment from Insurance or Eminent Domain Proceeds. The Certificates are subject to extraordinary prepayment prior to their respective stated maturities,as a whole or in part on any date in the order of maturity as directed by the District in a written request provided to the Trustee at least 45 days prior to such date and by lot within each maturity in integral multiples of $5,000 from prepaid Installment Payments made by the District from Net Proceeds of insurance or condemnation awards, upon the terms and conditions of, and as provided for in, the Installment Purchase Agreement and Trust Agreement, at a prepayment price equal to the principal amount thereof plus accrued interest evidenced and represented thereby to the date fixed for prepayment, without premium. Notice of Prepayment. Notice of prepayment will be mailed, first class postage prepaid, to the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books and to the Information Services and by registered or certified overnight mail to the Securities Depository at least 30 days but not more than 60 days prior to the prepayment date. Each notice of prepayment will state the date of notice, the prepayment date, the place or places of prepayment and the Prepayment Price, will designate the maturities, CUSIP numbers, if any, and, if less than all of any such maturity is to be prepaid, the serial numbers of the Certificates of such maturity to be prepaid by giving the individual number of each Certificate or by stating that all Certificates between two stated numbers, both inclusive, have been called for prepayment, and in the case of Certificates to be prepaid in part only, the respective portions of the principal amount to be prepaid. Each such notice will also state that on said date there will become due and payable on each of said Certificates the Prepayment Price thereof or of said specified portion of the principal represented thereby in the case of a Certificate to be prepaid in part only, together with interest accrued with respect thereto to the prepayment date, and that (provided that moneys for prepayment have been deposited with the Trustee) from and after such prepayment date interest with respect thereto will cease to accrue, and will require that such Certificate be then surrendered to the Trustee. Any defect in the notice of prepayment or the mailing thereof will not affect the validity of the prepayment of any Certificate. Partial Prepayment. Upon surrender of any Certificate prepaid in part only, the Trustee will execute and deliver to the Owner thereof, at the expense of the District, a new Certificate or Certificates of authorized denominations equal in aggregate principal amount to the unprepaid portion of the Certificate surrendered and of the same interest rate and maturity. DTC and Book-Entry Only System The information under this caption concerning The Depository Trust Company ("DTC") and DTC's book-entry system has been obtained from DTC, and the District, the Trustee, and the Underwriter take no responsibility for its accuracy. See Appendix F — "DTC AND BOOK-ENTRY ONLY SYSTEM" for a *Preliminary,subject to change. 5 DOCSSF/60223 v6/022925-0017 further description of DTC and its book-entry system. Capitalized terms used under this caption and not otherwise defined have the respective meanings given to them in Appendix F. DTC will act as securities depository for the Certificates. The Certificates will be executed and delivered as fully-registered certificates, will be executed and delivered for each year in which the Certificates mature in denominations equal to the aggregate principal amount of the Certificates maturing in that year, and will be deposited with DTC. So long as Cede&Co. is the registered owner of the Certificates, as nominee of DTC, references in this Official Statement to the owners of the Certificates or the Certificate Owners mean Cede&Co.and not the actual purchasers of the Certificates. Transfer and Exchange Upon Abandonment of Book-Entry Only System If the book-entry system is no longer used with respect to the Certificates, any Certificate may, in accordance with its terms, be transferred, upon the books required to be kept by the Trustee under the Trust Agreement, by the person in whose name it is registered, in person or by such person's duly authorized attorney, upon surrender of such Certificate for cancellation at the principal corporate trust office of the Trustee, accompanied by delivery of a duly executed written instrument of transfer in a form approved by the Trustee. Whenever any Certificate or Certificates are surrendered for transfer, the Trustee will execute and deliver a new Certificate or Certificates of the same maturity, for a like aggregate principal amount and of authorized denomination or denominations. The Trustee may charge a sum for each new Certificate executed and delivered upon any transfer. The Trustee may require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of Certificates the Trustee will cancel and destroy the Certificates it has received. Certificates may be exchanged at the principal corporate trust office of the Trustee, for a like aggregate principal amount of Certificates of other authorized denominations of the same maturity. The Trustee may charge a sum for each new Certificate executed and delivered upon any exchange except in the case of any exchange of temporary Certificates for definitive Certificates. The Trustee may require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of Certificates the Trustee shall cancel and destroy the Certificates it has received. The Trustee will not be required to register the exchange or transfer of any Certificate (i)within 15 days preceding selection of Certificates for prepayment or(ii) selected for prepayment. Installment Payments On or before May 10 and November 10 of each year commencing on May 10, 2007 (each, an "Installment Payment Date"), the District will pay to the Trustee an amount equal to the Installment Payment coming due on such Installment Payment Date. Any moneys on deposit in the Certificate Payment Fund on each Installment Payment Date (other than amounts required for the payment of past due principal or interest with respect to any Certificates not presented for payment) will be credited to the payment of the Installment Payments due and payable on such date. The Trust Agreement requires that the Trustee deposit such payments in the Certificate Payment Fund for application to make principal and interest payments due with respect to the Certificates. 6 DOCSSF/60223v6/022925-0017 Set forth below is a table of the annual Installment Payments. TRUCKEE DONNER PUBLIC UTILITY DISTRICT Refunding Revenue Certificates of Participation (Water System Improvement Projects)Series 2006 Annual Principal and Interest Schedule Maturing Installment Payments (November 15) Principal Interest Total 2007 $ $ $ 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 TOTAL $ $ $ SECURITY FOR THE CERTIFICATES Each Certificate represents an undivided interest in Installment Payments to be paid by the District under the Installment Purchase Agreement. Pursuant to the Assignment Agreement, the Corporation has assigned substantially all its right, title and interest in the Installment Purchase Agreement to the Trustee, for the benefit of the Owners of the Certificates, including its right to receive Installment Payments thereunder and its right to exercise all the rights and remedies conferred on the Corporation under the Installment Purchase Agreement. The obligation of the District to make the Installment Payments is a special obligation of the District payable solely from Net Revenues of the Water System of the District and does not constitute a debt of the District or of the State or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. 7 DOCSS F/60223 v6/022925-0017 Revenue Pledge All Revenues and all amounts on deposit in the Revenue Fund and the Rate Stabilization Fund are irrevocably pledged to the payment of the Installment Payments as provided in the Installment Purchase Agreement. The Revenues will not be used for any other purpose while any of the Installment Payments remain unpaid; provided that out of the Revenues and amounts on deposit in the Revenue Fund and the Rate Stabilization Fund there may be apportioned such sums for such purposes as are expressly permitted in the Installment Purchase Agreement. Such pledge, together with the pledge created by all other Contracts and Bonds (as such terms are defined in Appendix A hereto) constitutes a first lien on Revenues and, subject to application of amounts on deposit therein as permitted in the Installment Purchase Agreement, the Revenue Fund, the Rate Stabilization Fund and the other funds and accounts created under the Installment Purchase Agreement for the payment of the Installment Payments and all other Contracts and Bonds (as such terms are defined in the Installment Purchase Agreement) in accordance with the terms of the Installment Purchase Agreement and of the Trust Agreement. The obligation of the District to make the Installment Payments is payable from Net Revenues. Net Revenues means, for any Fiscal Year, the Revenues from such Fiscal Year less Operations and Maintenance Costs for each Fiscal Year. Revenues include all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Water System, including, without limiting the generality of the foregoing, all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the District from the sale, furnishing and supplying of water or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Water System, plus the proceeds of any stand-by water availability charges, plus the connection charges and facility fees or similar charges related to the Water System, plus the earnings on and income derived from the investment of the amounts described above and on Water System reserves and amounts on deposit in the Rate Stabilization Fund, but excluding in all cases customer deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the District, revenues from Donner Lake Water Assessment District Number 00-1,and any proceeds of taxes restricted by law to be used by the District to pay bonds hereafter issued. Revenues also include all amounts transferred from the Rate Stabilization Fund to the Revenue Fund during any Fiscal Year in accordance with the Installment Purchase Agreement and shall not include any amounts transferred from the Revenue Fund to the Rate Stabilization Fund during any Fiscal Year in accordance with the Installment Purchase Agreement. THE OBLIGATION OF THE DISTRICT TO PAY INSTALLMENT PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION OF THE DISTRICT FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE DISTRICT TO PAY INSTALLMENT PAYMENTS UNDER THE INSTALLMENT PURCHASE AGREEMENT IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OR INDEBTEDNESS OF THE DISTRICT, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. Rate Covenant The District has also covenanted, to the fullest extent permitted by law, to fix, prescribe and collect rates and charges from the Water System which will be at least sufficient to yield during such Fiscal Year Net Revenues (not including amounts transferred from the Rate Stabilization Fund to the Revenue Fund in excess of 25% of Debt Service for such Fiscal Year)equal to 125% of Debt Service for such Fiscal Year. The District may make adjustments from time to time in such rates and charges and may make such classifications thereof as it deems necessary, but will not reduce the rates and charges then in effect unless the Net Revenues from such reduced rates and charges will at all time be sufficient to meet the requirements 8 DOCSSF/60223 v6/022925-0017 described in the prior paragraph. See the caption "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES"herein for a discussion of certain constitutional provisions which may affect the rate setting powers of the District. Rate Stabilization Fund The Installment Purchase Agreement establishes with the District a special fund designated as the Rate Stabilization Fund to be held by the District in trust. The District has covenanted to maintain and to hold the Rate Stabilization Fund separate and apart from other funds so long as any Contracts or Bonds remain unpaid. Money transferred by the District from the Revenue Fund to the Rate Stabilization Fund in accordance with the Installment Purchase Agreement will be held in the Rate Stabilization Fund and applied in accordance with the Installment Purchase Agreement. The District may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund and transfer such amounts to the Revenue Fund for application in accordance with the Installment Purchase Agreement or, in the event that all or a portion of the Installment Payments are discharged in accordance with the Installment Purchase Agreement, transfer all or any portion of such amounts for application to the discharge of the Installment Payments. The District does not currently expect to deposit any moneys into the Rate Stabilization Fund upon execution and delivery of the Certificates and does not currently expect to deposit any moneys into the Rate Stabilization Fund or withdraw any amounts from the Rate Stabilization Fund during the current or next four fiscal years. See the caption "THE WATER SYSTEM— Projected Operating Results & Debt Service Coverage." Limitations on Parity and Superior Obligations;Subordinate Obligations Obligations Superior to Installment Payments. The District has covenanted in the Installment Purchase Agreement that the District will not issue evidences of indebtedness or incur other obligations that are payable from or secured by a pledge of and lien on Revenues, any money in the Revenue Fund or any money in the Rate Stabilization Fund superior to the pledge securing the Installment Payments. Obligations on a Parity with the Installment Payments. The District has covenanted in the Installment Purchase Agreement not to execute any Contracts or issue any Bonds, as the case may be, except in accordance with the following provisions: (1) The Net Revenues (not including amounts transferred from the Rate Stabilization Fund to the Revenue Fund in excess of 25% of Debt Service for such Fiscal Year)for the most recent audited Fiscal Year preceding the date of adoption by the Board of Directors of the District (the "District Board")of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the District and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the District, shall have produced a sum equal to at least 125% of the Debt Service for such Fiscal Year;and (2) The Net Revenues (not including amounts transferred from the Rate Stabilization Fund to the Revenue Fund in excess of 25% of Debt Service for such Fiscal Year)for the most recent audited Fiscal Year preceding the date of execution of such Contract or the date of adoption by the District Board of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the Water Service approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the District, shall have produced a sum equal to at least 125% of(x)the Debt Service for such Fiscal Year plus (y)the Debt Service which would have accrued on any Contracts 9 DOGS SF/60223v6/022925-0017 executed or Bonds issued since the end of such Fiscal Year assuming such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year plus (z)the Debt Service which would have accrued on the Contract to be executed or Bonds to be issued had such Contract been executed or Bonds been issued at the beginning of such Fiscal Year;and (3) The estimated Net Revenues (not including amounts transferred from the Rate Stabilization Fund to the Revenue Fund in excess of 25% of Debt Service for such Fiscal Year)for the then current Fiscal Year and for each Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Parity Project,as evidenced by a certificate on file with the District, including(after giving effect to the completion of all such uncompleted Parity Projects) an allowance for estimated Net Revenues (not including amounts transferred from the Rate Stabilization Fund to the Revenue Fund in excess of 25% of Debt Service for such Fiscal Year) for each of such Fiscal Years arising from any increase in the income, rents, fees, rates and charges estimated to be fixed, prescribed or received for the Water Service and which are economically feasible and reasonably considered necessary based on projected operations for such period, as evidenced by a certificate of the Manager on file with the District, will produce a sum equal to at least 125% of the estimated Debt Service for each of such Fiscal Years, after giving effect to the execution of all Contracts and the issuance of all Bonds estimated to be required to be executed or issued to pay the costs of completing all uncompleted Parity Projects within such Fiscal Year, assuming that all such Contracts and Bonds have maturities, interest rates and proportional principal repayment provisions similar to the Contract last executed or then being executed or the Bonds last issued or then being issued for the purpose of acquiring and constructing any of such uncompleted Parity Projects. Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased in any Fiscal Year in which Bonds or Contracts(outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts)not being refunded are outstanding. Subordinate Obligations: The District may at any time issue evidence of indebtedness or incur other obligations that are payable from or secured by a lien on Revenues, money in the Revenue Fund or any money in the Rate Stabilization Fund subordinate to the Installment Payments, Contracts and Bonds pursuant to the terms of the Installment Purchase Agreement. Reserve Fund Pursuant to the Trust Agreement, the Trustee will establish a Reserve Fund which the Trustee will maintain and hold in trust separate and apart from other funds held by it so long as any Installment Payments remain unpaid. The Trustee will deposit in the Reserve Fund the amounts required to be deposited therein pursuant to the Installment Purchase Agreement and the Trust Agreement and apply moneys in the Reserve Fund in accordance with the Trust Agreement. Moneys in the Reserve Fund will be invested in Permitted Investments which will mature on or before the date when such moneys are scheduled to be needed. The Reserve Fund is required to be initially funded in an amount equal to $ ` and, thereafter in an amount equal to the lesser of$ ` and the maximum principal of and interest with respect to the Certificates due in the then current or any future Fiscal Year (the "Reserve Requirement"). For the purpose of determining the amount in the Reserve Fund, all Permitted Investments credited to the Reserve Fund will be valued at the lower of cost(inclusive of all interest accrued but not paid),or book value. If one business day prior to any Payment Date the moneys in the Certificate Payment Fund are insufficient to make the payments required by the Trust Agreement with respect to Certificates on such Preliminary,subject to change. 10 DOCSS F/60223 v6/022925-0017 Payment Date, the Trustee will transfer from the Reserve Fund to the Certificate Payment Fund the amount of such insufficiency. In the event that the Trustee has transferred moneys from the Reserve Fund to the Certificate Payment Fund in accordance with the Trust Agreement, upon receipt of the moneys from the District to increase the balance in the Reserve Fund to the Reserve Requirement, the Trustee will deposit such moneys in the Reserve Fund. If the amount available and contained in the Reserve Fund exceeds an amount equal to the Reserve Requirement and if the District is not then in default under the Installment Purchase Agreement, the Trustee will semiannually on or before the fifth Business Day prior to each Payment Date withdraw the amount of such excess from the Reserve Fund and will deposit such amount in the Interest Fund, and for such determination the Trustee will make a valuation of the Reserve Fund as often as it may deem appropriate, and in any event on or before the fifth Business Day prior to each Payment Date in each year. In addition, the Trustee will, on the date all or any portion of the Certificates are discharged in accordance with the Trust Agreement, value the Reserve Fund in accordance with the Trust Agreement and withdraw the excess, if any, on deposit in the Reserve Fund and transfer such amount to or in accordance with the written direction of the District. Except for such withdrawals, all moneys in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of paying principal, Prepayment Price and interest with respect to the Certificates in the event that no other moneys of the District are available therefore. CERTIFICATE INSURANCE The following information has been provided by the Insurer and has not been verified, and is not guaranteed as to accuracy or completeness, by the District or the Underwriter. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained and incorporated herein by reference is correct. Reference is made to Appendix D for a specimen of the Policy. [TO COME FROM INSURER] THE DISTRICT General The District was formed and operates under the State of California Public Utility District Act (the "Act"). The District is situated in the Sierra Nevada Mountains, 180 miles northeast of San Francisco, 32 miles west of Reno, Nevada, and 12 miles north of Lake Tahoe. The District was originally established on August 9, 1927 and is currently comprised of approximately 45 square miles in eastern Nevada County, California (the "County" and "State", respectively) and approximately 1.5 square miles in Placer County, including the town of Truckee. The District is the sole provider of water service within the District. The District currently provides water and electric service to customers within the Truckee and Donner Lake areas, with the water and electric systems(the"Water System"and"Electric System", respectively)each maintained and operated separately. The District is approximately 68% developed based on the current projection of buildout which is projected to be in 2025 with respect to commercial development and in 2030 with respect to residential development. Truckee was established as a community in 1862 and became an important location on the Central Pacific Railroad, the first transcontinental railroad completed in 1869. At the east end of Donner Pass, Truckee has remained an important transportation center as the gateway to the mountain pass leading to the west and San Francisco. Truckee was incorporated in 1993 and has become an important center of tourism due to the proximity to the Donner Pass and Lake Tahoe area ski resorts and summer recreational activities. 11 DOCSSF/60223 v6/022925-0017 Governance and Management The District, owned by the registered voters of the District, is governed by a five member Board of Directors (the "Board"). The Directors are elected by the registered voters of the District and serve four-year terms. The current directors,their occupations and the expiration dates of their terms are set forth below. Director Expiration of Term Occupation J.Ron Hemig,President December 1, 2006 Realtor Tim Taylor,Vice President December 5, 2008 Engineer Joseph R.Aguera December 5, 2008 Retired Patricia S.Sutton December 1,2006 Paving Company Owner William L.Thomason December 5,2008 Certified Public Accountant District Powers The District has broad general powers over the use of water within District boundaries, including the right of eminent domain and the authority to acquire, control, distribute, store, spread, sink, treat, purify, reclaim, process and salvage any water for beneficial use, to provide sewer service, to sell treated or untreated water, to contract with the United States, other political subdivisions, public utilities, and other persons, and, subject to certain constitutional limits,to levy taxes on lands. Employees and Employee Benefits There are currently 67 full time employees working for the District, of whom 20 are devoted to water service, 18 are devoted to electrical service and 29 are devoted to administration and support services. The majority of employees are members of the International Brotherhood of Electrical Workers, Local 1245 (the "IBEW") and are covered by a contract between the District and the IBEW that expires December 31, 2006. The employees of the District have never conducted a strike against the District. Day-to-day management of the District is delegated to the General Manager(the"General Manager"), Peter L. Holzmeister. Mr. Holzmeister has served as General Manager since April 30, 1984.He has a Masters Degree in Public Administration. Mr. Holzmeister was Assistant Town Manager of Wilmington, Massachusetts from 1974 to 1978 and City Manager of Grove City, Pennsylvania from 1978 to 1984. Oversight of the Water System of the District is delegated to the Water Utility Director, Raymond Edward Taylor. Mr. Taylor has served as Water Utility Director since March 5, 1997. He has over thirty-one years of management experience in utility and public works, operation, maintenance and engineering. Mr. Taylor's previous work history includes Public Works Director of Los Altos Hills, California. and General Services Director(Public Works)of Redwood City,California. The District previously sponsored a 401(a) defined contribution plan (the "401(a) Plan") for District management and employees and previously sponsored a single employer defined benefit plan for all District bargaining unit employees who have at least one year of service. On August 21, 2004, the District merged the 401(a) Plan and the existing pension plans into the California Public Employees' Retirement System ("CalPERS"). The CalPERS plan is an agent multiple-employer plan administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State. As a result of the merger, 401(a) Plan assets of$875,595 were transferred to CalPERS to fund future benefits for active participants. In addition, $185,000 of the assets of the pension plan were distributed to existing retirees or beneficiaries which satisfied the obligation of the District for future benefit payments to such retirees and beneficiaries. The remaining pension plan assets of$1,070,252 were transferred to CalPERS to fund future benefits for active participants. There are no further obligations under the prior 401(a) Plan or the prior pension plan. 12 DOCS SF/60223v6/022925-0017 The annual Ca1PERS plan pension cost of the District for the years ended December 31, 2005 and 2004, respectively, was $907,711 and $284,937 and was equal to the required and actual contributions of the District as determined by the May 31, 2004 initial actuarial valuation using the entry age normal actuarial cost method with the contributions determined as a percent of payroll. The unfunded actuarial accrued liability of the plan is being amortized through 2017. The District maintains two 457 deferred compensation plans for District employees. One plan is with the International City Management Association. The other plan is with CalPERS. All contributions are made through payroll deferrals by employees. The District does not make any contributions to these two plans. The employees make all investment decisions. All of the monies invested belong to the employees. The District provides post employment health care to all eligible employees. The cost of post employment health care was$47,508 and$41,810 for 2005 and 2004,respectively, net of retiree contributions. The Governmental Accounting Standards Board (GASB) recently published Statement No. 45, requiring governmental agencies that fund post-employment benefits on a pay-as-you-go basis, such as the District (beginning for the District with fiscal year 2008, to account for and report the outstanding obligations and commitments related to such post-employment benefits in essentially the same manner as for pensions. The District recently received an analysis from the National Rural Electric Cooperative Association (NRECA) which estimated the current actuarial present value of total projected benefits with respect to post retirement health benefits at $3,511,800 and that the annual cost of funding the accrued and current benefits would be approximately $198,800 per year through 2036. Of such amount, approximately half will be allocated to the Water System. Budget Process The operating budget takes the form of a one-year financial plan which is adopted by the Board. The budgetary process begins each year on or about August 1, with final approval generally occurring in late December. The fiscal year 2006 budget was approved on February 15, 2006. The first draft of the fiscal year 2007 budget is expected to be presented to the Board on October 4, 2006. The final fiscal year 2007 budget is expected to be adopted during December 2006 to take effect on January 1,2007. District Insurance The District maintains property insurance and boiler and machinery coverage on a replacement cost basis, currently valued at $32,501,220, for certain risks of physical damage, including flood and earthquake ($5,000,000 sublimit on earthquake coverage), with a deductible of $1,000 for property loss, a deductible of $10,000 for boiler and machinery loss, a 2% deductible for flood damage, and a 5% deductible for earthquake damage. The District also maintains general and automobile liability insurance with limits of$1,000,000 for each occurrence with no deductible on liability coverage and a $1,000 deductible on auto physical damage. The District also carries umbrella liability insurance, with limits of $11,000,000, in excess of the underlying general and auto liability insurance. The District also maintains pollution liability insurance (with limits of $1,000,000 for each incident/aggregate), public liability insurance (with limits of $1,000,000/$2,000,000 aggregate), employment practice liability (with limits of $5,000,000 per offense/aggregate), and crime insurance (with limits of $500,000 each on employee theft, forgery or alteration, money and securities,computer fraud). THE WATER SYSTEM OF THE DISTRICT Water Supply General. Currently, all of the water the District produces comes from deep drilled wells. These wells withdraw from the Martis Valley Aquifer, which is made up of a collection of soils that are approximately 1,000 feet thick. These soils are underlain by impervious bedrock, which acts as a bowl to hold water in the 13 DOCSSF/60223v6/022925-0017 basin. An area of over 50 square miles drains into the Martis Valley. The basin holds a large volume of water that has collected in the soil over hundreds of years. Present withdrawals are less than the estimated average annual recharge, and hence current usage is not depleting the groundwater. Hydrogeologic studies conclude that the amount of water held in the basin is sufficient to supply current demands for over 100 years even if no additional water enters the basin. Droughts of even five years are insignificant short term events that will not significantly influence the available water resources of the basin. The District does not currently treat any of the groundwater pumped from the Martis Valley Aquifer. Federal law prohibits the diversion of water in the Truckee basin for use outside of the Truckee basin. The District also has surface water rights in Donner Lake, McGlashan Springs and Tonnini Springs. The District does not currently utilize these surface water rights. Although the District may use certain of such surface water rights at some point in the future, such use would entail significant capital improvements. The Water System General. The existing water facilities of the District can be grouped into four basic components: 1) water sources, 2)pumping stations, 3)storage tanks,and 4)pipelines. The District produces potable water from a total of 12 deep drilled wells. Output of these 12 wells ranges from a high of roughly 2,200 gallons per minute from the Airport Well to a low of approximately 37 gallons per minute from the Hirshdale Well. Maximum daily production capacity exceeds 16.5 million gallons per day. Currently, maximum day demands are 12.7 million gallons per day and average daily demand is just over 6.1 million gallons per day. The District serves a region that ranges in elevation from less than 5,700 feet above sea level in Hirshdale to over 7,400 feet above sea level in the western end of the District located close to the crest of the Sierra Nevada Mountains. There are currently eleven service zones within the District. The District uses 28 different pump stations to lift water to the 49 different pressure zones throughout the service area. Within these 28 pump stations are a total of 66 pumps. The capacity of the pump stations is sufficient to satisfy present demands, but continued growth will require expansion at a future date. Proceeds of the Certificates will be applied to provide a portion of such expansion. There are 36 water storage tanks within the District. These tanks are used to store water for fire protection and emergencies, and to augment the capacities of the wells and pumping stations during short term (hourly)peak demand periods. Of the 36 tanks, one is an elevated steel tank(water tower),one is a half-buried concrete tank, and the remaining 34 are steel tanks whose base rests on the ground. The combined storage capacity of these tanks is about 9.4 million gallons. The final component of the Water System of the District is the piping network that transmits and distributes water throughout the service areas. The piping within the District is varied as to age, material type, size, condition and purpose. The majority of the piping is either six or eight inch diameter welded steel pipe and is approximately 30 to 40 years old. There are sections that are older than 50 years; others are less than a year old. Pipes range in diameter from 2 inch to 24 inch. Other materials found in the system are galvanized iron, asbestos cement, ductile iron and polyvinyl chloride(PVC). The total length of piping is more than 202 miles. The piping is generally in satisfactory condition. Service Area. The water service area of the District encompasses property within both Nevada County and Placer County. Presently, there are an estimated 11,146 residential dwelling units and 605 commercial units in the District. The District currently estimates that approximately 59% of the dwellings in the service area of the District are maintained as second homes. Within the current service area, there are also 2,863 undeveloped parcels within 100 feet of a water main, which are subject to a stand-by water availability charge. When the service area reaches build out, estimates indicate that there will be 16,587 residential dwelling units and 659 commercial units. 14 DOCSSF/60223v6/022925-0017 Currently, the demand for water in the District is approximately 8,790 gallons per minute (gpm), or 12.7 million gallons on the maximum use day(mgd). At build out, the maximum day demand is estimated to increase to approximately 17,680 gpm or 25.5 mgd. Historic Water Production. Accounts and Sales Revenues. The following tables show the water production, accounts and sales revenues of the Water System of the District for the five most recent fiscal years. TRUCKEE DONNER PUBLIC UTILITY DISTRICT Historic Water Production and Accounts Total Production (Million %Increase/ Commercial %Increase/ Residential %Increase/ Year Gallons) (Decrease) Accounts (Decrease) Accounts (Decrease) 2001 1,736 3.83% 481 (3.86)% 8,130 13.76% 2002 2,198 26.61 548 14.00 10,268 26.30 2003 2,208 .45 563 2.72 10,491 2.17 2004 2,424 9.78 582 3.31 10,739 2.37 2005 2,206 (8.99) 605 3.98 11,146 3.79 TRUCKEE DONNER PUBLIC UTILITY DISTRICT Historic Sales Revenues %Increase/ %Increase/ Year Residential (Decrease) Commercial (Decrease) 2001 $3,944,222 17.69% $476,195 (19.86)% 2002 5,013,242 27.10 647,822 36.04 2003 5,768,092 15.06 678,423 4.72 2004 6,254,756 8.44 825,109 21.62 2005 6,609,311 5.67 844,812 2.39 Source: District. Manaizement Discussion of Historic Water Production Accounts and Sales Revenues. For fiscal year 2005, water production averaged 6.04 million gallons per day (mgd) for an annual total of 2,206 million gallons. The reduction in production in 2005 reflects the effect of a wet and late spring in the District, leading to the drop in water demand. Such reduced water demand did not result in a reduction in sales revenues as residential customers pay a flat monthly rate regardless of actual usage. The large increase in water production, accounts, and sales revenues in 2002, was a result of the acquisition by the District of the Donner Lake and Glenshire water systems. Projected Water Production, Accounts and Sales Revenues. The following tables show the water production, accounts and sales revenues from the Water System for the current and next four fiscal years as projected by the District. 15 DOCSSF/60223 v6/022925-0017 TRUCKEE DONNER PUBLIC UTILITY DISTRICT Projected Water Production and Accounts Total Production (Million %Increase/ Commercial %Increase/ Residential %Increase/ Year Gallons) (Decrease) Accounts (Decrease) Accounts (Decrease) 2006 2,386 8.3% 620 2.5% 11,396 2.2% 2007 2,566 7.5 635 2.4 11,646 2.2 2008 2,746 7.0 650 2.4 11,896 2.1 2009 2,926 6.6 665 2.3 12,146 2.1 2010 3,107 6.2 680 2.3 12,396 2.1 TRUCKEE DONNER PUBLIC UTILITY DISTRICT Projected Sales Revenues %Increase/ %Increase/ Year Residential (Decrease) Commercial (Decrease) 2006 $7,042,267 6.55% $910,862 7.82% 2007 7,617,960 8.17 988,744 8.55 2008 8,234,244 8.09 1,072,685 8.49 2009 8,405,747 2.08 1,097,461 2.31 2010 8,576,625 2.03 1,122,206 2.25 Source: District. Management Discussion of Projected Water Production Accounts and Sales Revenues. The District anticipates water production increases of about 7% annually over the next five years. Average day water production is expected to increase to 8.51 mgd for an annual total of 3,107 million gallons. These projections reflect the projects planned and/or currently under construction within the District, including a large number of residential units, along with significant commercial development, a golf course and a community college campus. Actual water use will vary based on, among other things, climatic conditions. The effect of such variation on water sales revenues, however, is limited because residential water customers pay a flat monthly rate,regardless of actual usage. 16 DOCSSF/60223v6/022925-0017 Largest Customers The following table sets forth the ten largest customers of the Water System of the District as of December 31,2005,as determined by the amount of their respective annual payments. TRUCKEE DONNER PUBLIC UTILITY DISTRICT Largest Customers—Fiscal Year 2005 Customer Water Usage") Annual Payments Tahoe Mountain Club Company 110,493,610 $50,512.95 Coyote Moon Golf course 65,606,253 37,736.41 Tahoe Donner Association 34,444,057 99,153.32 Truckee Tahoe Unified School District 19,619,630 31,703.60 Donner Creek Mobile Home Park 13,278,000 16,646.71 Bob Gales/Coachland(mobile home park) 13,225,000 24,673.43 Tahoe Forest Hospital 11,508,813 26,016.55 Truckee Donner Recreation 10,161,512 23,339.40 Sierra Village Apartments 4,918,390 12,641.61 Truckee Cemetery District 4,506,999 7,289.34 TOP TEN TOTAL 287,762,264 $329,713.32 TOTAL SYSTEM 2,206,000,000 $7,563,132.00 Gallons. Source: District. These ten customers accounted for approximately 13.04% of total water usage and 4.36% of total revenues from sales to customers for the year ended December 31, 2005. Water System Rates and Charges General. The District Board has rate setting authority as provided under the Act. The District is not subject to the jurisdiction of, or regulation by, the California Public Utilities Commission. See the caption "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES" herein for certain limitations of the rate setting authority of the District Board. The District annually determines the adequacy of the Water System rate structure after full consideration of expected operations, maintenance and capital costs. The District currently sets water charges to pay costs of groundwater pumping and current operating expenses for the Water System. Capital improvements and debt service payments are funded from water charges,facilities fees and connection fees. User Fee System Overview. The District currently recovers the cost of the Water System operation, maintenance and replacement and capital expansion through a user fee system. The major components of the user fees currently imposed by the District are: 1. Water service rates(charges which are divided into rates for residential and commercial property); 2. Area Specific Surcharges; 3. Stand-by water availability charges;and 4. Connection charges and facilities fees. Water Service Rates. The Board has approved increases in certain rates and charges effective January 1,2007 and January 1, 2008. No further approval is necessary before such increases take effect. 17 DOCSSF/60223 v6/022925-0017 The water service rates for residential customers, which include single family homes, individual condominium units and townhouse units, relate to the pressure zone in which such service is located. A fixed monthly base rate of$45.85 is currently applied to all zones. The fixed monthly base rate increases to$48.57 effective January 1, 2007 and to$51.48 effective January 1, 2008. In addition, an approximate zonal pumping cost is added to the base monthly rate yielding the following combined rates for the current fiscal year and for fiscal years 2007 and 2008: TRUCKEE DONNER PUBLIC UTILITY DISTRICT Residential Water Service Rates(plus hydrant 75 cents) Monthly Rate Monthly Rate Monthly Rate Effective Effective Effective Zone March 3, 2006 January 1, 2007 January 1, 2008 Zone 1 $48.47 $51.38 $54.46 Zone 2 50.80 53.85 57.08 Zone 3 51.88 54.99 58.29 Zone 4 53.05 56.23 59.60 Zone 5 53.74 56.96 60.38 Zone 6 54.18 57.43 60.88 Zone 7 56.87 60.28 63.90 Zone 8 58.58 62.09 65.82 Zone 9 59.24 62.80 66.56 Zone 10 62.92 66.69 70.69 Zone 11 66.43 70.42 74.64 The water service rates for commercial users, including multiple dwelling units, trailer parks, and other commercial establishments,are as follows: TRUCKEE DONNER PUBLIC UTILITY DISTRICT Commercial Water Service Rates Monthly Rate"' Monthly Rate(2) Monthly Rate Size Gallons Per Month Effective Effective Effective Service AllowanceM March 3, 2006 January 1, 2007 January 1, 2008 3/a" 6,000 $40.03 $42.43 $44.97 1" 11,000 47.74 50.61 53.64 1 t/a" 17,000 57.47 60.91 64.57 1 'h" 249000 67.12 71.14 75.41 2" 43,000 92.25 97.79 103.66 3" 96,000 154.44 163.71 173.53 4" 171,000 220.98 234.24 248.30 An additional charge is made for use in excess of allowance,as show below. The allowance is not scheduled to increase in fiscal years 2007 and 2008. (2) Does not include zone charge,as shown below. Monthly water used by a commercial user in excess of the above allowance is currently charged and will be charged in fiscal years 2007 and 2008 as follows: 18 DOCSSF/60223 v6/022925-0017 Monthly Charge(l) Monthly ChargeM Monthly Charge(l) Additional Monthly Effective Effective Effective Water Usage March 3, 2006 January 1, 2007 January 1, 2008 0 to 16,000 gallons $1.79 $1.89 2.01 16,000-56,000 gallons 1.41 1.49 1.58 56,000-96,000 gallons 1.12 1.19 1.26 96,000 and above .91 .97 1.03 Per 1,000 gallons. The following zone charge for commercial property per 1,000 gallons is currently added and will be added for fiscal years 2007 and 2008 for all water used: Monthly Rate Monthly Rate Monthly Rate Effective Effective Effective Zone March 3, 2006 January 1, 2007 January 1, 2008 l $.312 $.33 $.35 2 .572 .61 .64 3 .715 .76 .80 4 .859 .91 .97 5 .928 .98 1.04 6 1.002 1.06 1.13 7 1.322 1.40 1.49 8 1.505 1.59 1.69 9 1.579 1.67 1.77 10 2.011 2.13 2.26 11 2.433 2.58 2.73 Per 1,000 gallons. Area Specific Surcharges. The District collects area specific user charges to recover the costs of improvements in certain developments. The District currently serves 1,279 connections in the Glenshire portion of the service area (1,273 residential and 6 commercial) and serves 1,306 connections in the Donner Lake portion of the service area (1,246 residential and 60 commercial). The District presently collects a monthly charge of $10.75 per customer per month in the Glenshire portion of the service area. In June of 2006, the District approved a $6.65 per customer per month surcharge for customers in the Donner Lake portion of the service area. The new Donner Lake surcharge will become effective on October 1, 2006. Standby Water Availability Charges. Any local agency which is authorized by law to provide water service and which is providing such service within its jurisdiction may fix, pursuant to Government Code Section 54984 et seq., a standby charge on land to which water services are available, whether or not the water services are actually used. Since 1975, the District has levied a standby charge for the availability of water service to undeveloped property. The annual standby charge, which was fixed at $5.00 per parcel for parcels less than one acre and$10.00 per parcel for parcels one acre or larger, was increased to$80 annually per parcel on March 18, 1991 for undeveloped parcels in Nevada County and on April 8, 1991 for undeveloped parcels in Placer County, and became effective for the 1991-1992 fiscal year. The standby charges do not apply to the Glenshire and Donner Lake portions of the service area. Connection Charges and Facilities Fees. The District collects connection charges and facilities fees. The connection charge is largely based on the actual cost of connecting new service lines to the Water System. The District currently charges the following connection charges: 19 DOCSSF/60223 v6/022925-0017 TRUCKEE DONNER PUBLIC UTILITY DISTRICT Water System Connection Charges Meter Size (inches) Connection Charge 5/8 x 3/a" $1,145 3/a" 1,180 Above 1" Actual Cost The facilities fee is a charge made by the District to cover the pro rata share of the cost of the water supply facilities which are required to serve that customer. The cost of future source and storage facilities are included in the facilities fee in order to maintain an equitable distribution of benefits received between present and future service connections. The facilities fee includes cost allowances for domestic water and residential fire protection, rated at 750 gpm for two hours. In the event that a service requires greater or less than the allotted fireflow of 750 gpm,the fee may be adjusted accordingly. For residential users, water facilities fees are charged per square feet of living space for the area to be constructed. The facilities fee is currently $1.64 times the square feet of living space as determined in the building permit. The following table lists the current facilities fees for commercial users. TRUCKEE DONNER PUBLIC UTILITY DISTRICT Commercial Water System Facilities Fees Size of Service Pipe Facilities Fees(]) 5/8 x 3/a" $3,358 3/a" 5,037 1" 8,395 16,790 2" 26,864 3" 50,370 4" 83,950 6" 167,900 If a tap and/or road crossing is necessary,the charge will be the actual cost. Collection Procedures. Billings for water services provided are collected on a monthly basis. On average, write-offs for monthly water service are less than one-tenth of one percent. Standby charges are collected twice annually with ad valorem property tax bills by the Counties of Nevada and Placer. Nevada and Placer Counties allocate standby costs assessed using the "Teeter" allocation method. Using the "Teeter" method, the Counties send 100% of the assessed amounts to the District. Connection fees and facilities fees are collected by the District at the time a property is developed. Construction cannot occur unless these fees are paid in full. As of August 28, 2006, year-to-date connection fees collected totaled approximately $133,000 and year-to-date facilities fees collected totaled approximately$663,451. Future Water System Improvements The District currently expects to undertake approximately $23,200,000 of improvements to the Water System over the next five year period. Approximately $18,000,000 of such improvements will be funded with the proceeds of the Certificates. The remainder of the improvements are expected to be funded with surplus operating revenues and facilities fees. 20 DOC S S F/60223 v6/022925-0017 Outstanding Water System Indebtedness Parity Contract Payable From Net Revenues. The District entered into a loan agreement dated August 13, 1992, by and between the Department of Water Resources ("DWR") and the District, for a loan in the amount of$5,000,000 under the Safe Drinking Water Bond Law of 1986 (the "DWR Proposition 55 Loan"). The DWR Proposition 55 Loan was used to finance capital improvements to the public water supply and to reduce water quality hazards. As of December 31, 2005,the DWR Proposition 55 Loan was outstanding in the amount of $3,728,336. Under the DWR Proposition 55 Loan, the District is obligated to pay DWR approximately $306,188 in 2006, and per year thereafter, with final payment of $133,847 due in 2021. Payments made by the District to DWR under the DWR Proposition 55 Loan will be payable from Net Revenues on parity with the Installment Payments. Subordinate Contracts Payable From Net Revenues. The District entered into a loan agreement dated June 28, 2004, by and between DWR and the District pursuant to which the District drew down $12,732,965 (exclusive of other costs) under the Safe Drinking Water Revolving Fund Law of 1997 (the "DWR Loan"). The DWR Loan was used for certain capital improvements to the water system at Donner Lake. As of December 31, 2005, the DWR Loan was outstanding in the amount of$11,823,444. Under the DWR Loan,the District is obligated to pay DWR $400,426 in 2006 and approximately $800,852 each year thereafter, with final payment due in 2026. The obligation of the District to make payments under the DWR Loan is secured by assessments levied in the Donner Lake area of the District(the "Donner Lake Assessments"). In the event that Donner Lake Assessments are insufficient to pay the DWR Loan, the District is obligated to pay the shortfall from Revenues. The obligation to pay such shortfall from Revenues is payable subordinate to Contracts and Bonds, including the Installment Purchase Agreement. The District has entered into capital leases from time-to-time to finance various improvements to the Water System and related equipment ("Capital Leases"). As of December 31, 2005 the outstanding principal amount of the Capital Leases was $3,068,517. The term of the Capital Leases ranges from 2007 to 2017. The Capital Leases are secured by the improvements financed and are payable from Revenues subordinate to Contracts and Bonds, including the Installment Purchase Agreement. Water System Financial Information Financial Statements. Copies of the most recent audited financial statements of the District prepared by Virchow Krause & Company LLP, Madison,Wisconsin (the"Auditor")are attached as Appendix B hereto (the "Financial Statements"). The Auditor letter concludes that the audited financial statements present fairly, in all material respects, the financial position of the District as of December 31, 2005, and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Historic Operating Results and Debt Service Coverage The following table is a summary of operating results of the Water System of the District for the last five fiscal years. These results have been derived from the financial statements of the District but exclude certain non-cash items and include certain other adjustments. The table has not been audited by the Auditor. 21 DOCSSF/60223v6/022925-0017 TRUCKEE DONNER PUBLIC UTILITY DISTRICT Historic Operating Results&Debt Service Coverage Fiscal Year Ending December 31 2001 2002 (200 2004 2005 Revenues Sales to Customers $4,493,779 $5,719,245 $6,508,637 $7,089,121 $7,563,132 Standby Fees 258,122 159,040 148,860 196,080 183,119 Investment Income 225,130 494,797 185,530 150,349 258,352 Facilities Fees(2) 416,131 947,438 834,233 843,363 1,308,200 Connection Fees(2)(3) 121,320 207,551 235,109 343,581 405,987 Other(4) 174,537 272,803 392,098 402,932 417,541 Total Revenues $5,689,019 $7,800,874 $8,304,467 $9,025,426 $10,136,331 Operating&Maintenance Expenses Operations and Maintenance $2,410,254 $3,318,100 $3,871,361 $4,157,384 $4,229,691 Administration and General 1,159,609 1,192,054 1,166,604 1,413,250 1,525,485 Customer Services 173,524 251,294 255,477 290,500 297,517 Total Operations&Maintenance Expenses $3,743,387 $4,761,448 $5,293,442 $5,861,134 $6,052,693 Net Revenues $1,945,632 $3,039,426 $3,011,025 $3,164,292 $4,083,638 Parity Debt Service(5) 1996 Installment Purchase Agreement $802,221 $802,947 $802,886 $802,038 $800,402 DWR Proposition 55 Loan 306,422 306,422 306,422 306,423 306,422 Interest on Parity Debt Service Reserve Funds (19,123) (19,736) (20,349) 2f 6,202) (32,362) Total Parity Debt Service $1,089,520 $1,089,634 $1,088,960 $1,082,259 $1,074,463 Parity Debt Service Coverage 1.79 2.79 2.77 2.92 3.80 Net Revenues Remaining for Subordinate Debt Service $856,112 $1,949,792 $1,922,065 $2,082,034 $3,009,175 Subordinate Debt Service(5)(6) $72,695 $112,681 $390,114 $427,105 $435,280 Parity and Subordinate Debt Service Coverage 1.67 2.53 2.04 2.10 2.70 Balance Available for Capital Projects or Other Purposes $783.417 $1,837111 $1531951 $1,654,929 $2,573,895 NOTES (1) Excludes interest component of Donner Lake Assessment and interest on parity debt service reserve funds. 12) Appears as contributed capital in the Financial Statements of the District. (3) Historically,connection fees were recognized in the year in which the connection to the Water System was effected rather than the year in which the connection fee was allocated. (4) Includes interdepartmental sales. (5) Debt service presented on an accrual basis. (6) Represents payments on Capital Leases. The DWR Loan,which is secured by Donner Lake Assessments,is excluded from subordinate debt service. Source: District. 22 DOGS SF/60223 v 6/02292 5-0017 TRUCKEE DONNER PUBLIC UTILITY DISTRICT Projected Operating Results&Debt Service Coverage Fiscal Year Ending December 31 200 00 20E 2M 29 2010 Revenues Sales to Customers(`) $7,953,129 $8,692,690 $9,391,675 $9,593,547 $9,791,428 Standby Fees 184,720 184,720 184,720 184,720 184,720 Investment Income(2) 165,033 380,179 418,891 476,996 538,293 Facilities Fees 782,991 782,991 782,991 782,991 782,991 Connection Fees(3) 302,719 302,719 302,719 302,719 302,719 Other14) 242,045 247,609 253,368 259,328 265,497 Total Revenues $9,630,638 $10,590,908 $11,334,364 $11,600,302 $11,865,648 Operating&Maintenance Expenses Operations and Maintenance(5) $4,182,029 $4,307,490 $4,436,715 $4,569,816 $4,706,910 Administration and General(6) 1,722,485 1,774,160 1,827,384 1,882,206 1,938,672 Customer Services(7) 302,647 311,726 321,078 330,711 340,632 Total Operations&Maintenance Expenses $6,207,161 $6,393,376 $6,585,177 $6,782,732 $6,986,214 Net Revenues $3,423,477 $4,197,532 $4,749,187 $4,817,570 $4,879,434 Parity Debt Service($) Installment PurchaseAgreemene9) $250,713 $1,930,283 $1,925,075 $1,924,083 1,932,076 1996 Installment Purchase Agreement 567,423 - - - - - - - - DWR Proposition 55 Loan 306,422 306,423 306,423 306,422 306,423 Interest on Parity Debt Service Reserve Funds(10) (46,594) 9( 4,369) (94,369) (94,369) 9( 4,369) Total Parity Debt Service $1,077,965 $2,142,336 $2,137,128 $2,136,136 $2,144,129 Parity Debt Service Coverage 3.18 1.96 2.22 2.26 2.28 Net Revenues Remaining for Subordinate Debt Service $2,345,512 $2,055,196 $2,612,059 $2,681,434 $2,735,305 Subordinate Debt Service $409,044 $398,886 $388,709 $357,932 $347,660 Parity and Subordinate Debt Service Coverage 2.30 1.65 1.88 1.93 L96 Balance Available for Capital Projects or Other Purposes $1,936,468 $1,656,311 $2,223,350 $2,323,502 $2,387,644 NOTES (1) Projected sales based upon projected increases of 250 new residential units and 15 new commercial units served by the District each year,and assumes the water rates and charges set forth under the caption"THE WATER SYSTEM OF THE DISTRICT-Water System Rates and Charges." c2) Excludes interest component of Donner Lake Assessment and interest on parity debt service reserve funds. Investment income is projected at 4.2%per annum based on projected District reserves. 4)( Connection fees are included in Revenues in the year received by the District. ( ) Projected to increase by approximately 2.3%per annum. (5) Projected to increase by approximately 3%per annum in fiscal years 2008 through 2010. ((J) Projected to increase by approximately 3%per annum. (7) Projected to increase by approximately 3%per annum. (8) Debt service presented on an accrual basis. (9) Installment Payments projected at[4.40]%per annum. (10) Interest on District reserves is projected at an average rate of 4.2%. (11) Represents payments on Capital Leases. The DWR Loan, which is secured by Donner Lake Assessments,is excluded from subordinate debt service. Source: District. 23 DOCS SF/60223v6/022925-0017 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIIIB Article XIIIB of the California State Constitution limits the annual appropriations of the State and of any district, county, school district, corporation or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The "base year" for establishing such appropriation limit is the 1978/79 fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if (i)the financial responsibility for a service is transferred to another public entity or to a private entity,(ii)the financial source for the provision of services is transferred from taxes to other revenues, or (iii)the voters of the entity approve a change in the limit for a period of time not to exceed four years. Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions and refunds of taxes. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i)regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii)the investment of tax revenues. Article XIIIB includes a requirement that if an entity's revenues in any year exceed the amounts permitted to be spent,the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Certain expenditures are excluded from the appropriations limit including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by the voters and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the providing of existing services more costly. The District is of the opinion that its water charges do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. The District has covenanted in the Installment Purchase Agreement that, to the fullest extent permitted by law, it will fix, prescribe and collect rates and charges sufficient to provide for payment of the Installment Payments in each year. See the caption"SECURITY FOR THE CERTIFICATES—Rate Covenant." Proposition 218 General. An initiative measure entitled the "Right to Vote on Taxes Act" (the "Initiative") was approved by the voters of the State of California at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the "Title and Summary" of the Initiative prepared by the California Attorney General, the Initiative limits "the Corporation of local governments to impose taxes and property-related assessments,fees and charges." Article XIIID. Article XIIID defines the terms"fee"and"charge"to mean "any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service." A "property-related service" is defined as "a public service having a direct relationship to property ownership." Article XIIID further provides that reliance by an agency on any parcel map (including an assessor's parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be 24 DOCSSF/60223 v6/022925-0017 imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water service is ultimately determined to be a "fee" or "charge" as defined in Article XIIID, the local government's ability to increase such fee or charge may be limited by a majority protest. In addition, Article XIIID includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service, (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed, (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel and (iv)no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted. Based upon the California Second District Court of Appeal decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the California Supreme Court, it was generally believed that Article XIIID did not apply to charges for metered water, which had been held to be commodity charges related to consumption of the service, not property ownership. The District was of the opinion that, under similar reasoning, the water rates imposed by it were not subject to Article XIIID. In a decision rendered in February, 2004, the California Supreme Court in Richmond et al. v. Shasta Community Services District (S 105078) upheld a Third District Court of Appeal decision that water connection fees were not property-related fees or charges subject to Article XIIID while at the same time stating in dicta that fees for ongoing water service through an existing connection were property related fees and charges. In October 2004, the California Supreme Court granted review of the decision of the Fourth District Court of Appeal in Bighorn-Desert View Water Agency v. Beringson, 120 Cal.App. 4th 891 (2004), in which the appellate court had relied on Howard Jarvis Taxpayers Association v. City of Los Angeles and rejected the Supreme Court's dicta in Richmond et al. v. Shasta Community Services District. On March 23, 2005, the California Fifth District Court of Appeal held that an "in lieu" fee which is payable to the City of Fresno's general fund from its water utility and which is included in the city's water rate structure was invalid. In reaching its decision, the court concluded that the city's water rates were "property related" fees, governed by the limitations of Article XIIID. The City of Fresno requested a review of this decision by the California Supreme Court, which denied review. On July 24, 2006, the Supreme Court ruled in Bighorn-Desert View Water Agency v. Verjil. In dicta, the Court repeated the Supreme Court's previous dicta in Richmond et al. v. Shasta Community Services District that fees and charges for ongoing water service through an existing connection were property related fees and charges under Article XIIID. The District has not followed the notice, hearing and protest procedures in Article XIIID with respect to water rate increases based on the decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, and the California Supreme Court in Bighorn-Desert View Water Agency v. Verjil did not rule on the validity of water rate increases where the notice, hearing and protest procedures in Article XIIID were not followed. The District expects to comply with future decisions of the California Supreme Court with respect to the applicability of Article XIIID to water rates. The District stand-by charge predates the adoption of Article XIIID and based upon the provisions of Article XIIID, this stand-by charge is exempt from the provisions thereof unless the District were to elect to increase the amount of such stand-by charge. Article XIIIC. Article XIIIC provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments. Article XIIIC does not define the terms "local tax,""assessment,""fee"or"charge,"so it was unclear whether the definitions set forth in Article XIIID referred to above are applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, 1996. On July 24, 2006, the Supreme Court held in Bighorn-Desert View Water Agency v. 25 DOCS SF/60223v6/022925-0017 Verjil that the provisions of Article XIIIC included rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting obligations. The District and its general counsel do not believe that Article XIIIC grants to the voters within the District the power to repeal or reduce rates and charges in a manner which would be inconsistent with the contractual obligations of the District. However,there can be no assurance of the availability of particular remedies adequate to protect the beneficial owners of the Certificates. Remedies available to beneficial owners of the Certificates in the event of a default by the District are 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 specific limitations on remedies contained in the applicable documents themselves, the rights and obligations with respect to the Certificates, the Trust Agreement and the Installment Purchase Agreement are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Special Counsel (the form of which is attached as Appendix C), will be similarly qualified. Future Initiatives Articles XIIIB, XIIIC and XIIID were adopted as a measure that qualified for the ballot pursuant to California's initiative process. From time to time other initiatives could be proposed and adopted affecting the District's revenues or ability to increase revenues. THE CORPORATION The Truckee Donner Public Utility District Financing Corporation(the "Corporation") was organized on April 24, 1986 pursuant to the Nonprofit Public Benefit Corporation Law of the State of California(Title 1, Division 2,Part 2 of the California Corporations Code), solely for the purpose of providing financial assistance to the District by acquiring, constructing and financing various public facilities, land and equipment, and the leasing of facilities, land and equipment for the use,benefit and enjoyment of the public. The five members of the Board of Directors of the Corporation are selected by the Board of the District. Currently, the members of the Board of Directors of the Corporation are the same as the members of the Board of Directors of the District. TAX EXEMPTION In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, the portion of each Installment Payment constituting interest is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, the portion of each Installment Payment constituting interest is exempt from State of California personal income tax. Special Counsel notes that, with respect to corporations, the portion of each Installment Payment constituting interest may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. In addition,the difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity is to be sold to the public) and the stated prepayment price at maturity with respect to a Certificate constitutes original issue discount, and the amount of original issue discount that accrues to the owner of the Certificate is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. 26 DOCSSF/60223 v6/022925-0017 Special Counsel's opinion as to the exclusion from gross income of the portion of each Installment Payment constituting interest (and original issue discount) is based upon certain representations of fact and certifications made.by the District and others and is subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the execution and delivery of the Certificates to assure that the portion of each Installment Payment constituting interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause the portion of each Installment Payment constituting interest(and original issue discount)to be included in gross income for federal income tax purposes retroactive to the date of execution and delivery of the Certificates. The District has covenanted to comply with all such requirements. The amount by which a Certificate Owner's original basis for determining loss on sale or exchange in the applicable Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Certificate premium, which must be amortized under Section 171 of the Code; such amortizable Certificate premium reduces the Certificate Owner's basis in the applicable Certificate (and the amount of tax-exempt interest received with respect to the Certificates), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Certificate premium may result in a Certificate Owner realizing a taxable gain when a Certificate is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Certificate to the Owner. Purchasers of the Certificates should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Certificate premium. The Internal Revenue Service (the "IRS") has initiated an expanded program for the auditing of tax- exempt bond issues, including both random and targeted audits. It is possible that the Certificates will be selected for audit by the IRS. It is also possible that the market value of the Certificates might be affected as a result of such an audit of the Certificates(or by an audit of similar securities). Special Counsel's opinions may be affected by actions taken (or not taken)or events occurring(or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Trust Agreement and the Tax Certificate permit certain actions to be taken or to be omitted if a favorable opinion of Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the exclusion from gross income of interest(and original issue discount) for federal income tax purposes with respect to any Certificate if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, A Professional Corporation. Although Special Counsel has rendered an opinion that the portion of the Installment Payments constituting interest (and original issue discount) is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the ownership of the Certificates and the accrual or receipt of interest (and original issue discount) with respect to the Certificates may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences with respect to the Certificates. CERTAIN LEGAL MATTERS The validity of the Installment Purchase Agreement and certain other legal matters are subject to the approval of Stradling Yocca Carlson&Rauth,A Professional Corporation,San Francisco, California, acting as Special Counsel. The form of such legal opinion is attached hereto as Appendix C and such legal opinion will be attached to each Certificate. Special Counsel undertakes no responsibility to any Certificate Owner for the accuracy,completeness or fairness of the Official Statement. Certain legal matters will be passed upon for the District and the Corporation by Porter Simon, Truckee, California, as General Counsel. Certain legal matters will be passed upon for the Underwriter by its 27 DOCSSF/60223v6/022925-0017 counsel, Fulbright& Jaworski L.L.P., Los Angeles, California. Certain legal matters will be passed upon for the Insurer by its counsel and for the Trustee by its counsel. LITIGATION There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the District,threatened against the District affecting the existence of the District or the titles of its officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the Certificates,the application of the proceeds thereof in accordance with the Trust Agreement, or in any way contesting or affecting the action of the District contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the District or its authority with respect to the Certificates or any action of the District contemplated by any of said documents. CONTINUING DISCLOSURE The District has covenanted in a Continuing Disclosure Certificate dated the date of execution and delivery of the Certificates (the "Continuing Disclosure Certificate") to provide annually certain financial information and operating data relating to the District by not later than 270 days following the end of its fiscal year (commencing with Fiscal Year 2006) including the audited Financial Statements of the District for each such Fiscal Year (together, the "Annual Report"), and to provide notices of the occurrence of certain other enumerated events. The Annual Report is to be filed by the District with each Nationally Recognized Municipal Securities Information Repository certified by the Securities and Exchange Commission (the "Repositories") and a State repository, if any. The notices of material events are to be timely filed by the District with the Repositories and a State repository, if any. The specific nature of the information to be contained in the Annual Report or notices of material events and certain other terms of the Continuing Disclosure Certificate are summarized in Appendix E—"FORM OF CONTINUING DISCLOSURE CERTIFICATE." The District has not failed to materially comply with the terms of its existing continuing disclosure undertakings. RATINGS Based upon the Insurer's commitment to deliver its policy of municipal insurance for the Certificates, Standard & Poor's Credit Market Services, a Division of the McGraw-Hill Companies ("S&P"), the District expects S&P to assign its municipal bond rating of"AAA" to the Certificates. The District expects S&P to assign its underlying rating of "—" on the Certificates without respect to the delivery by the Insurer of municipal insurance for the Certificates. There is no assurance that any credit ratings given to the Certificates will be maintained for any period of time or that the ratings may not be lowered or withdrawn entirely by S&P if, in its judgment, circumstances so warrant. The District undertakes no responsibility either to bring to the attention of Certificate Owners any downward revision or withdrawal of any rating obtained or to oppose any such revision or withdrawal. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates. Such ratings reflect only the views of S&P and an explanation of the significance of such rating may be obtained from S&P. FINANCIAL ADVISOR McDonald Partners, Inc. (the "Financial Advisor") has assisted the District with various matters relating to the planning, structuring and delivery of the Certificates. The Financial Advisor is a financial advisory firm and is not engaged in the business of underwriting or distributing municipal securities or any 28 DOCS SF/60223v6/022925-0017 other public securities. The Financial Advisor assumes no responsibility for the accuracy, completeness or fairness of the Official Statement. UNDERWRITING The Certificates are being purchased by Stone& Youngberg LLC (the "Underwriter"). The Underwriter has agreed to purchase the Certificates at a price of $ pursuant to a Purchase Agreement by and between the Underwriter and the District(the "Purchase Agreement"). The Purchase Price is based on the par amount of the Certificates of$ , less an underwriter's discount of$ and plus an original issue premium of$ . The Purchase Agreement provides that the Underwriter will purchase all of the Certificates, if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the Purchase Agreement, the approval of certain legal matters by counsel, and certain other conditions. The Underwriter may offer and sell Certificates to certain dealers and others at a price lower than the offering prices stated on the inside cover page of this Official Statement. The offering price may be changed from time to time by the Underwriter. MISCELLANEOUS Insofar as any statements made in this Official Statement involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of the statements will be realized. 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 Certificates. The execution and delivery of this Official Statement have been duly authorized by the District. TRUCKEE DONNER PUBLIC UTILITY DISTRICT President General Manager 29 DOCS S F/60223 v 6/022925-0017 APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a summary of certain provisions of the Installment Purchase Agreement and the Trust Agreement which are not described elsewhere in this Official Statement. This summary does not purport to be comprehensive and reference should be made to the respective agreement for a full and complete statement of the provisions thereof. All capitalized terms not defined in the Official Statement have the meanings set forth in the Installment Purchase Agreement or the Trust Agreement. [TO COME FROM SPECIAL COUNSEL] A-1 DOCS S F/60223 v6/022925-0017 APPENDIX B AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDING DECEMBER 31,2005 C-1 DOCSSF/60223v6/022925-0017 APPENDIX C FORM OF LEGAL OPINION Upon execution and delivery of the Certificates, Stradling Yocca Carlson & Rauth, a Professional Corporation, Special Counsel, proposes to render its final approving opinion in substantially the following form: October—, 2006 Truckee Donner Public Utility District 11570 Donner Pass Road Truckee,California 96160 Re: $ Truckee Donner Public Utility District Refunding Revenue Certificates of Participation(Water System Improvement Projects) Series 2006 Members of the Board of Directors: We have acted as Special Counsel to the Truckee Donner Public Utility District (the "District') in connection with the execution and delivery of $ aggregate principal amount of Refunding Revenue Certificates of Participation(Water System Improvement Projects)Series 2006, dated the date hereof (the"Certificates"), each evidencing and representing an interest of the registered owner thereof in the right to receive Installment Payments(as that term is defined in the Trust Agreement hereinafter mentioned)under and pursuant to that certain Installment Purchase Agreement(the"Agreement'), dated as of September 1, 2006, by and between the District and the Truckee Donner Public Utility District Financing Corporation (the "Corporation"), which right to receive such Installment Payments has been assigned by the Corporation to The Bank of New York Trust Company, N.A., as trustee (the "Trustee"), pursuant to the Assignment Agreement, dated as of September 1, 2006, by and between the Trustee and the Corporation. The Certificates have been executed by the Trustee pursuant to the terms of the Trust Agreement, dated as of September 1, 2006 (the "Trust Agreement'),by and among the District,the Corporation and the Trustee. In connection with our representation we have examined a certified copy of the proceedings relating to the Certificates. As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigations. Based upon the foregoing and after examination of such questions of law as we have deemed relevant in the circumstances,but subject to the limitations set forth herein,we are of the opinion that: 1. The proceedings show lawful authority for the execution and delivery by the District of the Agreement and the Trust Agreement under the laws of the State of California now in force, and the Agreement and the Trust Agreement have been duly authorized,executed and delivered by the District, and, assuming due authorization, execution and delivery by the Trustee and the Corporation, as appropriate, are valid and binding obligations of the District enforceable against the District in accordance with their respective terms. 2. The Certificates, assuming due execution and delivery by the Trustee, are entitled to the benefits of the Trust Agreement. D-I DOCS S F/60223 v6/022925-0017 3. The obligation of the District to make the Installment Payments from Net Revenues (as defined in the Agreement) is an enforceable obligation of the District and does not constitute a debt of the District, or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. 4. Under existing statutes, regulations, rulings and judicial decisions, the portion of each Installment Payment constituting interest is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that, with respect to corporations, the portion of each Installment Payment constituting interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of corporations. 5. The portion of each Installment Payment constituting interest is exempt from State of California personal income tax. 6. The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Certificate Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Certificate Owner will increase the Owner's basis in the applicable Certificate. Original issue discount that accrues to the Certificate Owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations,and is exempt from State of California personal income tax. 7. The amount by which a Certificate Owner's original basis for determining loss on sale or exchange in the applicable Certificate(generally, the purchase price)exceeds the amount payable on maturity (or on an earlier call date)constitutes amortizable Certificate premium, which must be amortized under Section 171 of the Code; such amortizable Certificate premium reduces the Certificate Owner's basis in the applicable Certificate (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Certificate premium may result in a Certificate Owner realizing a taxable gain when a Certificate is sold by the Owner for an amount equal to or less (under certain circumstances)than the original cost of the Certificate to the Owner. The opinions expressed herein as to the exclusion from gross income of the portion of each Installment Payment constituting interest (and original issue discount) are based upon certain representations of fact and certifications made by the District and others and are subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended(the "Code"), that must be satisfied subsequent to the execution and delivery of the Certificates to assure that such portion of each Installment Payment constituting interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause the portion of each Installment Payment constituting interest (and original issue discount) to be included in gross income for federal income tax purposes retroactive to the date of execution and delivery of the Certificates. The District has covenanted to comply with all such requirements. The opinions expressed herein may be affected by actions taken(or not taken)or events occurring(or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Trust Agreement,the Agreement and the Tax Certificate permit certain actions to be taken or to be omitted if a favorable opinion of Special Counsel is provided with respect thereto. No opinion is expressed herein as to the exclusion from gross income of the portion of each Installment Payment constituting interest (and original issue discount) for federal income tax purposes with C-2 DOC S SF/60223 v6/022925-0017 respect to any Certificate if any such action is taken or omitted based upon the opinion or advice of counsel other than ourselves. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the Certificates. The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Trust Agreement, the Agreement, and the Certificates are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws affecting creditors' rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. Respectfully submitted, C-3 DOCSSF/60223 v6/022925-0017 APPENDIX D FINANCIAL GUARANTY INSURANCE POLICY [TO COME FROM INSURER] D-1 DOCSSF/60223v6/022925-0017 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE [TO BE INSERTED AT TIME OF MAILING] E-1 DOCSSF/60223 v6/022925-0017 APPENDIX F DTC AND BOOK-ENTRY ONLY SYSTEM The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Certificates (the "Certificates"). The 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 fully-registered certificate will be issued for each maturity of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC. 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 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 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 turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation,Government Securities Clearing Corporation,MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC,GSCC,MBSCC,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. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each 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 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 Certificates, except in the event that use of the book-entry system for the Certificates is discontinued. To facilitate subsequent transfers, all 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 Certificates with DTC and their registration in the name of Cede& Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such 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. 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 F-1 DOCSSF/60223 v6/022925-0017 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 Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the 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 notices be provided directly to them. Prepayment notices shall be sent to DTC. If less than all of the Certificates within a maturity are being prepaid, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be prepaid. Neither DTC nor Cede& Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 Certificates are credited on the record date(identified in a listing attached to the Omnibus Proxy). Prepayment proceeds, distributions, and dividend payments on the 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 the District or the Trustee, on payment 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, the Trustee, the District, 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 the Trustee, 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. A Beneficial Owner shall give notice to elect to have its Certificates purchased or tendered,through its Participant, to the Trustee, and shall effect delivery of such Certificates by causing the Direct Participant to transfer the Participant's interest in the Certificates, on DTC's records, to the Trustee. The requirement for physical delivery of Certificates in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Certificates are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Certificates to the Trustee's DTC account. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained,physical Certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event,physical Certificates will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE CERTIFICATES, WILL SEND ANY NOTICE OF PREPAYMENT OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING F-2 DOCSSF/60223 v6/022925-0017 TO THE PREPAYMENT OF THE CERTIFICATES CALLED FOR PREPAYMENT OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. F-3 DOCSSF/60223 v6/022925-0017 Stradling Yocca Carlson& Rauth Draft of 911412006 INSTALLMENT PURCHASE AGREEMENT by and between TRUCKEE DONNER PUBLIC UTILITY DISTRICT and TRUCKEE DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION Dated as of September 1, 2006 relating to TRUCKEE DONNER PUBLIC UTILITY DISTRICT REFUNDING REVENUE CERTIFICATES OF PARTICIPATION (WATER SYSTEM IMPROVEMENT PROJECTS), SERIES 2006 DOCSSF/59523 v6/022925-0017 INSTALLMENT PURCHASE AGREEMENT This INSTALLMENT PURCHASE AGREEMENT, made and entered into as of September 1, 2006 by and between TRUCKEE DONNER PUBLIC UTILITY DISTRICT, a public utility district duly organized and existing under and by virtue of the laws of the State of California (the "District"), and TRUCKEE DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION, a nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California(the "Corporation"). WITNESSETH: WHEREAS, the District proposes to undertake the refinancing of certain equipment and facilities within the District Water System (the "1996 Project") and to finance certain equipment and facilities within the District Water System (the "2006 Project") as more particularly described in Exhibit B hereto(collectively, the"Project"); WHEREAS, the District and the Corporation have previously entered into an Installment Purchase Agreement, dated as of November 1, 1996 (the "1996 Installment Purchase Agreement") whereby the Corporation agreed to assist the District in refinancing the 1996 Project; WHEREAS, the District is authorized by Division 7 of the Public Utility Code of the State of California, including but not limited to Section 16431, to acquire property for its Water System, and by Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California to refinance the acquisition of property for its Water System; WHEREAS, the Corporation has agreed to assist the District to finance and refinance the Project; WHEREAS, the District and the Corporation have duly authorized the execution of this Agreement; WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Installment Purchase Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Installment Purchase Agreement; NOW, THEREFORE, IN CONSIDERATION OF THESE PREMISES AND OF THE MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS: ARTICLE I DEFINITIONS Section 1.1. Definitions. Unless the context otherwise requires, the terms defined in this section shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein or therein have the meanings defined herein, the DOCSSF/59523v6/022925-0017 following definitions to be equally applicable to both the singular and plural forms of any of the terms defined herein. Unless the context otherwise requires, all capitalized terms used herein and not defined herein shall have the meanings ascribed thereto in the Trust Agreement. Accountant's Report The term "Accountant's Report" means a report signed by an Independent Certified Public Accountant. Acquisition Fund The term "Acquisition Fund" means the fund by that name established pursuant to Section 3.6 hereof. Administrative Services Manager/Treasurer The Term "Administrative Services Manager/Treasurer" means the Administrative Services Manager/Treasurer of the District, or any other person designated by the Administrative Services Manager/Treasurer to act on behalf of the Administrative Services Manager/Treasurer. Agreement The term "Agreement" means this Installment Purchase Agreement, by and between the District and the Corporation, dated as of September 1, 2006, as originally executed and as it may from time to time be amended or supplemented in accordance herewith. Assignment Agreement The term "Assignment Agreement" means the Assignment Agreement, by and between the Corporation and the Trustee, dated as of September 1, 2006, as originally executed and as it may from time to time be amended or supplemented in accordance with its terms. Bonds The term "Bonds" means all revenue bonds or notes of the District authorized, executed, issued and delivered by the District, the payments of which are on a parity with the Installment Payments and which are secured by a pledge of and lien on the Revenues as described in Section 5.1 hereof. Business Day The term "Business Day" means a day other than: a Saturday or Sunday or a day on which (i)banks located in the city in which the principal corporate trust office of the Trustee is located are not required or authorized to remain closed, and (ii)on which The New York Stock Exchange is not closed. Certificates The term "Certificates" means the $ aggregate principal amount of Truckee Donner Public Utility District Refunding Revenue Certificates of Participation (Water System 2 DOCSSF/59523v6/022925-0017 Improvement Projects), Series 2006, executed and delivered on behalf of the District and at any time outstanding pursuant to the Trust Agreement. Continuing Disclosure Certificate The term "Continuing Disclosure Certificate" shall mean that certain Continuing Disclosure Certificate executed by the District and dated the date of execution and delivery of the Certificates, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Contracts The term "Contracts" means this Installment Purchase Agreement and any amendments and supplements hereto, and all contracts of the District previously or hereafter authorized and executed by the District, the Parity Installment Payments which are on a parity with the Installment Payments and which are secured by a pledge and lien on the Revenues as described in Section 5.1 hereof, including the DWR Proposition 55 Loan, excluding contracts entered into for operation and maintenance of the Water System. Corporation The term "Corporation' means the Truckee Donner Public Utility District Financing Corporation, a nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California. Date of Operation The term "Date of Operation' means, with respect to any uncompleted component Parity Project, the estimated date by which such uncompleted component Parity Project will have been completed and, in the opinion of an engineer, will be ready for operation by or on behalf of the District. Debt Service The term"Debt Service"means, for any period of calculation, the sum of: (1) the interest accrued during such period on all outstanding Bonds during such period, assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are prepaid or paid from sinking fund payments as scheduled(except to the extent that such interest is capitalized), (2) those portions of the principal amount of all outstanding serial Bonds maturing in such period or the next succeeding period, in each case accruing during such period in each case and computed as if such principal were deemed to accrue daily during such period in equal amounts, (3) those portions of the principal amount of all outstanding term Bonds required to be prepaid or paid in such period or the next succeeding period, in each case accruing during such period and computed as if such principal were deemed to accrue daily during such period in equal amounts, and 3 DOCS SF/59523 v6/022925-0017 (4) those portions of the Contracts required to be made during such period, or the next succeeding period, in each case accruing during such period and computed as if such Contract was deemed to accrue daily during such period in equal amounts (except to the extent the interest evidenced and represented thereby is capitalized); but less the earnings to be derived from the investment of moneys on deposit in debt service reserve funds established for Bonds or Contracts; provided that, as to any such Bonds or Contracts bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt Service shall, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of: (i) the actual rate on the date of calculation, or if such Contract or Bond is not yet outstanding, the initial rate(if established and binding), and (ii) the highest average variable rate borne over a 3 month period of the preceding 12 months by outstanding variable rate debt issued by the District or, if no such variable rate debt is at the time outstanding, by variable rate debt of which the interest rate is computed by reference to an index comparable to that to be utilized in determining the interest rate for the debt then proposed to be issued; provided further that if any series or issue of such Bonds or Contracts have twenty-five percent (25%) or more of the aggregate principal amount of such series or issue due in any one year, Debt Service shall be determined for the period of determination as if the principal of and interest on such series or issue of such Bonds or Contracts were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of twenty-five (25) years from the date of calculation; and provided further that, as to any such Bonds or Contracts or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds or Contracts or portions thereof, such accreted discount shall be treated as interest in the calculation of Debt Service; and provided further that if the Bonds or Contracts constitute Paired Obligations, the interest rate on such Bonds or Contracts shall be the resulting linked rate or the effective fixed interest rate to be paid by the District with respect to such Paired Obligations; and provided further that the amount on deposit in a debt service reserve fund on any date of calculation of Debt Service shall be deducted from the amount of principal due at the final maturity of the Bonds and Contracts for which such debt service reserve fund was established and to the extent the amount in such debt service reserve fund is in excess of such amount of principal, such excess shall be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted. District The term "District" means Truckee Donner Public Utility District, a public utility district duly organized and existing under and by virtue of the laws of the State of California. 4 DOCSSF/59523 v6/022925-0017 Donner Lake Water Assessment District Number 00-1 The term "Donner Lake Water Assessment District Number 00-l" means the assessment district established by that name by the District. DWR Proposition 55 Loan The term "DWR Proposition 55 Load' means the loan agreement, dated as of August 13, 1992 (numbered E53311), by and between the State of California Department of Water Resources and the District, as such DWR Proposition 55 Loan may be amended or supplemented in accordance with its terms. Event of Default The term "Event of Default' means an event described in Section 8.1. Fiscal Year The term "Fiscal Year" means the period beginning on January I of each year and ending on the next succeeding December 31, or any other twelve-month period selected and designated as the official Fiscal Year of the District. Independent Certified Public Accountant The term "Independent Certified Public Accountant' means any firm of certified public accountants appointed by the District, each of whom is independent of the District and the Corporation pursuant to the Statement on Auditing Standards No. I of the American Institute of Certified Public Accountants. Independent Financial Consultant The term "Independent Financial Consultant' means a financial consultant or firm of such consultants appointed by the District, and who, or each of whom: (1) is in fact independent and not under domination of the District; (2) does not have any substantial interest, direct or indirect, with the District; and(3) is not connected with the District as an officer or employee thereof, but who may be regularly retained to make reports thereto. Installment Payment Date; Parity Installment Payment Date The term "Installment Payment Date" means the fifth day prior to each Interest Payment Date, or if said date is not a Business Day, then the preceding Business Day. The term "Parity Installment Payment Date" means each date on which Parity Installment Payments are scheduled to be paid by the District under and pursuant to any Contract. Installment Payments; Parity Installment Payments The term "Installment Payments" means the Installment Payments of interest and principal scheduled to be paid by the District under and pursuant hereto. The term "Parity Installment Payments" means the payments of interest and principal scheduled to be paid by the District under and pursuant to the Contracts. 5 DOCSSF/59523v6/022925-0017 Installment Purchase Agreement The term "Installment Purchase Agreement" means the Installment Purchase Agreement, dated as of September 1, 2006, by and between the District and the Corporation, as originally executed and as it may from time to time be amended or supplemented in accordance therewith. 1996 Installment Purchase Agreement The term "1996 Installment Purchase Agreement" means the Installment Purchase Agreement, dated as of November 1, 1996, by and between the District and the Corporation, as originally executed and as it may from time to time be amended or supplemented in accordance therewith. 1996 Project The term "1996 Project" means the additions, betterments, extensions and improvements described in Exhibit B hereto under the heading"1996 Project". Interest Payment Date The term "Interest Payment Date" means May 15 and November 15 of each year, commencing May 15, 2007. Law The term "Law" means the Public Utility District Act of the State of California (being Division 7 of the Public Utilities Code of the State of California, as amended) and Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, and all laws amendatory thereof or supplemental thereto. Manager The Term "Manager" means the General Manager of the District, or any other person designated by the General Manager to act on behalf of the General Manager. Net Proceeds The term "Net Proceeds" means, when used with respect to any casualty insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys fees) incurred in the collection of such proceeds. Net Revenues The term "Net Revenues" means, for any Fiscal Year, the Revenues for such Fiscal Year less the Operation and Maintenance Costs for such Fiscal Year. Operation and Maintenance Costs The term "Operation and Maintenance Costs" means (i)costs spent or incurred for maintenance and operation of the Water System calculated in accordance with generally accepted 6 DOCSSF/59523v6/022925-0017 accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Water System in good repair and working order, and including administrative costs of the District that are charged directly or apportioned to the Water System, including but not limited to salaries and wages of employees, payments to the Public Employees Retirement System, overhead, insurance, taxes (if any), fees of auditors, accountants, attorneys, consultants or engineers and insurance premiums, and including all other reasonable and necessary costs of the District or charges (other than Debt Service) required to be paid by it to comply with the terms of this Agreement or any other Contract or of any resolution or indenture authorizing the issuance of any Bonds or of such Bonds and (ii) all costs of water purchased or otherwise acquired for delivery by the Water System (including any interim or renewed arrangement therefor), but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature. Paired Obli atgL ions The term"Paired Obligations"means any Bond or Contract(or portion thereof) designated as Paired Obligations in the resolution, indenture or other document authorizing the issuance or execution and delivery thereof, which are simultaneously issued or executed and delivered (i) the principal of which is of equal amount maturing and to be redeemed or prepaid (or cancelled after acquisition thereof) on the same dates and in the same amounts, and (ii) the interest rates which, taken together, result in an irrevocably fixed interest rate obligation of the District for the term of such Bond or Contract. Participating Underwriter The term "Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Certificate. Project; Parity Project The term "Project" means the 1996 Project and the 2006 Project. The term "Parity Project" means any additions, betterments, extensions or improvements to the District's Water System designated by the Board of Directors of the District as a Parity Project, the acquisition and construction of which is to be paid for with the proceeds of any Contracts or Bonds. Purchase Price The term "Purchase Price" means the principal amount plus interest thereon owed by the District to the Corporation under the terms hereof as provided in Section 4.1. Rate Stabilization Fund The term "Rate Stabilization Fund" means the fund by that name created pursuant to Section 5.5 hereof. Reserve Requirement The term "Reserve Requirement" means initially, $[ ], and thereafter the lesser of (i) $[ ] or (ii) the maximum principal of and interest with respect to the Certificates due in the then current or any future Fiscal Year. 7 DOCSSF/59523v6/022925-0017 Revenue Fund The term "Revenue Fund" means the fund by that name established pursuant to Section 5.2 hereunder; provided, however, the Revenue Fund excludes any account into which ad valorem taxes levied by the District are deposited. Revenues The term "Revenues" means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Water System, including, without limiting the generality of the foregoing, (1) all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the District from the sale, furnishing and supplying of water or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Water System, plus (2) the proceeds of any stand-by water availability charges, plus (3) the connection charges and facility fees or similar charges related to the Water System, plus (4) the earnings on and income derived from the investment of the amounts described in clauses (1), (2) and (3) hereof and on Water System reserves and amounts on deposit in the Rate Stabilization Fund, but excluding in all cases customer deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the District, revenues from Donner Lake Water Assessment District Number 00-1, and any proceeds of taxes restricted by law to be used by the District to pay bonds hereafter issued. "Revenues" shall also include all amounts transferred from the Rate Stabilization Fund to the Revenue Fund during any Fiscal Year in accordance with Section 5.5 hereof and shall not include any amounts transferred from the Revenue Fund to the Rate Stabilization Fund during any Fiscal Year in accordance with Section 5.2(c)hereof. Trust Agreement The term "Trust Agreement" means the Trust Agreement, dated as of September 1, 2006, by and between the District, the Corporation and the Trustee, relating to the Certificates, as originally executed and as it may from time to time be amended or supplemented in accordance with its terms. Trustee The term "Trustee" means The Bank of New York Trust Company, N.A., acting in its capacity as Trustee under and pursuant to the Trust Agreement, and its successors and assigns. 8 DOCSSF/59523v6/022925-0017 2006 Project The term "2006 Project" means the additions, betterments, extensions and improvements described in Exhibit B hereto under the heading"2006 Project". Water Service The term "Water Service" means the water distribution service made available or provided by the Water System. Water System The term "Water System" means the whole and each and every part of the water system of the District, including the portion thereof existing on the date hereof, and including all additions, betterments, extensions and improvements to such water system or any part thereof hereafter acquired or constructed. Written Consent of the Corporation or District Written Order of the Corporation or District, Written Request of the Corporation or District Written Requisition of the Comoration or District The terms "Written Consent of the Corporation or District," "Written Order of the Corporation or District," "Written Request of the Corporation or District," and "Written Requisition of the Corporation or District" mean, respectively, a written consent, order, request or requisition signed by or on behalf of (i) the Corporation by its Authorized Representative or (ii) the District by the President of its Board of Directors or the Manager of the District or by any two persons (whether or not officers of the Board of Directors of the District) who are specifically authorized by resolution of the District to sign or execute such a document on its behalf. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1. Representations by the District. The District makes the following representations: (a) The District is a public utility district duly organized and existing under and pursuant to the laws of the State of California. (b) The District has full legal right, power and authority to enter into this Agreement and carry out its obligations hereunder, to carry out and consummate all other transactions contemplated by this Agreement, and the District has complied with the provisions of the Law in all matters relating to such transactions. (c) By proper action, the District has duly authorized the execution, delivery and due performance of this Agreement. (d) The District will not take or, to the extent within its power, permit any action to be taken which results in the interest paid for the installment purchase of the Project under the terms of this Agreement being included in the gross income of the Certificate Owners or their assigns for purposes of federal or State of California income taxation. 9 DOCSS F/59523v6/022925-0017 (e) The District has determined that it is necessary and proper for District uses and purposes within the terms of the Law that the District finance and refinance the acquisition of the Project. Section 2.2. Representations and Warranties by the Corporation. The Corporation makes the following representations and warranties: (a) The Corporation is a nonprofit public benefit corporation duly organized and in good standing under the laws of the State of California, has full legal right, power and authority to enter into this Agreement and to carry out and consummate all transactions contemplated by this Agreement and by proper action has duly authorized the execution and delivery and due performance of this Agreement. (b) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated will not violate any provision of law, any order of any court or other agency of government, or any indenture, material agreement or other instrument to which the Corporation is now a party or by which it or any of its properties or assets is bound, or be in conflict with, result in a breach of or constitute a default (with due notice or the passage of time or both) under any such indenture, agreement or other instrument, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Corporation. (c) The Corporation will not take or permit any action to be taken which results in interest paid for the installment purchase of the Project under the terms of this Agreement being included in the gross income of the Certificate Owners or their assigns for purposes of federal or State of California income taxation. ARTICLE III SALE AND PURCHASE OF THE PROJECT Section 3.1. Sale and Purchase of the Project. In consideration for the Corporation's assistance in refinancing the 1996 Project, the District agrees to sell, and hereby sells, to the Corporation, and the Corporation agrees to purchase and hereby purchases, from the District, the 1996 Project at the purchase price specified in Section 4.01 hereof and otherwise in the manner and in accordance with the provisions of this Agreement. Section 3.2. Purchase and Sale of the Project. In consideration for the Installment Payments as set forth in Section 4.2, the Corporation agrees to sell, and hereby sells, to the District, and the District agrees to purchase, and hereby purchases, from the Corporation, the Project at the purchase price specified in Section 4.1 hereof and otherwise in the manner and in accordance with the provisions of this Agreement. Section 3.3. Title. All right, title and interest in each component of the 1996 Project shall vest in the District immediately upon execution and delivery of this Agreement. All right, title and interest in each component of the 2006 Project shall vest in the District immediately upon acquisition thereof. Such vesting shall occur without further action by the Corporation or the District and the Corporation shall, if requested by the District or, if necessary to assure such automatic vesting, deliver any and all documents required to assume such vesting. 10 DOCSSF/59523v6/022925-0017 Section 3.4. Acquisition and Construction of the Project. The Corporation hereby agrees to cause the 2006 Project, and any additions or modifications thereto to be constructed, acquired or installed by the District as its agent, and the District shall enter into contracts and provide for, as agent of the Corporation, the complete construction, acquisition and installation of the 2006 Project. The District hereby agrees that the District will cause the construction, acquisition and installation of the 2006 Project to be diligently performed after the deposit of funds with the Trustee pursuant to Section 3.2 of the Trust Agreement, upon satisfactory completion of design work and compliance with CEQA and approval by the Board of Directors of the District, unforeseeable delays beyond the reasonable control of the District only excepted. It is hereby expressly understood and agreed that the Corporation shall be under no liability of any kind or character whatsoever for the payment of any cost of the 2006 Project and that all such costs and expenses shall be paid by the District, regardless of whether the funds deposited in the Acquisition Fund are sufficient to cover all such costs and expenses. Section 3.5. Changes to the 2006 Project. The District may add other improvements to or substitute other improvements for those listed as components of the 2006 Project in Exhibit B hereto, but only if the District first files with the Corporation and the Trustee a statement of the District: (a) identifying the improvements to be deleted from such Exhibit, if any, and the improvements to added or replaced, if any; and (b) stating that the estimated costs of construction, acquisition and installation of the added or substituted improvements will not cause the cost of the uncompleted portion of the 2006 Project to exceed the amount available therefore in the Acquisition Fund. Section 3.6. Acquisition Fund. There is hereby established with the Trustee the Acquisition Fund. The moneys in the Acquisition Fund shall be held by the District in trust and shall be applied to the payment of the costs of acquisition and construction of the 2006 Project, and of expenses incidental thereto, including Delivery Costs. Before any payment is made from the Acquisition Fund by the Administrative Services Manager/Treasurer of the District, the Manager shall cause to be filed with the Administrative Services Manager/Treasurer of the District a Written Requisition of the District in the form set forth in Exhibit C hereto. Upon receipt of each such Written Requisition the Administrative Services Manager/Treasurer of the District will pay the amount set forth in such Written Requisition as directed by the terms thereof. The Administrative Services Manager/Treasurer of the District need not make any such payment if it has received notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys to be so paid, which has not been released or will not be released simultaneously with such payment. When the 2006 Project shall have been constructed and acquired in accordance with the Installment Purchase Agreement, a statement of the District stating the fact and date of such acquisition, construction and acceptance and stating that all of such costs of acquisition and incidental expenses have been determined and paid (or that all of such costs and expenses have been paid less specified claims which are subject to dispute and for which a retention in the Acquisition Fund is to be maintained in the full amount of such claims until such dispute is resolved), shall be delivered to the Administrative Services Manager/Treasurer of the District and the Trustee by the District. Upon the receipt of such statement, the Administrative Services Manager/Treasurer of the District shall transfer any remaining balance in the Acquisition Fund not needed for Acquisition 11 DOCSSF/59523v6/022925-0017 Fund purposes (but less the amount of any such retention which amount shall be certified to the Administrative Services Manager/Treasurer of the District by the District) to the Trustee which shall transfer such amounts first to the Reserve Fund until the amount therein equals the Reserve Requirement, and thereafter to the Certificate Payment Fund for prepayment of Certificates in accordance with Section 4.1 of the Trust Agreement. ARTICLE IV INSTALLMENT PAYMENTS Section 4.1. Purchase Price. (a) The Purchase Price to be paid by the District hereunder to the Corporation is the sum of the principal amount of the District's obligations hereunder plus the interest to accrue on the unpaid balance of such principal amount from the effective date hereof over the term hereof, subject to prepayment as provided in Article VII. (b) The principal amount of the payments to be made by the District hereunder is set forth in Exhibit A hereto. (c) The interest to accrue on the unpaid balance of such principal amount is as specified in Section 4.2 and Exhibit A hereto, and shall be paid by the District as and constitute interest paid on the principal amount of the District's obligations hereunder. Section 4.2. Installment Payments. The District shall, subject to any rights of prepayment provided in Article VII, pay the Corporation the Purchase Price in installment payments of interest and principal in the amounts and on the Installment Payment Dates as set forth in Exhibit A hereto; provided, however, that the amount of Installment Payments payable on any Installment Payment Date shall be reduced by the amounts on deposit in the Certificate Payment Fund on such Installment Payment Date, if any. Each Installment Payment shall be paid to the Corporation in lawful money of the United States of America. In the event the District fails to make any of the payments required to be made by it under this section, such payment shall continue as an obligation of the District until such amount shall have been fully paid; and the District agrees to pay the same with interest accruing thereon at the rate or rates of interest then applicable to the remaining unpaid principal balance of the Installment Payments if paid in accordance with their terms. The obligation of the District to make the Installment Payments is absolute and unconditional, and until such time as the Purchase Price shall have been paid in full (or provision for the payment thereof shall have been made pursuant to Article IX), the District will not discontinue or suspend any Installment Payments required to be made by it under this section when due, whether or not the Water System or any part thereof is operating or operable, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and whether or not the 2006 Project has been completed, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. 12 DOCSSF/59523v6/022925-0017 ARTICLE V SECURITY Section 5.1. Pledge of Revenues. All Revenues and all amounts on deposit in the Revenue Fund and the Rate Stabilization Fund are hereby irrevocably pledged to the payment of the Installment Payments as provided herein; and the Revenues shall not be used for any other purpose while any of the Installment Payments remain unpaid; provided that out of the Revenues and amounts on deposit in the Revenue Fund and the Rate Stabilization Fund there may be apportioned such sums for such purposes as are expressly permitted herein. This pledge, together with the pledge created by all other Contracts and Bonds, shall constitute a first lien on Revenues and, subject to application of Revenues and all amounts on deposit therein as permitted herein, the Revenue Fund, the Rate Stabilization Fund and other funds and accounts created hereunder for the payment of the Installment Payments and all other Contracts and Bonds in accordance with the terms hereof and the Trust Agreement. Section 5.2. Allocation of Revenues. In order to carry out and effectuate the pledge and lien contained herein, the District agrees and covenants that all Revenues shall be received by the District in trust hereunder and shall be deposited when and as received in a special fund designated as the "Revenue Fund," which fund is hereby established and which fund the District agrees and covenants to maintain and to hold separate and apart from other funds so long as any Contracts or Bonds remain unpaid. Moneys in the Revenue Fund shall be used and applied by the District as provided in this Agreement. The District shall, from the moneys in the Revenue Fund, pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs become due and payable. Thereafter all remaining moneys in the Revenue Fund shall be applied by the District at the following times for the transfer to the following respective special funds in the following order of priority; and all moneys in each of such funds shall be held in trust and shall be applied, used and withdrawn only for the purposes set forth in this Section. (a) Installment Payments. Not later than each Installment Payment Date, the District shall, from the moneys in the Revenue Fund, transfer to the Trustee the Installment Payment due and payable on that Installment Payment Date. The District shall also, from the moneys in the Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or Contract. (b) Reserve Funds. On or before each Installment Payment Date the District shall, from the remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, and to the Trustee for deposit in the Reserve Fund and to the applicable trustee for such other reserve funds and/or accounts, if any, as may have been established in connection with Bonds or Contracts other than this Agreement, that sum, if any, necessary to restore the Reserve Fund to an amount equal to the Reserve Requirement; provided, however, that the District may provide for the Reserve Fund by means other than cash and Permitted Investments pursuant to Section 5.4 of the Trust Agreement. 13 DOCSSF/59523v6/022925-0017 (c) Surplus. Moneys on deposit in the Revenue Fund on each Installment Payment Date not necessary to make any of the payments required above may be expended by the District at any time for any purpose permitted by law, including but not limited to deposits to the Rate Stabilization Fund. Section 5.3. Additional Contracts and Bonds. The District may at any time execute any Contract or issue any Bonds, as the case may be, in accordance herewith; provided: (a) The Net Revenues (not including amounts transferred from the Rate Stabilization Fund pursuant to Section 5.5 hereof to the Revenue Fund in excess of twenty five percent (25%) of Debt Service for such Fiscal Year) for the most recent audited Fiscal Year preceding the date of adoption by the Board of Directors of the District of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the District and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the District, shall have produced a sum equal to at least one hundred twenty—five percent (125%)of the Debt Service for such Fiscal Year; and (b) The Net Revenues (not including amounts transferred from the Rate Stabilization Fund pursuant to Section 5.5 hereof to the Revenue Fund in excess of twenty five percent (25%) of Debt Service for such Fiscal Year) for the most recent audited Fiscal Year preceding the date of the execution of such Contract or the date of adoption by the Board of Directors of the District of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the Water Service approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the District, shall have produced a sum equal to at least one hundred twenty— five percent (125%) of (x) the Debt Service for such Fiscal Year plus (y) the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year assuming such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year, plus (z) the Debt Service which would have accrued on the Contract to be executed on Bond to be issued had such Contract been executed or Bonds been issued at the beginning of such Fiscal Year; and (c) The estimated Net Revenues (not including amounts transferred from the Rate Stabilization Fund pursuant to Section 5.5 hereof to the Revenue Fund in excess of twenty five percent (25%) of Debt Service for such Fiscal Year) for the then current Fiscal Year and for each Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Parity Project, as evidenced by a certificate of the General Manager of the District on file with the District, including (after giving effect to the completion of all such uncompleted Parity Projects) an allowance for estimated Net Revenues (not including amounts transferred from the Rate Stabilization Fund pursuant to Section 5.5 hereof to the Revenue Fund in excess of twenty five percent (25%) of Debt Service for such Fiscal Year) for each of such Fiscal Years arising from any increase in the income, rents, fees, rates and charges estimated to be fixed, prescribed or received for the Water Service and which are economically feasible and reasonably considered necessary based on projected operations for such period, as evidenced by a certificate of the General Manager on file with the District, shall produce a sum equal to at least one hundred twenty—five percent(125%) of the estimated Debt Service for each of such Fiscal Years, after giving effect to the execution of all Contracts and the issuance of all Bonds estimated to be required to be executed or issued to pay the costs of completing all uncompleted Parity Projects within such Fiscal 14 DOCSSF/59523v6/022925-0017 Years, assuming that all such Contracts and Bonds have maturities, interest rates and proportionate principal repayment provisions similar to the Contract last executed or then being executed or the Bonds last issued or then being issued for the purpose of acquiring and constructing any of such uncompleted Parity Projects; and Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts)not being refunded are outstanding. Section 5.4. Investments. All moneys held by the District in the Revenue Fund and Rate Stabilization Fund shall be invested in Permitted Investments and the investment earnings thereon shall remain on deposit in such fund, except as otherwise provided herein. Section 5.5. Rate Stabilization Fund. There is hereby established with the District a special fund designated as the "Rate Stabilization Fund" to be held by the District in trust hereunder, which fund the District agrees and covenants to maintain and to hold separate and apart from other funds so long as any Contracts or Bonds remain unpaid. The initial deposit to the Rate Stabilization Fund is $0. Money transferred by the District from the Revenue Fund to the Rate Stabilization Fund in accordance with Section 5.2(c), if any, shall be held in the Rate Stabilization Fund and applied in accordance with this Agreement. The District may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund and transfer such amounts to the Revenue Fund for application in accordance with Section 5.2 hereof or, in the event that all or a portion of the Installment Payments are discharged in accordance with Section 9.1(b) or (c) hereof, transfer all or any portion of such amounts for application in accordance with said Section. ARTICLE VI COVENANTS OF THE DISTRICT Section 6.1. Compliance with Installment Purchase Agreement and Ancillary Agreements. The District will punctually pay the Installment Payments in strict conformity with the terms hereof, and will faithfully observe and perform all the agreements, conditions, covenants and terms contained herein required to be observed and performed by it, and will not terminate this Agreement for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State of California or any political subdivision of either or any failure of the Corporation to observe or perform any agreement, condition, covenant or term contained herein required to be observed and performed by it, whether express or implied, or any duty, liability or obligation arising out of or connected herewith or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the Corporation or any force majeure, including acts of God, tempest, storm, earthquake, war, rebellion, riot, civil disorder, acts of public enemies, blockade or embargo, strikes, industrial disputes, lock outs, lack of transportation facilities, fire, explosion, or acts or regulations of governmental authorities. 15 DOC S SF/59523 v6/022925-0017 It is expressly understood and agreed by and among the parties to this Agreement that, subject to Section 10.6 hereof, each of the agreements, conditions, covenants and terms contained in this Agreement is an essential and material term of the purchase of and payment for the Project by the District pursuant to, and in accordance with, and as authorized under the Law. The District will faithfully observe and perform all the agreements, conditions, covenants and terms required to be observed and performed by it pursuant to all outstanding Contracts and Bonds as such may from time to time be executed or issued, as the case may be. Section 6.2. Against Encumbrances. The District will not make any pledge of or place any lien on Revenues or the moneys in the Revenue Fund or the Rate Stabilization Fund except as provided herein. The District may at any time, or from time to time, execute Contracts or issue Bonds as permitted herein or incur evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of and lien on Revenues and on any moneys in the Revenue Fund and the Rate Stabilization Fund as may from time to time be deposited therein, provided that such pledge and lien shall be subordinate in all respects to the pledge of and lien thereon provided herein. Section 6.3. Against Sale or Other Disposition of Property. The District will not enter into any agreement or lease which impairs the operation of the Water System or any part thereof necessary to secure adequate Revenues for the payment of the Installment Payments, or which would otherwise impair the rights of the Corporation hereunder or the operation of the Water System. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the Water System, or any material or equipment which has become worn out, may be sold if such sale will not impair the ability of the District to pay the Installment Payments and if the proceeds of such sale are deposited in the Revenue Fund. Nothing herein shall restrict the ability of the District to sell any portion of the Water System if such portion is immediately repurchased by the District and if such arrangement cannot by its terms result in the purchaser of such portion of the Water System exercising any remedy which would deprive the District of or otherwise interfere with its right to own and operate such portion of the Water System. Section 6.4. Against Competitive Facilities. To the extent permitted by law, the District covenants that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the District any water system competitive with the Water System. Section 6.5. Tax Covenants. Notwithstanding any other provision of this Agreement, absent an opinion of Special Counsel that the exclusion from gross income of interest with respect to the Certificates will not be adversely affected for federal income tax purposes, the District and the Corporation covenant to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income and specifically covenants, without limiting the generality of the foregoing, as follows: (a) Private Activity. The District and the Corporation will not take or omit to take any action or make any use of the proceeds of the Certificates or of any other moneys or 16 DOC S S F/59523 v6/022925-0017 property which would cause the Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. (b) Arbitrage. The District and the Corporation will make no use of the proceeds of the Certificates or of any other amounts or property, regardless of the source, or take or omit to take any action which would cause the Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Code. (c) Federal Guarantee. The District and the Corporation will make no use of the proceeds of the Certificates or take or omit to take any action that would cause the Certificates to be "federally guaranteed" within the meaning of Section 149(b)of the Code. (d) Information Reporting. The District and the Corporation will take or cause to be taken all necessary action to comply with the informational reporting requirements of Section 149(e) of the Code. (e) Hedge Bonds. The District and the Corporation will make no use of the proceeds of the Certificates or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the Certificates to be considered "hedge bonds" within the meaning of Section 149(g) of the Code unless the District takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the Certificates for federal income tax purposes. (f) Miscellaneous. The District and the Corporation will take no action, or omit to take any action, inconsistent with the expectations stated in any Tax Certificate executed with respect to the Certificates and will comply with the covenants and requirements stated therein and incorporated by reference herein. This Section and the covenants set forth herein shall not be applicable to, and nothing contained herein shall be deemed to prevent the District and the Corporation from executing and delivering Certificates, the interest with respect to which has been determined by Special Counsel to be subject to federal income taxation. Section 6.6. Maintenance and Operation of the Water System. The District will maintain and preserve the Water System in good repair and working order at all times and will operate the Water System in an efficient and economical manner and will pay all Operation and Maintenance Costs as they become due and payable. Section 6.7. Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the funds or accounts created hereunder or on any funds in the hands of the District pledged to pay the Installment Payments or to the Owners prior or superior to the lien of the Installment Payments or which might impair the security of the Installment Payments. Section 6.8. Compliance with Contracts. The District will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or adversely affect the ability of the District to pay Installment Payments; and the District will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, 17 DOCSSF/59523 v6/022925-0017 required to be performed by it contained in all other contracts affecting or involving the Water System, to the extent that the District is a party thereto. Section 6.9. Insurance. (a) The District will procure and maintain or cause to be procured and maintained insurance on the Water System with responsible insurers in such amounts and against such risks (including damage to or destruction of the Water System) as are usually covered in connection with a water system similar to the Water System so long as such insurance is available from reputable insurance companies on commercially reasonable terms. In the event of any damage to or destruction of the Water System caused by the perils covered by such insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Water System. The District shall begin such reconstruction,repair or replacement promptly after such damage or destruction shall occur, and shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Water System shall be free and clear of all claims and liens. If such Net Proceeds exceed the costs of such reconstruction, repair or replacement portion of the Water System, and/or the cost of the construction of additions, betterments, extensions or improvements to the Water System, then the excess Net Proceeds may, at the option of the District, be applied in part to the prepayment of Installment Payments as provided in Article VII and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of Installment Payments then bears to the aggregate unpaid principal amount of such Bonds and Contracts. If such Net Proceeds are sufficient to enable the District to retire the entire obligation evidenced hereby prior to the final due date of the Installment Payments as well as the entire obligations evidenced by Bonds and Contracts then remaining unpaid prior to their final respective due dates, the District may elect not to reconstruct, repair or replace the damaged or destroyed portion of the Water System, and/or not to construct other additions, betterments, extensions or improvements to the Water System; and thereupon such Net Proceeds shall be applied to the prepayment of Installment Payments as provided in Article VII and to the retirement of such Bonds and Contracts. (b) The District will procure and maintain such other insurance as it shall deem advisable or necessary to protect its interests and the interests of the Corporation, which insurance shall afford protection in such amounts and against such risks as are usually covered in connection with a water system similar to the Water System. (c) Any insurance required to be maintained by paragraph (a) above and, if the District determines to procure and maintain insurance pursuant to paragraph (b) above, such insurance, may be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and manner usually maintained in connection with a water system similar to the Water System and is, in the opinion of an accredited actuary, actuarially sound. 18 DOCSS F/59523v6/022925-0017 Section 6.10. Accounting Records; Financial Statements and Other Reports. (a) The District will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the District, which records shall be available for inspection by the Corporation, the Bond Insurer and the Trustee at reasonable hours and under reasonable conditions. (b) The District will prepare and file with the Corporation, the Bond Insurer and the Trustee annually within one hundred eighty (180) days after the close of each Fiscal Year (commencing with the Fiscal Year ending December 31, 2006)financial statements of the District for the preceding Fiscal Year prepared in accordance with generally accepted accounting principles, together with an Accountant's Report thereon. Section 6.11. Protection of Security and Rights of the Corporation. The District will preserve and protect the security hereof and the rights of the Corporation to the Installment Payments hereunder and will warrant and defend such rights against all claims and demands of all persons. Section 6.12. Payment of Taxes and Compliance with Governmental Regulations. The District will pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Water System, or any part thereof or upon the Revenues when the same shall become due. The District will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Water System, or any part thereof, but the District shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. Section 6.13. Amount of Rates and Charges. (a) To the fullest extent permitted by law, the District shall fix, prescribe and collect rates and charges for the Water Service provided by the Water System which will be at least sufficient to yield during each Fiscal Year Net Revenues (not including amounts transferred from the Rate Stabilization Fund pursuant to Section 5.5 hereof in excess of twenty five percent(25%) of Debt Service for such Fiscal Year) equal to one hundred twenty—five percent (125%) of Debt Service for such Fiscal Year allocable to the Water System. (b) The District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Net Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this section. Section 6.14. Collection of Rates and Charges. The District will have in effect at all times by-laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Water Service and providing for the billing thereof and for a due date and a delinquency date for each bill. Section 6.15. Eminent Domain Proceeds. If all or any part of the Water System shall be taken by eminent domain proceedings, the Net Proceeds thereof shall be applied as follows: (a) If (1) the District files with the Corporation and the Trustee a certificate showing (i) the estimated loss of annual Net Revenues, if any, suffered or to be suffered by the 19 DOCSSF/59523v6/022925-00 P District by reason of such eminent domain proceedings, (ii) a general description of the additions, betterments, extensions or improvements to the Water System proposed to be acquired and constructed by the District from such Net Proceeds, and (iii) an estimate of the additional annual Net Revenues to be derived from such additions, betterments, extensions or improvements, and (2) the District, on the basis of such certificate filed with the Corporation and the Trustee, determines that the estimated additional annual Net Revenues will sufficiently offset the estimated loss of annual Net Revenues resulting from such eminent domain proceedings so that the ability of the District to meet its obligations hereunder will not be substantially impaired (which determination shall be final and conclusive), then the District shall promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance with such certificate and such Net Proceeds shall be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the District for such purpose shall be deposited in the Revenue Fund. (b) If the foregoing conditions are not met, then such Net Proceeds shall be applied by the District in part to the prepayment of Installment Payments as provided in Article VII and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of Installment Payments then bears to the aggregate unpaid principal amount of such Bonds and Contracts. Section 6.16. Further Assurances. The District will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance hereof and for the better assuring and confirming unto the Corporation and the Bond Insurer of the rights and benefits provided to it herein. Section 6.17. Enforcement of Contracts. The District will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with any contracts previously or hereafter entered into if such rescission or amendment would in any manner impair or adversely affect the ability of the District to pay Installment Payments. Section 6.18. Continuing Disclosure. The District hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Agreement, failure of the District to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however, any Owner of Certificates or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Section. For purposes of this Section, `Beneficial Owner" means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes. 20 DOCSSF/59523 v6l022925-0017 ARTICLE VII PREPAYMENT OF INSTALLMENT PAYMENTS Section 7.1. Prepayment. (a) The District may or shall, as the case may be, prepay from the Net Proceeds as provided herein on any date, all or any part on any Installment Payment Date, of the principal amount of the unpaid Installment Payments at a prepayment price equal to the sum of the principal amount prepaid plus accrued interest thereon to the date of prepayment. (b) The District may prepay the Installment Payments in the order as directed in a Written Request of the District to the Trustee, and by lot within a maturity, as a whole or in part, on any date on or after [ ] from any available funds. The principal amount of the unpaid Installment Payments is payable at a prepayment price equal to the principal amount of the Installment Payments to be prepaid plus accrued interest thereon to the date of prepayment without premium. Notwithstanding any such prepayment, the District shall not be relieved of its obligations hereunder, including its obligations under Article IV, until the Purchase Price shall have been fully paid (or provision for payment thereof shall have been provided to the written satisfaction of the Corporation). Section 7.2. Method of Prepayment. Before making any prepayment pursuant to Section 7.1(a), the District may, within five (5) days following the event permitting the exercise of such right to prepay or creating such obligation to prepay, give written notice to the Corporation and the Trustee describing such event and specifying the date on which the prepayment of the Certificates will be paid, which date shall be not less than thirty (30) days from the date such notice is given, unless such prepayment must occur on an Interest Payment Date, in which case such date shall be the next Interest Payment Date with respect to which notice of prepayment may be timely given pursuant to the Trust Agreement. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF THE CORPORATION Section 8.1. Events of Default and Acceleration of Maturities. If one or more of the following Events of Default shall happen, that is to say -- (a) if default shall be made by the District in the due and punctual payment of any Installment Payment or any Contract or Bond when and as the same shall become due and payable; (b) if default shall be made by the District in the performance of any of the other agreements or covenants required herein or in any Contract or Bond to be performed by it, and such default shall have continued for a period of thirty (30) days after the District shall have been given notice in writing of such default by the Corporation; 21 DOCSSF/59523v6/022925-0017 (c) if the District shall file 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 if a court of competent jurisdiction shall approve a petition filed with or without the consent of the District 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 if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property; or (d) if payment of the principal of any Contract or Bond is accelerated in accordance with its terms; then and in each and every such case during the continuance of such Event of Default specified in clauses (c) and (d) above, the Corporation shall, with the written consent of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect, and for any other such Event of Default the Corporation may, with the written consent of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect, and in each and every such case the Corporation, at the written direction of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect by notice in writing to the District, shall declare the entire principal amount of the unpaid Installment Payments and the accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything contained herein to the contrary notwithstanding. This subsection however, is subject to the condition that if at any time after the entire principal amount of the unpaid Installment Payments and the accrued interest thereon shall have been so declared due and payable and before any judgment or decree for the payment of the moneys due shall have been obtained or entered the District shall deposit with the Corporation a sum sufficient to pay the unpaid principal amount of the Installment Payments and/or the unpaid payment of any other Contract or Bond referred to in clause (a) above due prior to such declaration and the accrued interest thereon, with interest on such overdue installments, at the rate or rates applicable to the remaining unpaid principal balance of the Installment Payments or such Contract or Bond if paid in accordance with their terms, and the reasonable expenses of the Corporation, and any and all other defaults known to the Corporation (other than in the payment of the entire principal amount of the unpaid Installment Payments and the accrued interest thereon due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Corporation and the Bond Insurer or provision deemed by the Corporation and the Bond Insurer to be adequate shall have been made therefor, then and in every such case the Corporation and the Bond Insurer, by written notice to the District, may rescind and annul such declaration and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon. Section 8.2. Application of Funds Upon Acceleration. Upon the date of the declaration of acceleration as provided in Section 8.1, all Revenues thereafter received and all amounts in the Rate Stabilization Fund shall be applied in the following order- First, to the payment, without preference or priority, and in the event of any insufficiency of such Revenues ratably without any discrimination or preference, of the fees, costs and expenses of the Corporation and Trustee, if any, including reasonable compensation to its accountants and counsel and amounts payable to the Bond Insurer pursuant to Section 5.7 of the Trust Agreement; 22 DOCSS F/59523v6/022925-0017 Second, to the payment of the Operation and Maintenance Costs; and Third, to the payment of the entire principal amount of the unpaid Installment Payments and the unpaid principal amount of all Bonds and Contracts and the accrued interest thereon, with interest on the overdue installments at the rate or rates of interest applicable to the unpaid Installment Payments and such Bonds and Contracts if paid in accordance with their respective terms. Section 8.3. Other Remedies of the Corporation. The Corporation shall have the right with the written consent of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect and shall at the direction of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the District or any director, officer or employee thereof, and to compel the District or any such director, officer or employee to perform and carry out its or his duties under the Law and the agreements and covenants required to be performed by it or him contained herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Corporation; or (c) by suit in equity upon the happening of an Event of Default to require the District and its directors, officers and employees to account as the trustee of an express trust. Notwithstanding anything contained herein, neither the Corporation nor the Bond Insurer shall have a security interest in or mortgage on the Project, the Water System or other assets of the District, and no default hereunder shall result in the loss of the Project, the Water System or other assets of the District. Section 8.4. Non-Waiver. Nothing in this article or in any other provision hereof shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the Installment Payments to the Corporation at the respective due dates or upon prepayment from the Net Revenues, the Revenue Fund and the other funds herein pledged for such payment, or shall affect or impair the right of the Corporation, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied herein. A waiver of any default or breach of duty or contract by the Corporation shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Corporation to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Corporation by the Law or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Corporation. If any action, proceeding or suit to enforce any right or exercise any remedy is discontinued or abandoned, the District, the Bond Insurer and the Corporation shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. 23 DOCS S F/59523 v 6/022925-0017 Section 8.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Corporation is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by the Law or any other law. If any action, proceeding or suit to enforce any right or exercise any remedy is discontinued or abandoned, the Trustee, the Bond Insurer and Certificate Owners shall be restored to their former positions. ARTICLE IX DISCHARGE OF OBLIGATIONS Section 9.1. Discharge of Obligations. (a) When all or any portion of the Installment Payments shall have become due and payable in accordance herewith or a written notice of the District to prepay all or any portion of the Installment Payments shall have been filed with the Trustee; and (b) there shall have been deposited with the Trustee at or prior to the Installment Payment Dates or date (or dates) specified for prepayment, in trust for the benefit of the Corporation or its assigns and irrevocably appropriated and set aside to the payment of all or any portion of the Installment Payments, sufficient moneys and non-callable Permitted Investments, issued by the United States of America and described in clause (A) of the definition thereof, the principal of and interest on which when due will provide money sufficient to pay all principal, prepayment premium, if any, and interest of such Installment Payments to their respective Installment Payment Dates or prepayment date or dates as the case may be; and (c) provision shall have been made for paying all fees and expenses of the Trustee, then and in that event, if an opinion of Bond Counsel acceptable to the Trustee is filed with the Trustee to the effect that the actions authorized by and taken pursuant to this Article IX shall not adversely affect the exclusion from gross income for federal income tax purposes of the interest portion of the Installment Payments, the right, title and interest of the Corporation herein and the obligations of the District hereunder shall, with respect to all or such portion of the Installment Payments as have been so provided for, thereupon cease, terminate, become void and be completely discharged and satisfied (except for the right of the Trustee and the obligation of the District to have such moneys and such Permitted Investments applied to the payment of such Installment Payments). In such event, upon request of the District the Trustee shall cause an accounting for such period or periods as may be requested by the District to be prepared and filed with the District and shall execute and deliver to the District all such instruments as may be necessary or desirable to evidence such total or partial discharge and satisfaction, as the case may be, and, in the event of a total discharge and satisfaction, the Trustee shall pay over to the District, after payment of all amounts due the Trustee pursuant to the Trust Agreement, as an overpayment of Installment Payments, all such moneys or such Permitted Investments held by it pursuant hereto other than such moneys and such Permitted Investments as are required for the payment or prepayment of the Installment Payments, which moneys and Permitted Investments shall continue to be held by the 24 DOCS S F/59523v6/022925-0017 Trustee in trust for the payment of the Installment Payments and shall be applied by the Trustee to the payment of the Installment Payments of the District. ARTICLE X MISCELLANEOUS Section 10.1. Liability of District Limited to Revenues. Notwithstanding anything contained herein, the District shall not be required to advance any moneys derived from any source of income other than the Revenues and the Revenue Fund for the payment of amounts due hereunder or for the performance of any agreements or covenants required to be performed by it contained herein. The District may, however, advance moneys for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the District for such purpose. The obligation of the District to make the Installment Payments is a special obligation of the District payable solely from the Net Revenues, and does not constitute a debt of the District or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. Section 10.2. Benefits of Installment Purchase Agreement Limited to Parties. Nothing contained herein, expressed or implied, is intended to give to any person other than the District, the Bond Insurer or the Corporation any right, remedy or claim under or pursuant hereto, and any agreement or covenant required herein to be performed by or on behalf of the District or the Corporation shall be for the sole and exclusive benefit of the other party and the Bond Insurer. Section 10.3. Successor Is Deemed Included in all References to Predecessor. Whenever either the District or the Corporation is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the District or the Corporation, and all agreements and covenants required hereby to be performed by or on behalf of the District or the Corporation shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 10.4. Waiver of Personal Liability. No director, officer or employee of the District shall be individually or personally liable for the payment of the Installment Payments, but nothing contained herein shall relieve any director, officer or employee of the District from the performance of any official duty provided by any applicable provisions of law or hereby. Section 10.5. Article and Section Headings Gender and References. The headings or titles of the several articles and sections hereof and the table of contents appended hereto shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof, and words of any gender shall be deemed and construed to include all genders. All references herein to "Articles," "Sections" and other subdivisions or clauses are to the corresponding articles, sections, subdivisions or clauses hereof; and the words "hereby", "herein," "hereof," "hereto," "herewith" and other words of similar import refer to this Agreement as a whole and not to any particular article, section, subdivision or clause hereof. Section 10.6. Partial Invalidity. If any one or more of the agreements or covenants or portions thereof required hereby to be performed by or on the part of the District or the Corporation 25 DOCSSF/59523v6/022925-0017 shall be contrary to law, then such agreement or agreements, such covenant or covenants or such portions thereof shall be null and void and shall be deemed separable from the remaining agreements and covenants or portions thereof and shall in no way affect the validity hereof. The District and the Corporation hereby declare that they would have executed this Agreement, and each and every other article, section, paragraph, subdivision, sentence, clause and phrase hereof irrespective of the fact that any one or more articles, sections, paragraphs, subdivisions, sentences, clauses or phrases hereof or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 10.7. Assignment. This Agreement and any rights hereunder may be assigned by the Corporation, as a whole or in part, without the necessity of obtaining the prior consent of the District. Section 10.8. Net Contract. This Agreement shall be deemed and construed to be a net contract, and the District shall pay absolutely net during the term hereof the Installment Payments and all other payments required hereunder, free of any deductions and without abatement, diminution or set-off whatsoever. Section 10.9. California Law. THE INSTALLMENT PURCHASE AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Section 10.10. Notices. All written notices to be given hereunder shall be given by mail to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other party in writing from time to time, namely: If to the District: Truckee Donner Public Utility District P.O. Box 309 11570 Donner Pass Road Truckee, CA 96160 Attention: General Manager If to the Corporation: Truckee Donner Public Utility District Financing Corporation P.O. Box 309 11570 Donner Pass Road Truckee, CA 96160 Attention: President If to the Bond Insurer: [ l Attention: Section 10.11. Effective Date. This Agreement shall become effective upon its execution and delivery, and shall terminate when the Purchase Price shall have been fully paid(or provision for the payment thereof shall have been made to the written satisfaction of the Corporation). 26 DOC S SF/59523 v6/022925-0017 Section 10.12. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument. Section 10.13. Indemnification of Corporation. The District hereby agrees to indemnify and hold harmless the Corporation if and to the extent permitted by law, from and against all claims, advances, damages and losses, including legal fees and expenses, arising out of or in connection with the acceptance or the performance of its duties hereunder and under the Trust Agreement; provided that no indemnification will be made for willful misconduct, negligence or breach of an obligation hereunder or under the Trust Agreement by the Corporation. Section 10.14. Amendments Permitted. This Agreement and the rights and obligations of the Corporation, the District, the Owners of the Certificates and of the Trustee may be modified or amended at any time by an amendment hereto which shall become binding when the written consents of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in the Trust Agreement, shall have been filed with the Trustee and, so long as the Bond Insurance Policy is in full force and effect, with the prior written consent of the Bond Insurer. No such modification or amendment shall (1)extend the stated maturities of the Certificates, or reduce the rate of interest represented thereby, or change the method of computing the rate of interest with respect thereto, or extend the time of payment of interest, or reduce the amount of principal represented thereby, or reduce any premium payable on the prepayment thereof, without the consent of the Owner of each Certificate so affected, or (2)reduce the aforesaid percentage of Owners of Certificates whose consent is required for the execution of any amendment or modification of this Agreement without the consent of the Owners of all Certificates then Outstanding, or(3) modify any of the rights or obligations of the Trustee, the Corporation or the Bond Insurer without its respective written consent thereto. This Agreement and the rights and obligations of the Corporation, the District and of the Owners of the Certificates may also be modified or amended at any time by an amendment hereto which shall become binding upon adoption, without the consent of the Owners of any Certificates but with the written consent of the Bond Insurer, 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 Corporation or the District contained in this Agreement other covenants and agreements thereafter to be observed or to surrender any right or power herein reserved to or conferred upon the Corporation or the District, and which shall not adversely affect the interests of the Owners of the Certificates; (b) to cure, correct or supplement any ambiguous or defective provision contained in this Agreement or in regard to questions arising under this Agreement, as the Corporation or the District may deem necessary or desirable and which shall not adversely affect the interests of the Owners of the Certificates; and (c) to make such other amendments or modifications as may be in the best interests of the Owners of the Certificates. No amendment without consent of the Owners of the Certificates may modify any of the rights or obligations of the Trustee without its written consent thereto or the rights or obligations of the Bond Insurer without its written consent thereto. 27 DOCS SF/59523v6/022925-0017 The Trustee shall promptly upon execution and delivery of any amendment pursuant to this Section send by first class mail a copy of such amendment to the Bond Insurer. Section 10.15. Notice to Rating Agency. Copies of all amendments to this Agreement shall be mailed by first class mail to Standard &Poor's Ratings Services at least 15 days prior to the effective date of such amendment. 28 DOCSSF/59523 v6/022925-0017 IN WITNESS WHEREOF, the parties hereto have executed and attested this Agreement by their officers thereunto duly authorized as of the day and year first written above. TRUCKEE DONNER PUBLIC UTILITY DISTRICT President ATTEST Clerk of the Board of the District TRUCKEE DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION President S-1 DOCS SF/59523 v6/022925-0017 EXHIBIT A PURCHASE PRICE 1. The principal amount of payments to be made by the District hereunder is $[ I. 2. The installment payments of principal and interest are payable in the amounts and on the Installment Payment Dates as follows: Amount Attributable to Amount Attributable to Installment Payment Date Principal Interest A-1 DOCS S F/59523v6/022925-0017 EXHIBIT B DESCRIPTION OF THE PROJECT 1996 Project The 1996 Project comprises the following described improvements to the Water System, a portion of which correspond to the portion of Truckee Donner Public Utility District Refunding Certificates of Participation (Water System Improvement Projects), Series 1996 which are being refinanced: Component Cost Replacement of Water Pipeline in Tahoe Donner and Sierra Meadows Subdivisions Purchase of Telemetry System Replacement of Donner Trails Storage Tank Construction of Hirshdale Water Treatment Plant Water Line and Pump Improvements Pipe Lining and Future Access Improvements in the Vicinity of Interstate 80 2006 PROJECT The 2006 Project comprises the following described improvements to the Water System. Component Cost Brockway Transmission Pipeline Project $4,000,000 Pipeline Replacement Projects(2006-2010) 12,300,000 Donner Lake Acquisition and Construction Project 1,479,272 Generators for District Building and Pumping Facilities 180,000 SCADA System Replacement 400,000 18.359.272 B-1 DOCSSF/59523v6/022925-00 l7 EXHIBIT C [FORM OF REQUISITION NO. _FOR DISBURSEMENT FROM ACQUISITION FUND] $[ ] TRUCKEE DONNER PUBLIC UTILITY DISTRICT REFUNDING REVENUE CERTIFICATES OF PARTICIPATION (WATER SYSTEM IMPROVEMENT PROJECTS), SERIES 2006 The undersigned hereby states and certifies: (i) that he is the duly appointed, qualified and acting General Manager of the Truckee Donner Public Utility District, a California public utility district organized and existing under the laws of the State of California (the "District"), and as such, is familiar with the facts herein certified and is authorized to certify the same; (ii) that, pursuant to Section 3.6 of that certain Installment Purchase Agreement, dated as of September 1, 2006 (the "Installment Purchase Agreement"), by and between the Truckee Donner Public Utility District Public Financing Corporation and the District, the undersigned hereby requests the Administrative Services Manager/Treasurer of the District to disburse this date the following amounts from the Acquisition Fund established under the Installment Purchase Agreement, to the payees designated on the attached Exhibit A to Exhibit C; (iii) that each obligation mentioned herein has been incurred by the District and is a proper charge against the Acquisition Fund; (iv) that any approval required under the California Environmental Quality Act, as amended (Division 13 of the California Public Resources Code), prior to the expenditure of such amount for the purpose set forth on the attached Exhibit A has been received and is final; (v) that there has not been filed with or served upon the District notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys payable to any of the payees named on the attached Exhibit A, which has not been released or will not be released simultaneously with the payment of such obligation, other than materialmen's or mechanics' liens accruing by mere operation of law. TRUCKEE DONNER PUBLIC UTILITY DISTRICT General Manager C-1 DOC S S F/59523 v 6/022925-0017 Exhibit A to EXHIBIT C ACQUISITION FUND DISBURSEMENTS Item Purpose of Number Payee Name and Address Obli a� t� Amount C-2 DOCS SF/59523 v6/022925-0017 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section1.1. Definitions..................................................................................................................I ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1. Representations by the District..................................................................................9 Section 2.2. Representations and Warranties by the Corporation................................................10 ARTICLE III SALE AND PURCHASE OF THE PROJECT Section 3.1. Sale and Purchase of the Project..............................................................................10 Section 3.2. Purchase and Sale of the Project..............................................................................10 Section3.3. Title..........................................................................................................................10 Section 3.4. Acquisition and Construction of the Project............................................................11 Section 3.5. Changes to the 2006 Project.....................................................................................11 Section3.6. Acquisition Fund......................................................................................................11 ARTICLE IV INSTALLMENT PAYMENTS Section4.1. Purchase Price..........................................................................................................12 Section 4.2. Installment Payments...............................................................................................12 ARTICLE V SECURITY Section5.1. Pledge of Revenues..................................................................................................13 Section 5.2. Allocation of Revenues............................................................................................13 Section 5.3. Additional Contracts and Bonds..............................................................................14 Section5.4. Investments..............................................................................................................15 Section 5.5. Rate Stabilization Fund............................................................................................15 i DOCSSF/59523v6/022925-0017 TABLE OF CONTENTS (continued) Page ARTICLE VI COVENANTS OF THE DISTRICT Section 6.1. Compliance with Installment Purchase Agreement and Ancillary Agreements..............................................................................................................15 Section 6.2. Against Encumbrances.............................................................................................16 Section 6.3. Against Sale or Other Disposition of Property........................................................16 Section 6.4. Against Competitive Facilities.................................................................................16 Section6.5. Tax Covenants .........................................................................................................16 Section 6.6. Maintenance and Operation of the Water System ...................................................17 Section6.7. Payment of Claims...................................................................................................17 Section 6.8. Compliance with Contracts......................................................................................17 Section6.9. Insurance..................................................................................................................18 Section 6.10. Accounting Records; Financial Statements and Other Reports...............................19 Section 6.11. Protection of Security and Rights of the Corporation..............................................19 Section 6.12. Payment of Taxes and Compliance with Governmental Regulations......................19 Section 6.13. Amount of Rates and Charges. ................................................................................19 Section 6.14. Collection of Rates and Charges..............................................................................19 Section 6.15. Eminent Domain Proceeds.......................................................................................19 Section 6.16. Further Assurances...................................................................................................20 Section 6.17. Enforcement of Contracts........................................................................................20 Section 6.18. Continuing Disclosure..............................................................................................20 ARTICLE VII PREPAYMENT OF INSTALLMENT PAYMENTS Section7.1. Prepayment. .............................................................................................................21 Section 7.2. Method of Prepayment.............................................................................................21 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF THE CORPORATION Section 8.1. Events of Default and Acceleration of Maturities ...................................................21 Section 8.2. Application of Funds Upon Acceleration................................................................22 Section 8.3. Other Remedies of the Corporation.........................................................................23 Section8.4. Non-Waiver..............................................................................................................23 Section 8.5. Remedies Not Exclusive..........................................................................................24 ii DOCS S F/59523v6/022925-0017 TABLE OF CONTENTS (continued) Page ARTICLE IX DISCHARGE OF OBLIGATIONS Section 9.1. Discharge of Obligations. ........................................................................................24 ARTICLE X MISCELLANEOUS Section 10.1. Liability of District Limited to Revenues................................................................25 Section 10.2. Benefits of Installment Purchase Agreement Limited to Parties.............................25 Section 10.3. Successor Is Deemed Included in all References to Predecessor............................25 Section 10.4. Waiver of Personal Liability....................................................................................25 Section 10.5. Article and Section Headings, Gender and References ...........................................25 Section10.6. Partial Invalidity.......................................................................................................25 Section10.7. Assignment..............................................................................................................26 Section10.8. Net Contract.............................................................................................................26 Section10.9. California Law .........................................................................................................26 Section10.10. Notices .....................................................................................................................26 Section10.11. Effective Date..........................................................................................................26 Section 10.12. Execution in Counterparts........................................................................................27 Section 10.13. Indemnification of Corporation...............................................................................27 Section 10.14. Amendments Permitted............................................................................................27 Section 10.15. Notice to Rating Agency..........................................................................................28 EXHIBITA PURCHASE PRICE..................................................................................................A-1 EXHIBIT B DESCRIPTION OF THE PROJECT........................................................................B-1 EXHIBIT C FORM OF REQUISITION NO. _FOR DISBURSEMENT FROM ACQUISITIONFUND.............................................................................................C-1 DOCSSF/5952M/022925-00 P Stradling Yocca Carlson&Rauth Draft of 911412006 TRUST AGREEMENT by and among THE BANK OF NEW YORK TRUST COMPANY, N.A. as Trustee and TRUCKEE DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION as Corporation and TRUCKEE DONNER PUBLIC UTILITY DISTRICT Dated as of September 1, 2006 Relating to $[ l TRUCKEE DONNER PUBLIC UTILITY DISTRICT REFUNDING REVENUE CERTIFICATES OF PARTICIPATION (WATER SYSTEM IMPROVEMENT PROJECTS), SERIES 2006 DOCS S R5952 5 v 5/02292 5-00 l 7 TRUST AGREEMENT THIS TRUST AGREEMENT, made and entered into as of September 1, 2006 (the "Agreement"), by and among THE BANK OF NEW YORK TRUST COMPANY, N.A., as trustee (the "Trustee"), a national banking association duly organized and existing under the laws of the United States of America, and TRUCKEE DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION, as seller, hereinafter defined, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation"), and TRUCKEE DONNER PUBLIC UTILITY DISTRICT, as purchaser, a public utility district duly organized and existing under the laws of the State of California(the"District"); WITNESSETH: In consideration of the mutual covenants herein contained and for other valuable consideration, the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; CONTENTS OF CERTIFICATES AND OPINIONS; RECITALS Section 1.1. Definitions. Unless the context otherwise requires, the terms defined in this section shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein or therein have the meanings defined herein, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined herein. All capitalized terms used herein and not defined herein shall have the meanings ascribed thereto in the Installment Purchase Agreement: Agreement. The term "Agreement" means this Trust Agreement, as originally executed or as it may from time to time be amended or supplemented as provided for herein. Assignment Agreement. The term "Assignment Agreement" means that certain Assignment Agreement, by and between the Corporation and the Trustee, dated as of September 1, 2006 as originally executed or as it may from time to time be amended or supplemented in accordance with its terms. Bond Insurance Policy. The term "Bond Insurance Policy" means the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees the payment of principal and interest with respect to the Certificates when due. Bond Insurer. "Bond Insurer" means [ ], a [ ], or any successor thereto. Certificate Payment Fund. The term "Certificate Payment Fund" means the fund by that name established in Section 5.2 hereof. Certificates. The term "Certificates" means the certificates of participation executed and delivered by the Trustee pursuant to this Agreement. DOCS S F/59525v5/022925-0017 Code. The term "Code" means the Internal Revenue Code of 1986, as amended, and the United States Treasury Regulations in effect with respect thereto. Delivery Cost Fund. The term "Delivery Cost Fund" means the fund by that name established in Section 3.4 hereof. Delivery Costs. The term "Delivery Costs" means all items of expense directly or indirectly payable by or reimbursable to the District and related to the authorization, execution, sale and delivery of the Certificates, including but not limited to costs of preparation and reproduction of documents, printing expenses, filing and recording fees, initial fees and charges of the Trustee and counsel to the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, rating agency fees, title insurance premiums, letter of credit fees and bond insurance premiums (if any), fees and charges for preparation, execution and safekeeping of the Certificates and any other cost, charge or fee in connection with the original execution and delivery of the Certificates. Depository or DTC. The term "Depository" or "DTC" means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the Certificates. Escrow Agent. The term "Escrow Agent" means The Bank of New York Trust Company, N.A., as escrow agent pursuant to the terms of the Escrow Agreement, or its successor thereunder. Escrow Agreement. The term "Escrow Agreement" means the Escrow Agreement, dated as of September 1, 2006, by and between the District and the Escrow Agent, as originally executed or as it may from time to time be amended or supplemented in accordance with its terms. Fiscal Year. The term "Fiscal Year" means the period beginning on January 1 of each year and ending on the last day of December of the same year. Information Services. The term "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, loth Floor, Jersey City, New Jersey 07302, Attention: Editor; Moody's Municipal and Government, 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Called Bond Department; and Standard and Poor's J.J. Kenny Information Services' "Called Bond Record," 55 Water Street, 45th Floor, New York, New York 10041; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds as the District may designate in a Written Request of the District delivered to the Trustee. Installment Payments. The term "Installment Payments" means the installment payments payable by the District pursuant to the Installment Purchase Agreement and in the amounts and at the times set forth in the Installment Purchase Agreement. Installment Payment Date. The term "Installment Payment Date" means each date on which Installment Payments are scheduled to be paid by the District pursuant to the Installment Purchase Agreement. Installment Purchase Agreement. The term "Installment Purchase Agreement" means the Installment Purchase Agreement, dated as of September 1, 2006, by and between the District and the 2 DOCS SF/59525 v5/022925-0017 Corporation, as originally executed or as it may from time to time be amended or supplemented in accordance with its terms. Interest Fund. The term "Interest Fund" means the fund by that name established in Section 5.2 hereof. Investment Agreement. The term "Investment Agreement" means an investment agreement supported by appropriate opinions of counsel; provided the guarantor is rated at least "AA-" by S&P and"Aa3"by Moody's. Letter of Representations. The term "Letter of Representations" means the letter of the District and the Trustee delivered to and accepted by the Depository on or prior to delivery of the Certificates as book-entry certificates setting forth the basis on which the Depository serves as depository for such book-entry certificates, as originally executed or as it may be supplemented or revised or replaced by a letter from the District and the Trustee delivered to and accepted by the Depository. Local Agent Investment Fund. The term "Local Agency Investment Fund" means the fund by that name established under the California Government Code, Section 16429.1 et seq. Nominee. The term "Nominee" means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.10 hereof. Outstanding. The term "Outstanding," when used as of any particular time with reference to Certificates, means (subject to the provisions of Section 11.4) all Certificates except: (1) certificates canceled by the Trustee or delivered to the Trustee for cancellation; (2) Certificates paid or deemed to have been paid within the meaning of Section 10.1; and(3) Certificates in lieu of or in substitution for which other Certificates shall have been executed and delivered by the Trustee pursuant to Section 2.10; provided however, that Certificates paid from amounts paid by the Bond Insurer shall not be considered paid or deemed paid for purposes of this Agreement but shall remain outstanding until paid from Installment Payments. Owner. The term "Owner" or"Certificate Owner" or"Owner of Certificates" or any similar term, when used with respect to the Certificates, means any person who shall be the registered owner of any Outstanding Certificate. Participants. The term "Participants" means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds book-entry certificates as securities depository. Payment Dates; Payment Date. The term "Payment Dates" means May 15 and November 15 in each year commencing May 15, 2007 and any date on which the unpaid Installment Payments are declared to be due and payable immediately and provided such declaration is not rescinded or annulled, all in accordance with Section 8.1 of the Installment Purchase Agreement. 3 DOGS S F/59525v5/022925-0017 Permitted Investments. The term "Permitted Investments" 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) for all purposes, including but not limited to defeasance investments in refunding escrow accounts: (1) cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in paragraph (2)below), or (2) direct obligations of(including obligations issued or held in book entry form on the books of)the Department of the Treasury of the United States of America, or (3) pre-refunded municipal obligations defined as any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice and which are rated, based on the escrow, in the highest rating category of S&P and Moody's or any successor thereto; or (4) the interest component of Resolution Funding Corp. (REFCORP) strips which have been stripped by request to the Federal Reserve Bank of New York, and (b) for all purposes other than defeasance investments in refunding escrow accounts: (1) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including the Export - Import Bank; Farmers Home Administration; General Services Administration; U.S. Maritime Administration; Small Business Administration; Government National Mortgage Association (GNMA); U.S. Department of Housing&Urban Development(PHA's); and Federal Housing Administration; (2) bonds, notes or other evidences of indebtedness rated "AAA" and "Aaa" by S&P and Moody's, respectively, issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years; (3) U.S. dollar denominated deposit accounts, certificates of deposit, federal funds and banker's acceptances with domestic commercial banks (including the Trustee) which are either insured by the Federal Deposit Insurance Corporation or have a rating on their short term certificates of deposit on the date of purchase of"A-1"or"A-1+"by S&P and"P-1"by Moody's and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (4) commercial paper which is rated at the time of purchase at least "A-1" by S&P and"P-1"by Moody's and which matures not more than 270 days after the date of purchase; (5) investments in a money market fund rated "AAAm" or "AAAm-G" or better by S&P, including such funds for which the Trustee or an affiliate acts as investment advisor or provides other services; 4 DOGS SF/59525v5/022925-0017 (6) bonds or notes issued by any state or municipality which are rated AA or better at the time of purchase by S&P; (7) any Investment Agreement; (8) the Local Agency Investment Fund; and (9) other forms of investments approved in writing by the Bond Insurer. Prepayment Fund. The term "Prepayment Fund" means the fund by that name established in Section 5.2 hereof. Prepayment Price. The term "Prepayment Price" means the principal amount with respect to any Certificate (or portion thereof ) plus the applicable premium, if any, payable upon prepayment thereof pursuant to the provisions of such Certificate and this Agreement. Principal Corporate Trust Office. The term "Principal Corporate Trust Office" means the principal corporate trust office in Los Angeles, California or such other office as the Trustee may from time to time designate in writing to the District, the Corporation and the Owners. Principal Fund. The term "Principal Fund" means the fund by that name established in Section 5.2 hereof. Rebate Fund. The term "Rebate Fund" means the fund by that name established in Section 5.6 hereof. Record Date. The term "Record Date" means, with respect to any Payment Date for a Certificate, the fifteenth day of the calendar month prior to such Payment Date. Reserve Fund. The term "Reserve Fund" means the fund by that name established in Section 5.2 hereof. Securities Depositories. The term "Securities Depositories" means: The Depository Trust Company, 55 Water Street, New York, New York 10041, Attn: Redemption Area, Fax-(212) 855- 7232 or 7233; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses as such depositories may specify and/or such other securities depositories as the District may designate in a Written Request of the District delivered to the Trustee. Special Counsel. The term "Special Counsel' means any attorney at law or firm of attorneys selected by the District, of nationally-recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions, and duly admitted to practice law before the highest court of any state of the United States of America. State. The term "State"means the State of California. Statement of the Corporation or District. The term "Statement of the Corporation or District" means a statement signed by or on behalf of(i)the Corporation by its President or a Vice President or (ii) the District by the President and by the Clerk or by any two persons (whether or not members of the Board of Directors) who are specifically authorized by resolution of the District to sign or 5 DOCSS F/59525v5/022925-0017 execute such a document on its behalf. If and to the extent required by the provisions of Section 1.3, each Statement of the Corporation or District shall include the statements provided for in Section 1.3. Tax Certificate. The Term "Tax Certificate" means the Tax Certificate dated the date of closing, concerning certain matters pertaining to the use and investment of proceeds of the Certificates executed by and delivered to the District on the date of execution and delivery of the Certificates, including any and all exhibits attached thereto. Trustee. The term "Trustee"means The Bank of New York Trust Company, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States of America having a principal corporate trust office in Los Angeles, California, or such other office as the Trustee may from time to time designate in writing to the District, the Corporation and the Owners, or its successor as Trustee hereunder. Written Consent of the Corporation or District, Written Order of the Corporation or District. Written Request of the Cor[poration or District, Written Requisition of the Corporation or District. The terms "Written Consent of the Corporation or District," "Written Order of the Corporation or District," "Written Request of the Corporation or District," and "Written Requisition of the Corporation or District" mean, respectively, a written consent, order, request or requisition signed by or on behalf of (i) the Corporation by its Authorized Representative or (ii)the District by the President of its Board of Directors or the Manager of the District or by any two persons (whether or not members of the Board of Directors) who are specifically authorized by resolution of the District to sign or execute such a document on its behalf. Section 1.2. Rules of Construction. Words of any gender shall be deemed and construed to include all genders, and words importing persons shall include corporations and associations, including public bodies, as well as natural persons. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. Section 1.3. Content of Statements and Opinions. Every statement or opinion with respect to compliance with a condition or covenant provided for in this Agreement, including each Statement of the Corporation, shall include (a) a statement that the person or persons making or giving such statement or opinion have read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such statement or opinion are based; (c) a statement that, in the opinion of the signers, they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of the signers, such condition or covenant has been complied with. Any such statement or opinion made or given by an officer of the Corporation may be based, insofar as it relates to legal or accounting matters, upon a statement or opinion of or representations by counsel, accountants or consultants, unless such officer knows, or in the exercise of reasonable care should have known, that the statement or opinion or representations with respect to the matters upon which his statement or opinion may be based, as aforesaid, are erroneous. Any such statement or opinion made or given by counsel, accountants or consultants may be based, insofar as it relates to factual matters, upon information with respect to which is in the possession of the Corporation, or upon the statement or opinion of or representations by an officer or officers of the Corporation, unless such counsel, accountant or consultant knows, or in the exercise of reasonable care should 6 DOCSSF/59525v5/022925-0017 have known, that the statement or opinion or representations with respect to the matters upon which his opinion may be based as aforesaid are erroneous. Section 1.4. Recitals. (a) Installment Purchase Agreement. The Corporation has agreed to assist the District in financing and refinancing the Project and the District has agreed to acquire certain facilities from the Corporation as described in the Installment Purchase Agreement. (b) Installment Payments. Under the Installment Purchase Agreement, the District is obligated to pay to the Corporation or its assigns Installment Payments for the purchase of the Project. (c) Assignment Agreement. For the purpose of obtaining the moneys required to be deposited by the Corporation with the Trustee, and for the purpose of securing the obligations of the Corporation hereunder, the Corporation has assigned and transferred certain of its rights under the Installment Purchase Agreement to the Trustee, pursuant to the Assignment Agreement; and in consideration of such assignment and the execution of this Agreement, the Trustee has agreed to execute and deliver certificates of participation, each evidencing an interest in the Installment Payments in an aggregate amount equal to the aggregate principal amount of certificates of participation so executed and delivered. (d) Conditions Precedent Satisfied. The District and the Corporation hereby certify that all acts, conditions and things required by law to exist, happen and be performed precedent to and in connection with the execution and entering into of this Agreement have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly empowered to execute and enter into this Agreement. ARTICLE II CERTIFICATES; TERMS AND PROVISIONS Section 2.1. Preparation of Certificates. The Trustee is hereby authorized to execute certificates of participation, to be denominated "Truckee Donner Public Utility District (Water System Improvement Projects) Refunding Revenue Certificates of Participation, Series 2006" in an aggregate principal amount of $[ ] evidencing undivided interests in Installment Payments to be paid by the District under the Installment Purchase Agreement. Section 2.2. Denominations; Medium and Place of Payment; Dating. The Certificates shall be delivered in the form of fully registered Certificates and in the denomination of$5,000 each or any integral multiple thereof; provided that no Certificate shall have principal represented thereby maturing in more than one year. The principal and Prepayment Price with respect to the Certificates shall be payable in lawful money of the United States of America upon presentation and surrender thereof at the Principal Corporate Trust Office of the Trustee. Interest with respect to the Certificates shall be payable by check or draft of the Trustee mailed by first class mail on each Payment Date of the Certificates to the respective Certificate Owners of record thereof as of the close of business on the Record Date at the addresses shown on the books required to be kept pursuant to Section 2.8 or, upon the written 7 DOC S S F/59525 v5/022925-0017 request received by the Trustee of an Owner of at least $1,000,000 in aggregate principal amount of the Certificates, by wire transfer of immediately available funds to an account in the United States designated by such Owner prior to the applicable Record Date. The Certificates shall be dated as of the date of initial delivery thereof. Interest with respect to the Certificates shall be payable from the Payment Date preceding their date of execution, unless such date shall be after a Record Date and on or before the succeeding Payment Date, in which case interest shall be payable from such Payment Date or unless such date shall be on or before the first Record Date, in which case interest shall be payable as of the date of initial delivery thereof provided, however, that if, as shown by the records of the Trustee, interest represented by the Certificates shall be in default, Certificates executed in exchange for Certificates surrendered for transfer or exchange shall represent interest from the last date to which interest has been paid in full or duly provided for with respect to the Certificates, or, if no interest has been paid or duly provided for with respect to the Certificates, as of the date of initial delivery thereof. Section 2.3. Payment of Principal and Interest with Respect to Certificates. (a) The Certificates shall become payable on November 15 in the years and in the amounts and with an interest component as provided in subsection(b)below at the rates, as follows: Payment Date Principal Interest November 15 Amount Rate Principal or Prepayment Price due with respect to the Certificates at maturity or prepayment thereof shall, to the extent of the aggregate principal amount stated upon the Certificates, represent the sum of those portions of the Installment Payments designated as principal coming due on the Installment Payment Dates immediately preceding November 15 in each year. 8 DOCSSF/59525 v5/022925-0017 (b) Interest with respect to the Certificates shall be payable on each Interest Payment Date to and including the date of maturity or prior prepayment. Said interest shall represent the sum of those portions of the Installment Payments designated as interest coming due on the Installment Payment Dates, at the rates set forth in subsection(a) above. Section 2.4. Form of Certificates. The Certificates and the form of assignment to appear thereon shall be in substantially the form set forth in Exhibit A hereto with necessary or appropriate variations, omissions and insertions as permitted or required by this Agreement. Section 2.5. Execution. The Certificates shall be executed by and in the name of the Trustee, as trustee under this Agreement, by the manual signature of an authorized officer or signatory of the Trustee. Section 2.6. Transfer of Certificates. Any Certificate may, in accordance with its terms, be transferred, upon the books required to be kept pursuant to the provisions of Section 2.8, by the person in whose name it is registered, in person or by such person's duly authorized attorney, upon surrender of such Certificate for cancellation at the Principal Corporate Trust Office of the Trustee, accompanied by delivery of a duly executed written instrument of transfer in a form approved by the Trustee. Whenever any Certificate or Certificates shall be surrendered for transfer, the Trustee shall execute and deliver a new Certificate or Certificates of the same maturity, for a like aggregate principal amount and of authorized denomination or denominations. The Trustee may charge a sum for each new Certificate executed and delivered upon any transfer. The Trustee may require the payment by any Certificate Owner requesting any such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of Certificates the Trustee shall cancel and destroy the Certificates it has received. Section 2.7. Exchange of Certificates. Certificates may be exchanged at the Principal Corporate Trust Office of the Trustee, for a like aggregate principal amount of Certificates of other authorized denominations of the same maturity. The Trustee may charge a sum for each new Certificate executed and delivered upon any exchange except in the case of any exchange of temporary Certificates for definitive Certificates. The Trustee may require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of Certificates the Trustee shall cancel and destroy the Certificates it has received. The Trustee shall not be required to register the exchange, or transfer pursuant to Section 2.6 or Section 2.7 hereof, of any Certificate (i) within 15 days preceding selection of Certificates for prepayment or(ii) selected for prepayment. Section 2.8. Certificate Registration Books. The Trustee will keep or cause to be kept sufficient books for the registration and transfer of the Certificates, which shall upon reasonable prior notice and at all reasonable times be open to inspection by the Corporation or the District; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, Certificates as hereinbefore provided. 9 DOCSSF/59525v5/022925-0017 The person in whose name any Certificate shall be registered shall be deemed the Owner thereof for all purposes hereof, and payment of or on account of the interest with respect to and principal of, and Prepayment Price represented by such Certificate shall be made only to or upon the order in writing of such registered Owner, which payments shall be valid and effectual to satisfy and discharge liability upon such Certificate to the extent of the sum or sums so paid. Section 2.9. Certificates Mutilated, Lost, Destroyed or Stolen. If any Certificate shall become mutilated, the Trustee shall execute and deliver a new Certificate of like tenor, maturity and principal amount in exchange and substitution for the Certificate so mutilated, but only upon surrender to the Trustee of the Certificate so mutilated. Every mutilated Certificate so surrendered to the Trustee shall be canceled by it and destroyed. If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given indemnifying the Trustee, the Corporation and the District, the Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate of like tenor and maturity, and numbered as the Trustee shall determine, in lieu of and in substitution for the Certificate so lost, destroyed or stolen. The Trustee may require payment of a sum not exceeding the actual cost of preparing each new Certificate executed under this Section and of the expenses which may be incurred by the Trustee under this Section. Any Certificate executed under the provisions of this Section in lieu of any Certificate alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of this Agreement with all other Certificates secured by this Agreement. The Trustee shall not be required to treat both the original Certificate and any replacement Certificate as being Outstanding for the purpose of determining the principal amount of Certificates which may be executed hereunder or for the purpose of determining any percentage of Certificates Outstanding hereunder, but both the original and replacement Certificate shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of delivering a new Certificate for a Certificate which has been mutilated, lost, destroyed or stolen and which has matured or has been selected for prepayment, the Trustee may make payment of such Certificate upon receipt of indemnity satisfactory to the Trustee. Section 2.10. Book-Entry System. (a) Election of Book-Entry System. Prior to the execution and delivery of the Certificates, the District may provide that such Certificates shall be initially executed and delivered as book-entry Certificates. If the District shall elect to deliver any Certificates in book-entry form, then the District shall cause the delivery of a separate single fully registered certificate (which may be typewritten) for each maturity date of such Certificates in an authorized denomination corresponding to that total principal amount of the Certificates designated to mature on such date. Upon initial execution and delivery, the ownership of each such Certificate shall be registered in the Certificate registration books in the name of the Nominee, as nominee of the Depository and ownership of the Certificates, or any portion thereof may not thereafter be transferred except as provided in Section 2.10(e). With respect to book-entry Certificates, the District and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book-entry Certificates. Without limiting the immediately preceding sentence, the District and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any 10 DOCSSF/59525v5/022925-0017 ownership interest in book-entry Certificates, (ii)the delivery to any Participant or any other person, other than an Owner as shown in the Certificate registration books, of any notice with respect to book-entry Certificates, including any notice of prepayment, (iii) the selection by the Depository and its Participants of the beneficial interests in book-entry Certificates to be prepaid in the event the District prepays the Certificates in part, or (iv) the payment by the Depository or any Participant or any other person, of any amount with respect to principal, premium, if any, or interest with respect to book-entry Certificates. The District and the Trustee may treat and consider the person in whose name each book-entry Certificate is registered in the Certificate registration books as the absolute Owner of such book-entry Certificate for the purpose of payment of principal, premium, if any, and interest with respect to such Certificate, for the purpose of giving notices of prepayment and other matters with respect to such Certificate, for the purpose of registering transfers with respect to such Certificate, and for all other purposes whatsoever. The Trustee shall pay all principal, premium, if any, and interest with respect to the Certificates only to or upon the order of the respective Owner, as shown in the Certificate register, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the District's obligations with respect to payment of principal of, premium, if any, and interest evidenced and represented by the Certificates to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Certificate registration books, shall receive a Certificate evidencing the obligation to make payments of principal, premium, if any, and interest evidenced and represented by the Certificates. Upon delivery by the Depository to the Owner and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in this Trust Agreement shall refer to such nominee of the Depository. (b) Delivery of Letter of Representations. In order to qualify the book-entry Certificates for the Depository's book-entry system, the District and the Trustee shall execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the District or the Trustee any obligation whatsoever with respect to persons having interests in such book-entry Certificates other than the Owners, as shown on the Certificate registration books. By executing a Letter of Representations, the Trustee shall agree to take all action necessary at all times so that the District will be in compliance with all representations of the District in such Letter of Representations. In addition to the execution and delivery of a Letter of Representations, the District and the Trustee shall take such other actions, not inconsistent with this Trust Agreement, as are reasonably necessary to qualify Book-Entry Certificates for the Depository's book-entry program. (c) Selection of Depository. In the event (i)the Depository determines not to continue to act as securities depository for book-entry Certificates, or(ii)the District determines that continuation of the book-entry system is not in the best interest of the beneficial owners of the Certificates or the District, then the District will discontinue the book-entry system with the Depository. If the District determines to replace the Depository with another qualified securities depository, the District shall prepare or direct the preparation of a new single, separate, fully registered Certificate for each of the maturity dates of such book-entry Certificates, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in subsection (e)hereof. If the District fails to identify another qualified securities depository to replace the Depository, then the Certificates shall no longer be restricted to being registered in such Certificate register in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such Certificates shall designate, in accordance with the provisions of Sections 2.6 and 2.7 hereof. 11 DOCS SF/59525v5/022925-0017 (d) Payments To Depository. Notwithstanding any other provision of this Agreement to the contrary, so long as all Outstanding Certificates are held in book-entry form and registered in the name of the Nominee, all payments with respect to principal, prepayment premium, if any, and interest with respect to such Certificate and all notices with respect to such Certificate shall be made and given, respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions herein. (e) Transfer of Certificates to Substitute Depository. (i) The Certificates shall be initially executed and delivered as provided in Section 2.1 hereof. Registered ownership of such Certificates, or any portions thereof, may not thereafter be transferred except: (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) of subsection (i)of this Section 2.10(e) ("Substitute Depository"); provided that any successor of DTC or Substitute Depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository, or (2) a determination by the District that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository, or (2) a determination by the District that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository. (ii) In the case of any transfer pursuant to clause (A) or clause (B) of subsection (i) of this Section 2.10(e), upon receipt of all Outstanding Certificates by the Trustee, together with a written request of the District to the Trustee designating the Substitute Depository, a single new Certificate, which the District shall prepare or cause to be prepared, shall be executed and delivered for each maturity of Certificates then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such written request of the District. In the case of any transfer pursuant to clause (C) of subsection (i)of this Section 2.10(e), upon receipt of all Outstanding Certificates by the Trustee, together with a written request of the District to the Trustee, new Certificates, which the District shall prepare or cause to be prepared, shall be executed and delivered in such denominations and registered in the names of such persons as are requested in such written request of the District, subject to the limitations of Section 2.1 hereof, provided that the Trustee shall not be required to deliver such new Certificates within a period of less than sixty (60) days from the date of receipt of such written request from the District. (iii) In the case of a partial prepayment or an advance refunding of any Certificates evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) shall make an appropriate notation on such Certificates indicating the date and amounts of such reduction in principal, in form acceptable to the 12 DOGS SF/59525v5/022925-0017 Trustee, all in accordance with the Letter of Representations. The Trustee shall not be liable for such Depository's failure to make such notations or errors in making such notations. (iv) The District and the Trustee shall be entitled to treat the person in whose name any Certificate is registered as the Owner thereof for all purposes of this Trust Agreement and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the District; and the District and the Trustee shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the Certificates. Neither the District nor the Trustee shall have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any Certificates, and the Trustee may rely conclusively on its records as to the identity of the Owners of the Certificates. ARTICLE III DELIVERY OF CERTIFICATES; DELIVERY COST FUND Section 3.1. Delivery of Certificates. The Trustee is hereby authorized to execute and deliver Certificates in an aggregate principal amount of $[ ] upon the Written Order of the District. Section 3.2. Application of Proceeds of Certificates and Certain Other Moneys. The proceeds derived from the sale of the Certificates in the amount of $ (representing the aggregate principal amount of the Certificates of $ , less original issue discount of $ , less underwriter's discount of $ , less $ paid by the initial purchaser to the Bond Insurer), shall be deposited with the Trustee, who will deposit $ in the Delivery Cost Fund, who will transfer$ to the Escrow Agent for deposit in the Escrow Fund, and who will transfer $ to the District for deposit in the Acquisition Fund. Section 3.3. Validity of Certificates. The validity of the execution and delivery of the Certificates is not dependent on and shall not be affected in any way by any proceedings taken by the District, the Corporation or the Trustee with respect to or in connection with the Installment Purchase Agreement. The recital contained in the Certificates that all acts, conditions and things required by the Constitution and statutes of the State of California and this Agreement to exist, to have happened and to have been performed precedent to and in the delivery thereof do exist, have happened and have been performed in due time, form and manner as required by law shall be conclusive evidence of their validity and of compliance with the provisions of law in their delivery. Section 3.4. Delivery Cost Fund. There is hereby established with the Trustee the Delivery Cost Fund which the Trustee shall establish and maintain and hold in trust separate and apart from other funds held by it. The moneys in the Delivery Cost Fund shall be used and withdrawn by the Trustee to pay Delivery Costs upon submission of Written Requisitions of the District stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred, that such payment is a proper charge against said fund and that payment for such charge has not previously been made. On the six month anniversary of the initial delivery of the Certificates, or upon the earlier Written Request of the District, all amounts remaining in the Delivery Cost Fund shall be transferred by the Trustee for deposit in the Certificate Payment Fund. 13 DOCSSF/59525 v5/022925-0017 ARTICLE IV PREPAYMENT OF CERTIFICATES Section 4.1. Terms of Prepayment. (a) The Certificates shall be subject to extraordinary prepayment prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as directed by the District in a Written Request provided to the Trustee at least 45 days prior to such date and by lot within each maturity in integral multiples of$5,000 from prepaid Installment Payments made by the District from Net Proceeds, upon the terms and conditions of, and as provided for in, Section 6.10 of this Agreement, and Sections 6.9 and 6.15 of the Installment Purchase Agreement, at a Prepayment Price equal to the principal amount thereof plus accrued interest evidenced and represented thereby to the date fixed for prepayment, without premium. (b) The Certificates with stated maturities on or after November 15, 2017 shall further be subject to prepayment prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as directed by the District in a Written Request provided to the Trustee at least 60 days prior to such date and by lot within each maturity in integral multiples of $5,000, on or after November 15, 2016, from amounts prepaid by the District pursuant to the Installment Purchase Agreement at a Prepayment Price equal to the principal amount of such Certificates to be prepaid plus accrued interest evidenced and represented thereby to the date fixed for prepayment without premium. Section 4.2. Selection of Certificates for Prepay. Whenever less than all of the Certificates are called for prepayment, the Trustee shall select the Certificates or portions thereof to be prepaid from the Outstanding Certificates in accordance with Section 4.1 hereof. The Trustee shall promptly notify the District in writing of the numbers of the Certificates or portions thereof so selected for prepayment. Section 4.3. Notice of Prepayment. Notice of prepayment shall be mailed, first class postage prepaid, to the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books and to the Information Services and by registered or certified or overnight mail to the Securities Depositories at least 30 days but not more than 60 days prior to the prepayment date. Each notice of prepayment shall state the date of notice, the prepayment date, the place or places of prepayment and the Prepayment Price, shall designate the maturities, CUSIP numbers, if any, and, if less than all Certificates of any such maturity are to be prepaid, the serial numbers of the Certificates of such maturity to be prepaid by giving the individual number of each Certificate or by stating that all Certificates between two stated numbers, both inclusive, have been called for prepayment and, in the case of Certificates to be prepaid in part only, the respective portions of the principal amount thereof to be prepaid. Each such notice shall also state that on said date there will become due and payable on each of said Certificates the Prepayment Price thereof or of said specified portion of the principal represented thereby in the case of a Certificate to be prepaid in part only, together with interest accrued with respect thereto to the prepayment date, and that (provided that moneys for prepayment have been deposited with the Trustee) from and after such prepayment date interest with respect thereto shall cease to accrue, and shall require that such Certificates be then 14 DOCS S F/59525 v 5/02292 5-0017 surrendered to the Trustee. Any defect in the notice or the mailing thereof will not affect the validity of the prepayment of any Certificate. Notice of prepayment of Certificates shall be given by the Trustee on behalf of and at the expense of the District. Section 4.4. Partial Prepayment of Certificate. Upon surrender of any Certificate prepaid in part only, the Trustee shall execute and deliver to the Owner thereof, at the expense of the District, a new Certificate or Certificates of authorized denominations equal in aggregate principal amount to the unprepaid portion of the Certificate surrendered and of the same maturity. Section 4.5. Effect of Prepayment. When notice of prepayment has been duly given as aforesaid, and moneys for payment of the Prepayment Price of, together with interest accrued to the prepayment date with respect to, the Certificates (or portions thereof) so called for prepayment are held by the Trustee, the Certificates (or portions thereof) so called for prepayment shall, on the prepayment date designated in such notice, become due and payable at the Prepayment Price specified in such notice and interest accrued thereon to the prepayment date; and from and after the prepayment date interest represented by the Certificates so called for prepayment shall cease to accrue, said Certificates (or portions thereof) shall cease to be entitled to any benefit or security under this Agreement, and the Owners of said Certificates shall have no rights in respect thereof except to receive payment of said Prepayment Price and accrued interest. All Certificates prepaid pursuant to the provisions of this Article shall be canceled upon surrender thereof and destroyed by the Trustee. ARTICLE V INSTALLMENT PAYMENTS Section 5.1. Pledge and Deposit of Installment Payments. The Installment Payments are hereby irrevocably pledged to, and shall be used for, the punctual payment of the Certificates, and the Installment Payments shall not be used for any other purpose while any of the Certificates remain Outstanding. This pledge shall constitute a first and exclusive lien on the Installment Payments in accordance with the terms hereof. All Installment Payments to which the Corporation may at any time be entitled (including income or profit from investments pursuant to Section 5.3) shall be paid directly to the Trustee pursuant to the terms of the Assignment Agreement, and if received by the Corporation at any time shall be deposited by the Corporation with the Trustee within one business day after the receipt thereof, and the Trustee shall deposit all Installment Payments as and when received in the Certificate Payment Fund. All moneys at any time deposited in the Certificate Payment Fund shall be held by the Trustee in trust for the benefit of the Owners from time to time of the Certificates, but shall nevertheless be disbursed, allocated and applied solely for the uses and purposes herein set forth. Section 5.2. Certificate Payment Fund. There is hereby established with the Trustee the Certificate Payment Fund and the Reserve Fund each of which the Trustee covenants to maintain and hold in trust separate and apart from other funds held by it so long as any Installment Payments 15 DOCSSF/59525 v5/022925-0017 remain unpaid. All moneys on deposit in the Certificate Payment Fund (including income or profit from investments) shall be retained therein except as expressly provided herein. The Trustee shall transfer from the Certificate Payment Fund the following amounts at the times and in the manner hereinafter provided, and shall deposit such amounts in one or more of the following respective funds, each of which the Trustee shall establish and maintain and hold in trust separate and apart from other funds held by it, and each of which shall be disbursed and applied only as hereinafter authorized. Such amounts shall be so transferred to and deposited in the following respective funds in the following order of priority, the requirements of each such fund at the time of deposit to be satisfied before any transfer is made to any fund subsequent in priority: (a) Interest Fund. The Trustee, on the last business day before each Interest Payment Date (commencing on the last business day before May 15, 2007), shall deposit in the Interest Fund an amount representing the portion of the Installment Payments designated as interest coming due on the next succeeding May 15 or November 15, as the case may be. No deposit need be made into the Interest Fund so long as there shall be in such fund moneys sufficient to pay the interest portion of Certificates then Outstanding due, if any, on the next May 15 or November 15, as the case may be. Except as hereinafter provided, moneys in the Interest Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the interest with respect to the Certificates when due and payable (including accrued interest on any Certificates prepaid prior to maturity pursuant to this Agreement). (b) Principal Fund. The Trustee, on the last business day before each November 15 (commencing on the last business day before November 15, 2007, shall deposit in the Principal Fund an amount equal to the principal coming due with respect to the Certificates on the next succeeding November 15. No deposit need be made into the Principal Fund so long as there shall be in such fund moneys sufficient to pay the portion of all Certificates then Outstanding designated as principal and coming due on the next succeeding November 15. Except as hereinafter provided, moneys in the Principal Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal with respect to the Certificates when due and payable. (c) Prepayment Fund. Moneys to be used for prepayment pursuant to Section 4.1 hereof and paid by the District pursuant to Section 7.1 of the Installment Purchase Agreement shall be transferred by the Trustee from the Certificate Payment Fund and deposited in the Prepayment Fund on the prepayment date specified in the Written Request of the District filed with the Trustee pursuant to Section 7.2 of the Installment Purchase Agreement. Said moneys shall be set aside in the Prepayment Fund solely for the purpose of prepaying the Certificates in advance of their respective stated maturities and shall be applied on or after the date specified for prepayment pursuant to Section 4.1 hereof to the payment of the Prepayment Price with respect to the Certificates to be prepaid upon presentation and surrender of such Certificates. Section 5.3. Investment of Moneys in Special Funds. Any moneys in the Delivery Cost Fund, the Certificate Payment Fund, the Interest Fund, the Principal Fund, the Reserve Fund and the Prepayment Fund shall be invested by the Trustee in accordance with the written instructions of the District in Permitted Investments which will mature on or before the dates when such moneys are 16 DOCSSF/59525v5/022925-0017 scheduled to be needed for payment from such fund. Securities acquired as an investment of moneys in a fund shall be credited to such fund. In the absence of written investment direction from the District, the Trustee shall invest moneys held by it solely in Permitted Investments specified in clause (5) of subsection (b) the definition thereof. Except as otherwise expressly provided herein, investments shall be valued by the Trustee as frequently as reasonably deemed necessary by the Bond Insurer, but not less often than annually, at the market value thereof, exclusive of accrued interest. Deficiencies in the amount on deposit in any fund or account resulting from a decline in market value shall be restored no later than the succeeding annual valuation date. The Trustee shall also value investments hereunder in connection with the refunding or prepayment of the Certificates as directed in a Written Request of the District. Any interest, profit or other income on such investments will be deposited when received by the Trustee in the Reserve Fund to the extent the amount available and contained therein is less than the Reserve Requirement and thereafter in the Certificate Payment Fund established hereunder. Subject to the further provisions of Section 6.3 hereof, the Trustee may sell or present for prepayment any obligations so purchased at the direction of the District whenever it shall be necessary in order to provide moneys to meet any payment, and the Trustee shall not be liable or responsible for any loss resulting from such investment. The Trustee or an affiliate may act as principal or agent in the acquisition or disposition of any investment and shall be entitled to its customary fee therefor. The Trustee may commingle any of the funds or accounts established pursuant to this Agreement into a separate fund or funds for investment purposes only; provided, however, that all funds or accounts held by the Trustee hereunder shall be accounted for separately notwithstanding such commingling. The District and the Corporation acknowledge that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District or the Corporation the right to receive brokerage confirmations of security transaction as they occur, the District and the Corporation will not receive such confirmations to the extent permitted by law. The Trustee will furnish the District and the Corporation (to the extent requested by it) periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. The Trustee may make any investments hereunder through its own bond or investment department or trust investment department, or those of its parent or an affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. Section 5.4. Reserve Fund. The Trustee shall deposit in the Reserve Fund the amounts required to be deposited therein pursuant to the Installment Purchase Agreement and this Agreement and apply moneys in the Reserve Fund in accordance with this Section. If one business day prior to any Payment Date the moneys in the Certificate Payment Fund are insufficient to make the payments required by this Agreement with respect to Certificates on such Payment Date, the Trustee shall transfer from the Reserve Fund to the Certificate Payment Fund the amount of such insufficiency. In the event that the Trustee has transferred moneys from the Reserve Fund to the Certificate Payment Fund in accordance with this Section, upon receipt of the moneys from the District to increase the balance in the Reserve Fund to the Reserve Requirement, the Trustee shall deposit such moneys in the Reserve Fund. 17 DOCS SF/59525 v5/022925-0017 If the amount available and contained in the Reserve Fund exceeds an amount equal to the Reserve Requirement and if the District is not then in default under the Installment Purchase Agreement, the Trustee shall semiannually on or before the fifth Business Day prior to each Payment Date withdraw the amount of such excess from the Reserve Fund and shall deposit such amount in the Interest Fund, and for this determination the Trustee shall make a valuation of the Reserve Fund as often as it may deem appropriate, and in any event on or before the fifth Business Day prior to each Payment Date in each year. In addition, the Trustee shall, on the date all or any portion of the Certificates are discharged in accordance with Section 10.2 hereof, value the Reserve Fund in accordance with this Section and withdraw the excess, if any, on deposit in the Reserve Fund and transfer such amount to or in accordance with the written direction of the District. Except for such withdrawals, all moneys in the Reserve Fund shall be used and withdrawn by the Trustee solely for the purpose of paying principal, Prepayment Price and interest with respect to the Certificates in the event that no other moneys of the District are available therefor. For the purpose of determining the amount in the Reserve Fund, all Permitted Investments credited to the Reserve Fund shall be valued at the lower of cost (inclusive of all interest accrued but not paid), or book value. The District may substitute any other policy of insurance, letter of credit or surety bond for the moneys on deposit in the Reserve Fund in order to meet the Reserve Requirement provided that the following requirements are met: [TO COME FROM INSURER] Section 5.5. Pledge of Moneys in Funds. All amounts on deposit in the Delivery Cost Fund, the Certificate Payment Fund, the Interest Fund, the Principal Fund, the Prepayment Fund and the Reserve Fund are hereby irrevocably pledged to the Owners of the Certificates as provided herein. This pledge shall constitute a first and exclusive lien on the Delivery Cost Fund, the Certificate Payment Fund, the Interest Fund, the Principal Fund, the Prepayment Fund and the Reserve Fund for the benefit of the Owners of the Certificates in accordance with the terms hereof and of the Installment Purchase Agreement. Section 5.6. Rebate Fund. (a) Establishment. The Trustee shall establish a separate account for the Certificates designated the "Rebate Fund." Absent an opinion of Special Counsel that the exclusion from gross income for federal income tax purposes of interest with respect to the Certificates will not be adversely affected, the District shall cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to this Section and the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the Certificates shall be governed by this Section and the Tax Certificate for the Certificates, unless and to the extent that the District delivers to the Trustee an opinion of Special Counsel that the exclusion from gross income for federal income tax purposes of interest with respect to the Certificates will not be adversely affected if such requirements are not satisfied. The Trustee shall be deemed conclusively to have complied with the provisions of this Section and the Tax Certificate if the Trustee follows the directions of the District and the Trustee shall have no independent responsibility to or liability resulting from failure of the Trustee to enforce compliance by the District with the Tax Certificate or the provisions of this Section. 18 DOCS SF/59525 v5/022925-0017 (i) Annual Computation. Within 55 days of the end of each Certificate Year (as such term is defined in the Tax Certificate) commencing five years after Closing, the District shall calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the "11/2% Penalty") has been made), for this purpose treating the last day of the applicable Certificate Year as a computation date, within the meaning of Section 1.148-1(b) of the Treasury Regulations (the "Rebatable Arbitrage"). The District shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. (ii) Annual Transfer. Within 55 days of the end of each Certificate Year commencing five years after Closing, upon the written Request of the District, an amount shall be deposited to the Rebate Fund by the Trustee from any Revenues legally available for such purpose (as specified by the District in the aforesaid written Request), if and to the extent required so that the balance in the Rebate Fund shall equal the amount of Rebatable Arbitrage so calculated in accordance with (i) of this Subsection (a). In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon written Request of the District, the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Revenue Fund. (iii) Payment to the Treasury. The Trustee shall pay, as directed by Request of the District, to the United States Treasury, out of amounts in the Rebate Account, (A) Not later than 60 days after the end of(X)the fifth Certificate Year, and (Y)each applicable fifth Certificate Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Certificate Year; and (B) Not later than 60 days after the payment of all the Certificates, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Certificate Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f)of the Code and Section 1.148-3 of the Treasury Regulations. In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the District shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this Subsection (a) shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T, or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the Certificates and the payments described in Subsection (a) above being made may be withdrawn by the District and utilized in any manner by the District. 19 DOCSSF/59525v5/022925-0017 (c) Survival of Defeasance. Notwithstanding anything in this Section to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance or payment in full of the Certificates. Section 5.7. Payments Under the Bond Insurance Policy. [TO COME FROM INSURER] ARTICLE VI COVENANTS Section 6.1. Corporation and District to Perform Under Installment Purchase Agreement. The Corporation and District covenant and agree with the Owners of the Certificates to perform all obligations and duties imposed on them under the Installment Purchase Agreement and, together with the Trustee, to enforce such Installment Purchase Agreement against the other party thereto in accordance with its terms. The Corporation and the District will in all respects promptly and faithfully keep, perform and comply with all the terms, provisions, covenants, conditions and agreements of the Installment Purchase Agreement to be kept, performed and complied with by it. The Corporation and the District agree not to do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of the Installment Purchase Agreement. Section 6.2. Budgets. On or prior to the first day of April of each Fiscal Year, the District shall certify to the Trustee that the amounts budgeted for payment of Installment Payments are fully adequate for the payment of all Installment Payments due under the Installment Purchase Agreement for such Fiscal Year. If the amounts so budgeted are not adequate for the payment of Installment Payments due under the Installment Purchase Agreement, the District will take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the District in the then ensuing Fiscal Year for the payment of Installment Payments due under the Installment Purchase Agreement and will notify the Trustee of the proceedings then taken or proposed to be taken by the District. Section 6.3. Tax Covenants. Notwithstanding any other provision of this Agreement, absent an opinion of Special Counsel that the exclusion from gross income of interest with respect to the Certificates will not be adversely affected for federal income tax purposes, the District and the Corporation covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income and specifically covenants, without limiting the generality of the foregoing, as follows: (a) Private Activity. The District and the Corporation will not take or omit to take any action or make any use of the proceeds of the Certificates or of any other moneys or property which would cause the Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. (b) Arbitrage. The District and the Corporation will make no use of the proceeds of the Certificates or of any other amounts or property, regardless of the source, or take or omit to 20 DOCSSF/59525 v5/022925-0017 take any action which would cause the Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Code. (c) Federal Guarantee. The District and the Corporation will make no use of the proceeds of the Certificates or take or omit to take any action that would cause the Certificates to be "federally guaranteed" within the meaning of Section 149(b) of the Code. (d) Information ReportinZ. The District and the Corporation will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e)of the Code. (e) Hedge Bonds. The District and the Corporation will make no use of the proceeds of the Certificates or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the Certificates to be considered "hedge bonds" within the meaning of Section 149(g) of the Code unless the District takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the Certificates for federal income tax purposes. (fl Miscellaneous. The District and the Corporation will take no action, or omit to take any action, inconsistent with the expectations stated in any Tax Certificate executed with respect to the Certificates and will comply with the covenants and requirements stated therein and incorporated by reference herein. This Section and the covenants set forth herein shall not be applicable to, and nothing contained herein shall be deemed to prevent the District and the Corporation from executing and delivering, Certificates the interest with respect to which has been determined by Special Counsel to be subject to federal income taxation. Section 6.4. Accounting Records and Reports. The Trustee shall keep or cause to be kept proper books of record and account in which complete and correct entries shall be made of all transactions made by it relating to the receipts, disbursements, allocation and application of the Installment Payments, and such books shall be available upon reasonable prior notice for inspection by the District and by any Owner of Certificates, or his agent or representative, at reasonable hours and under reasonable conditions. Each month, so long as the Certificates are Outstanding, the Trustee shall furnish to the District a statement covering receipts, disbursements, allocation and application of amounts on deposit in the funds and accounts created hereunder held by it. Section 6.5. Compliance with Trust Agreement. The Trustee will not execute, or permit to be executed, any Certificates in any manner other than in accordance with the provisions of this Agreement, and the District will not suffer or permit any default by it to occur under this Agreement, but will faithfully observe and perform all the covenants, conditions and requirements hereof. Section 6.6. Observance of Laws and Regulations. To the extent necessary to assure their performance hereunder, the Corporation and the District will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or prescribed by any law of the United States of America, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the Corporation or the District, respectively, including its right to exist and carry on its business, to the end that such 21 DOCS SF/59525v5/022925-0017 contracts, rights and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. Section 6.7. Compliance with Contracts. The District shall comply with the terms, covenants and provisions, express or implied, of all contracts for the use of the Project by the District, and all other contracts and agreements affecting or involving the Project to the extent that the District is a party thereto. Section 6.8. Prosecution and Defense of Suits. The District shall promptly, upon request of the Trustee or any Certificate Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Water System or any part thereof, whether now existing or hereafter developing, shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee (including all of its employees, officers and directors), the Corporation and every Certificate Owner harmless from all loss, cost, damage and expense, including attorneys' fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding. The District shall defend against every suit, action or proceeding at any time brought against the Trustee (including all of its employees, officers and directors) or the Corporation upon any claim arising out of the receipt, application or disbursement of any of the Installment Payments or involving the rights of the Trustee or the Corporation under this Agreement; provided that the Trustee or the Corporation at such party's election may appear in and defend any such suit, action or proceeding. The District shall indemnify and hold harmless the Trustee or the Corporation against any and all liability claimed or asserted by any person, arising out of such receipt, application or disbursement, and shall indemnify and hold harmless the Trustee against any attorneys' fees or other expenses which the Trustee may incur in connection with any litigation (including pre-litigation activities) to which it may become a party by reason of serving as Trustee under this Agreement; provided that such indemnification shall not be required in the event that the liability claimed or asserted is a result of the gross negligence or willful misconduct of the Trustee. The District shall promptly reimburse the Corporation or Trustee in the full amount of any attorneys' fees or other expenses which the Corporation or the Trustee may incur in litigation or otherwise in order to enforce such party's rights under this Agreement or the Certificates, provided that such litigation shall be concluded favorably to such party's contentions therein. Section 6.9. Recordation and Filing. The Trustee, upon written direction of the District, shall record, register, file, renew, refile and re-record all such documents, including financing statements, as may be required by law in order to maintain a security interest in this Agreement and the Assignment Agreement, all in such manner, at such times and in such places as may be required by, and to the extent permitted by, law in order fully to preserve, protect and perfect the security of the Certificate Owners and the rights and security interests of the Trustee. The Trustee, upon written direction of the District, shall (subject to Section 8.5) do whatever else may be necessary or be reasonably required in order to perfect and continue the lien of this Agreement and the Assignment Agreement. Notwithstanding anything to the contrary above, the Trustee shall have no duty or liability whatsoever to monitor or notify any party with respect to the timeliness, sufficiency or validity of any such recording, re-recording, filing, filing of continuation statements and the like with respect to this Agreement; it being expressly understood and agreed that the Trustee's duties under this Section shall be exclusively limited to following the express written filing or recording instructions of the 22 DOCS SF/59525v5/022925-0017 District, from time Ao time with respect to the above described actions so long as the District shall supply said recording or filing instruments. Section 6.10. Eminent Domain. If all or any part of the Project shall be taken by eminent domain proceedings (or sold to a person or entity threatening to exercise the power of eminent domain), the Net Proceeds therefrom shall be applied in the manner specified in Section 6.15 of the Installment Purchase Agreement. Section 6.11. Further Assurances. Whenever and so often as requested so to do by the Trustee or any Certificate Owner, the Corporation and the District will promptly execute and deliver or cause to be executed and delivered all such other and further instruments, documents or assurances, and promptly do or cause to be done all such other and further things, as may be necessary or reasonably required in order to further and more fully vest in the Trustee and the Certificate Owners all rights, interest, powers, benefits, privileges and advantages conferred or intended to be conferred upon them by this Agreement. ARTICLE VII DEFAULT AND LIMITATION OF LIABILITY Section 7.1. Notice of Non-Payment. In the event of delinquency in the payment of any Installment Payments due by the District pursuant to the Installment Purchase Agreement, the Trustee shall, after one business day following the date upon which such delinquent Installment Payment was due, as soon as practicable give written notice of the delinquency and the amount of the delinquency to the District, the Corporation and the Bond Insurer. Section 7.2. Action on Default or Termination. Upon the occurrence of an Event of Default (as that term is defined in the Installment Purchase Agreement), which event shall constitute a default hereunder, and in each and every such case during the continuance of such Event of Default, the Trustee or the Owners of not less than a majority in aggregate principal amount of Certificates at the time Outstanding shall be entitled, with the written consent of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect, upon notice in writing to the District, to exercise the remedies provided to the Corporation in the Installment Purchase Agreement. Upon declaration of the entire principal amount of the unpaid Installment Payments and the accrued interest thereon to be due and payable immediately and provided such declaration is not rescinded or annulled, all in accordance with Section 8.1 of the Installment Purchase Agreement, the Trustee shall apply (i) all moneys received as Installment Payments and all moneys held in any fund or account hereunder and (ii) if directed in writing by the Bond Insurer, all amounts made available to the Trustee by the Bond Insurer, to the payment of the entire principal amount of the Certificates and the accrued interest with respect thereto, with interest on the overdue Certificates at the rate or rates of interest or yields-to-maturity applicable to the Certificates if paid in accordance with their terms. In the event that the Bond Insurer has paid to the Trustee amounts sufficient to pay the principal of and interest due to Certificate owners upon such acceleration, the Bond Insurer's obligations under the Bond Insurance Policy shall be discharged. Section 7.3. Other Remedies of the Trustee. The Trustee shall at the written direction of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect, and without the 23 DOCSSF/59525v5/022925-0017 written direction of the Bond Insurer in the event that the Bond Insurance Policy is no longer in full force and effect, -- (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the District or any board member, officer or employee thereof, and to compel the District or any such board member, officer or employee to perform or carry out its or his duties under law and the agreements and covenants required to be performed by it or him contained herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee; or (c) by suit in equity upon the happening of any default hereunder to require the District and its directors, officers and employees to account as the trustee of an express trust. Section 7.4. Non-Waiver. A waiver of any default or breach of duty or contract by the Trustee shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Trustee to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Trustee by law or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or discontinued, the Trustee and the District shall be restored to their former positions, rights and remedies as if such action,proceeding or suit had not been brought or taken. Section 7.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law. Section 7.6. No Obligation by the District to Owners. Except for the payment of Installment Payments when due in accordance with the Installment Purchase Agreement and the performance of the other covenants and agreements of the District contained in said Installment Purchase Agreement and herein, the District shall have no obligation or liability to the Owners of the Certificates with respect to this Agreement or the execution, delivery or transfer of the Certificates, or the disbursement of Installment Payments to the Owners by the Trustee; provided however that nothing contained in this Section shall affect the rights, duties or obligations of the Trustee expressly set forth herein. Section 7.7. Trustee Appointed Agent for Certificate-owners: Direction of Proceedings. The Trustee is hereby appointed the agent and attorney of the Owners of all Certificates outstanding hereunder for the purpose of filing any claims relating to the Certificates. The Owners of a majority in aggregate principal amount of the Certificates Outstanding hereunder shall, upon tender to the Trustee of reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such direction, have the right to direct the method and place of conducting all 24 DOCSSF/59525 v5/022925-0017 remedial proceedings by the Trustee, provided such direction shall be in accordance with law and the provisions of this Trust Agreement and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Certificate-owners not parties to such a direction. Section 7.8. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of a majority in aggregate principal amount of the Certificates then outstanding pursuant to Section 7.7 hereof, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Certificates, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default hereunder, discontinue, withdraw, compromise or settle, or otherwise dispose of, any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of at least a majority in principal amount of the Certificates Outstanding hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Section 7.9. Limitation on Certificate-Owners' Right to Sue. No Owner of any Certificate executed and delivered hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Agreement, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default hereunder; (b) the Owners of at least a majority in aggregate principal amount of all the Certificates then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d)the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender or indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Certificates of any remedy hereunder; it being understood and intended that no one or more Owners of Certificates shall have any right in any manner whatever by his or their action to enforce any right under this Agreement, except in the manner herein provided, and that all proceedings at law or in equity to enforce any provision of this Agreement shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all owners of the Outstanding Certificates. The right of any Owner of any Certificate to receive payment of the principal of (and premium, if any) and interest with respect to such Certificate, as herein provided, on and after the respective due dates expressed in such Certificate, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Owner, notwithstanding the foregoing provisions of this Section or Section 7.10 or any other provision of this Agreement. Section 7.10. No Obligation with Respect to Performance by Trustee. Neither the District nor the Corporation shall have any obligation or liability to any of the other parties hereto or to the Owners of the Certificates with respect to the performance by the Trustee of any duty imposed upon it under this Agreement. 25 DOCSSF/59525v5/022925-0017 Section 7.11. No Liability to Owners for Payment. The Corporation shall not have any obligation or liability to the Owners of the Certificates with respect to the payment of the Installment Payments by the District when due, or with respect to the performance by the District of any other covenant made by it in the Installment Purchase Agreement or herein. Except as provided in this Agreement, the Trustee shall not have any obligation or liability to the Owners of the Certificates with respect to the payment of the Installment Payments by the District when due, or with respect to the performance by the District of any other covenant made by it in the Installment Purchase Agreement or herein. Section 7.12. No Responsibility for Sufficiency. The Trustee shall not be responsible for the sufficiency of this Agreement, the Installment Purchase Agreement, or of the assignment made to it by the Assignment Agreement of rights to receive Installment Payments pursuant to the Installment Purchase Agreement, or the value of or title to the Project. The Trustee shall not be responsible or liable for selection or liquidation of investments or any loss suffered in connection with any investment of funds made by it under the terms of and in accordance with this Agreement. Section 7.13. Indemnification of Trustee. The District shall indemnify the Trustee (including all of its employees, officers and directors) and hold it harmless against any loss, liability, expenses or advances, including but not limited to fees and expenses of counsel and other experts, incurred or made without negligence or willful misconduct on the part of the Trustee, (i) in the exercise and performance of any of the powers and duties hereunder or under the Installment Purchase Agreement by the Trustee, (ii)relating to or arising out of the Project, or the conditions, occupancy, use, possession, conduct or management of, or work done in or about, or from the planning, design, acquisition, installation or construction of the Project or any part thereof, or (iii) arising out of or relating to any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading in any official statement or other offering circular utilized in connection with the sale of the Certificates, including the costs and expenses of defending itself against any claim of liability arising under this Agreement. Such indemnity shall survive payment of the Certificates and discharge of this Agreement or resignation or removal of the Trustee. ARTICLE VIII THE TRUSTEE Section 8.1. Employment of Trustee. In consideration of the recitals hereinabove set forth and for other valuable consideration, the District hereby agrees to employ the Trustee to receive, hold, invest and disburse the moneys received pursuant to the Installment Purchase Agreement for credit to the various funds and accounts established by this Agreement; to execute, deliver and transfer the Certificates; and to apply and disburse the Installment Payments received from the District to the Owners of Certificates; and to perform certain other functions; all as herein provided and subject to the terms and conditions of this Agreement. Section 8.2. Acceptance of Employment. In consideration of the compensation herein provided for, the Trustee accepts the employment above referred to subject to the terms and conditions of this Agreement. 26 DOCS SF/59525v5/022925-0017 Section 8.3. Trustee: Duties Removal and Resignation. By executing and delivering this Agreement, the Trustee accepts the duties and obligations of the Trustee provided in this Agreement, but only upon the terms and conditions set forth in this Agreement. The District may, by written request to the Trustee, remove the Trustee and appoint a successor Trustee; provided, however, that if the District is in default under the Installment Purchase Agreement, the Owners of a majority in aggregate principal amount of all Certificates Outstanding may, by written request to the Trustee, remove the Trustee and appoint a successor Trustee. Any such successor shall be a bank or trust company doing business and having a corporate trust office in California, which has (or the parent holding company of which has) a combined capital (exclusive of borrowed capital) and surplus of at least twenty million dollars ($20,000,000) and subject to supervision or examination by federal or state authorities. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee may at any time resign by giving written notice to the District and the Bond Insurer and by giving to the Certificate Owners notice of such resignation by mail at the addresses shown on the registration books maintained by the Trustee. Upon receiving such notice of resignation, the District shall promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the event that the District does not appoint a successor Trustee within thirty (30) days following receipt of such notice of resignation, the resigning Trustee may at the expense of the District petition the appropriate court having jurisdiction to appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon written acceptance of appointment by the successor Trustee and upon written approval of the Bond Insurer. Section 8.4. Compensation of the Trustee. The District shall from time to time, subject to any agreement in effect with the Trustee, pay to the Trustee reasonable compensation for its services and shall reimburse the Trustee (including all of its employees, officers and directors) for all its advances and expenditures, including but not limited to advances to and fees and expenses of independent appraisers, accountants, consultants, counsel, agents and attorneys-at-law or other experts employed by it in the exercise and performance of its powers and duties hereunder. Such compensation and reimbursement shall be paid by the District; provided, however, that the Trustee shall not otherwise have any claims, except in accordance with Section 7.13 hereof and Section 8.2 of the Installment Purchase Agreement, or lien for payment of compensation for its services against any other moneys held by it in the funds or accounts established hereunder but may take whatever legal actions are lawfully available to it directly against the District. The obligations of the District under this Section shall survive resignation or removal of the Trustee and payment of the Certificates and discharge of this Agreement. Section 8.5. Protection of the Trustee. The Trustee shall be protected and shall incur no liability whatsoever in acting or refraining from acting or proceeding in good faith upon any resolution, notice, telegram, request, consent, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document which it shall in good faith believe to be genuine and to have been adopted, executed or delivered by the proper party or pursuant to any of the provisions of this Agreement, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, but may accept and rely upon the 27 DOCSSF/59525v5/022925-0017 same as conclusive evidence of the truth and accuracy of such statements. The Trustee shall not be bound to recognize any person as an Owner of any Certificate or to take any action at the request of any such person unless such Certificate shall be deposited with the Trustee or satisfactory evidence of the ownership of such Certificate shall be furnished to the Trustee. The Trustee may consult with counsel, who may be counsel to the Corporation or the District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith in accordance therewith. Whenever in the administration of its duties under this Agreement, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) shall be deemed to be conclusively proved and established by a certificate of the Corporation or the District and such certificate shall be full warranty to the Trustee for any action taken or suffered under the provisions of thin lieuAgr t faith but in s n the Trustee may hereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable. The Trustee may buy, sell, own,hold and deal in any of the Certificates provided pursuant to this Agreement, and may join in any action which any Owner may be entitled to take with like effect as if the Trustee were not a party to this Agreement. The Trustee, either as principal or agent, may also engage in or be interested in any financial or other transaction with the District or the Corporation, and may act as depository, trustee, or agent for any committee or body of Owners of Certificates or of obligations of the Corporation or the District as freely as if it were not Trustee hereunder. The Trustee may, to the extent reasonably necessary, execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys, agents, or receivers, and shall be entitled to advice of counsel concerning all matters of trust and its duties hereunder, and the Trustee shall not be answerable for the default or misconduct of any such attorney, agent or receiver selected by it with reasonable care. The Trustee shall not be answerable for the exercise of any discretion or power under n with e funds and accounts established hereunder,Agreement or in the performance of its duties hexcept only for ereunder or for anything whatever in connection its own willful misconduct or negligence. The recitals, statements and representations by the District or the Corporation contained in this Agreement or in the Certificates shall be taken and construed as made by and on the part of the District or Corporation and not by the Trustee and the Trustee does not assume, and shall not have, any responsibility or obligations for the correctness of any thereof. The Trustee undertakes to perform such duties, and only such duties as are specifically set forth in this Agreement and no implied duties or obligations shall be read into this Agreement against the Trustee. No provision in this Agreement shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. 28 DOCSSF/59525 v5/022925-0017 In accepting the trust hereby created, the Trustee acts solely as Trustee for the Owners and not in its individual capacity and all persons, including without limitation the Owners and the District or the Corporation having any claim against the Trustee arising from this Agreement shall look only to the funds and accounts held by the Trustee hereunder for payment except as otherwise provided herein. Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Certificates. The Trustee makes no representation or warranty, express or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the District or the Corporation of the Project. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection with or arising from the Installment Purchase Agreement or this Agreement for the existence, furnishing or use of the Project. The Trustee shall not be deemed to have knowledge of any Event of Default hereunder or under the Installment Purchase Agreement unless and until it shall have actual knowledge thereof or have received notice thereof at its corporate trust office at the address set forth in Section I I-I I hereof. The Trustee shall, during the existence of any Event of Default (which has not been cured) use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his/her own affairs. The Trustee shall not be accountable for the use or application by the District, or the Corporation or any other party of any funds which the Trustee has released in accordance with the terms of this Agreement. The Trustee shall be under no obligation to exercise any of the rights or powers vested in the Trustee by this Agreement at the request, order or direction of any of the Owners or Bond Insurer pursuant to the provisions of this Agreement unless such Owners or Bond Insurer shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. Notwithstanding any other provision of this Agreement, in determining whether the rights of the Owners or Bond Insurer will be adversely affected by any action taken pursuant to the terms and provisions of this Agreement, the Trustee shall consider the effect on the Owners or Bond Insurer as if there were no Bond Insurance Policy. Section 8.6. Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business (provided such company is eligible under Section 8.3 hereof), shall be the successor to the Trustee without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. 29 DOCSSF/59525v5/022925-0017 ARTICLE IX AMENDMENT OF TRUST AGREEMENT Section 9.1. Amendments Permitted. (a) This Agreement and the rights and obligations of the District and of the Owners of the Certificates and of the Trustee may be modified or amended at any time by an amendment hereto which shall become binding when the written consents of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in Section 11.4 hereof, shall have been filed, together with the written consent of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect, provided, however, that no such modification or amendment shall (1) extend the stated maturities of the Certificates, or reduce the rate of interest or yields-to-maturity, as the case may be, represented thereby, or extend the time of payment of interest, or reduce the amount of principal represented thereby, or reduce any premium payable on the prepayment thereof, without the consent of the Owner of each Certificate so affected, or (2)reduce the aforesaid percentage of Owners of Certificates whose consent is required for the execution of any amendment or modification of this Agreement, or (3)modify any of the rights or obligations of the Trustee or the Corporation without its written consent thereto. (b) This Agreement and the rights and obligations of the Corporation and the District and of the Owners of the Certificates may also be modified or amended at any time by an amendment hereto which shall become binding upon adoption, without the consent of the Owners of any Certificates but with the written consent of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect,but only to the extent permitted by law and only for any one or more of the following purposes— (i) to add to the covenants and agreements of the Corporation or the District contained in this Agreement other covenants and agreements thereafter to be observed or to surrender any right or power herein reserved to or conferred of the Owners ofpon he the Corporation or the District, and which shall not adversely affect the interests (ii) to cure, correct or supplement any ambiguous or defective provision contained in this Agreement or in regard to questions arising under this Agreement, as the Corporation or the District may deem necessary or desirable and which shall not adversely affect the interests of the Owners of the Certificates; and (iii) to make such other amendments or modifications as may be in the best interests of the Owners of the Certificates. The Bond Insurer shall be provided d by or e District toith a this Agreement pursuantpursuanttto of this all proceedings relating to the amendment supplement Section 9.1. The Trustee shall promptly upon I a copycution and delivery of any of such amendment to the Bond Insurer.amendment pursuant to clause (b) above send by first c PY 30 DOCSSF/59525v 5l022925-0017 Section 9.2. Endorsement or Replacement of Certificates After Amendment or Supplement. After the effective date of any action taken as hereinabove provided, the Trustee may determine that the Certificates may bear a notation by endorsement in form approved by the Trustee as to such action, and in that case upon demand of the Trustee to the Owner of any Outstanding Certificate and presentation of such Owner's Certificate for such purpose at the principal corporate trust office of the Trustee a suitable notation as to such action shall be made on such Certificate. If the Trustee shall so determine, new Certificates so modified as in the opinion of the Trustee shall be necessary to conform to such action shall be prepared, and in that case upon demand of the Trustee to the Owner of any Outstanding Certificates such new Certificates shall be exchanged at the principal corporate trust office of the Trustee without cost to each Owner for Certificates then Outstanding upon surrender of such Outstanding Certificates. Section 9.3. Amendment of Particular Certificates. The provisions of this article shall not prevent any Owner from accepting any amendments to the particular Certificates held by him, provided that due notation thereof is made on such Certificates. ARTICLE X DEFEASANCE Section 10.1. Discharge of Trust Agreement. When the obligations of the District under the Installment Purchase Agreement shall cease pursuant to Article IX of the Installment Purchase Agreement (except for the right of the Trustee and the obligation of the District to have the money and Permitted Investments mentioned therein applied to the payment of Installment Payments as therein set forth and the obligation to apply moneys on deposit in the Rebate Fund as provided in Section 5.6 herein), then and in that case the obligations created by this Agreement shall thereupon cease, terminate and become void except for the obligation of the District to direct the Trustee to apply money on deposit in the Rebate Fund as provided herein which shall continue until such moneys are so applied and the right of the Owners to have applied and the obligation of the Trustee to apply such moneys and Permitted Investments to the payment of the Certificates as herein set forth, and subject to application of moneys on deposit in the Rebate Fund as provided in Section 5.6, the Trustee shall turn over to the District, after provision for payment of amounts due the Trustee and the Bond Insurer hereunder, as an overpayment of Installment Payments, any surplus in the Certificate Payment Fund and all balances remaining in any other funds or accounts other than moneys and Permitted Investments held for the payment of the Certificates at maturity or on prepayment, which moneys and Permitted Investments shall continue to be held by the Trustee in trust for the benefit of the Owners and shall be applied by the Trustee to the payment, when due, of the principal or interest and premium, if any, represented by the Certificates, and after such payment, this Agreement shall become void. If moneys or securities described in clause (a) of the definition of Permitted Investments are deposited with and held by the Trustee as hereinabove provided, the Trustee shall within thirty (30) days after such moneys or Permitted Investments shall have been deposited with it, mail a notice, first class postage prepaid, to the Owners at the addresses listed on the registration books kept by the Trustee pursuant to Section 2.8, setting forth (a) the date fixed for prepayment of the Certificates, (b) a description of the moneys or securities described in clause (a) of the definition of Permitted Investments so held by it, and (c) that this Agreement has been released in accordance with the provisions of this Section. 31 DOCSSF/59525v5/022925-0017 Notwithstanding anything herein to the contrary, in the event that the principal and/or interest with respect to the Certificates shall be paid by the Bond Insurer pursuant to the Bond Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the District, and the pledge of the Installment Payments in Section 5.1 hereof and all covenants, agreements and other obligations of the District to the Owners in this Agreement shall continue to exist and shall run to the benefit of the Bond Insurer, and the Bond Insurer shall be subrogated to the rights of such Owners. Notwithstanding anything herein to the contrary, this Agreement shall not be discharged until all amounts due to the Bond Insurer have been paid in full. Section 10.2. Deposit of Money or Securities with Trustee. Whenever in this Agreement or the Installment Purchase Agreement it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or prepay any Certificates, the money or securities to be so deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to this Agreement and shall be— (a) lawful money of the United States of America in an amount equal to the principal amount represented by such Certificates and all unpaid interest represented thereby to maturity, except that, in the case of Certificates which are to be prepaid prior to maturity and in respect of which notice of such prepayment shall have been given as in Article IV provided or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount or Prepayment Price and all unpaid interest to such date of prepayment if any, represented by such Certificates; or (b) non-callable securities described in clause (a) of the definition of Permitted Investments which will provide money sufficient to pay the principal at maturity or upon prepayment plus all accrued interest to maturity or to the prepayment date, as the case may be, represented by the Certificates to be paid or prepaid, as such amounts become due, plus premium, if any, provided that, in the case of Certificates which are to be prepaid prior to the maturity thereof, notice of such prepayment shall have been given as in Article IV provided or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that the Trustee shall have been irrevocably instructed (by the terms of this Agreement and the Installment Purchase Agreement or by Written Request of the District) to apply such money or securities to the payment of such principal or Prepayment Price and interest represented by such Certificates. Section 10.3. Unclaimed Moneys. Anything contained herein to the contrary notwithstanding, any moneys held by the Trustee in trust for the payment and discharge of the interest, principal or Prepayment Price represented by any of the Certificates which remain unclaimed for two years after the date of deposit of such moneys if deposited with the Trustee after the date when the interest, principal or Prepayment Price represented by such Certificates have become payable, shall at the Written Request of the District be repaid by the Trustee to the District as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the District for the payment of the interest and principal or Prepayment Price represented by much Certificates; provided, however, that before being required to make any such payment to the District, the Trustee shall, at the written request and expense of the District, first mail a notice to the owners of the Certificates so payable that such 32 DOCSSF/59525v5/022925-0017 moneys remain unclaimed and that after a date named in such notice, which date shall not be less than thirty (30) days after the date of the mailing of such notice, the balance of such moneys then unclaimed will be returned to the District. ARTICLE XI MISCELLANEOUS Section 11.1. Benefits of Trust Agreement Limited to Parties. Nothing contained herein, expressed or implied, is intended to give to any person other than the District, the Trustee, the Corporation, the Bond Insurer and the Owners any claim, remedy or right under or pursuant hereto, and any agreement, condition, covenant or term required herein to be observed or performed by or on behalf of the District shall be for the sole and exclusive benefit of the Trustee, the Corporation, the Bond Insurer and the Owners. Section 11.2. Successor Deemed Included in all References to Predecessor. Whenever either the District, the Corporation or the Trustee or any officer thereof is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the District, the Corporation or the Trustee or such officer, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the District, the Corporation or the Trustee or any officer thereof shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 11.3. Execution of Documents by Owners. Any declaration, request or other instrument which is permitted or required herein to be executed by Owners may be in one or more instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed in writing. The fact and date of the execution by any Owner or such Owner's attorney of any declaration, request or other instrument or of any writing appointing such attorney may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state or territory in which he purports to act that the person signing such declaration, request or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer, or by such other proof as the Trustee may accept which it may deem sufficient. The ownership of any Certificates and the amount, payment date, number and date of owning the same may be proved by the books required to be kept by the Trustee pursuant to the provisions of Section 2.8. Any declaration, request or other instrument in writing of the Owner of any Certificate shall bind all future Owners of such Certificate with respect to anything done or suffered to be done by the District or the Trustee in good faith and in accordance therewith. Section 11.4. Disqualified Certificates. Certificates owned or held by or for the account of the Corporation or the District (but excluding Certificates held in any pension or retirement fund) shall not be deemed Outstanding for the purpose of any consent or other action or any calculation of Outstanding Certificates provided for in this Agreement, and shall not be entitled to consent to or take any other action provided for in this Agreement. 33 DOCSSF/59525v5/022925-0017 The Trustee may adopt appropriate regulations to require each Owner of Certificates, before his consent provided for in this Agreement shall be deemed effective, to reveal if the Certificates as to which such consent is given are disqualified as provided in this Section. Section 11.5. Waiver of Personal Liability. No director, officer or employee of the District or the Corporation shall be individually or personally liable for the payment of the interest, principal or the prepayment premiums, if any, represented by the Certificates, but nothing contained herein shall relieve any director, officer or employee of the District or Corporation from the performance of any official duty provided by any applicable provisions of law or by the Installment Purchase Agreement or hereby. Section 11.6. Acquisition of Certificates by the District; Destruction of Certificates. All Certificates acquired by the District, whether by purchase or gift or otherwise shall be surrendered to the Trustee for cancellation. Whenever in this Agreement provision is made for the cancellation by the Trustee of any Certificates, the Trustee shall destroy such Certificates and upon written request deliver a certificate of such destruction to the District. Section 11.7. Issuance of Additional Certificates. In connection with the issuance of additional Certificates under the Agreement, the District shall deliver to Bond Insurer a copy of the disclosure document, if any, circulated with respect to such additional Certificates. Section 11.8. Headings. Headings preceding the text of the several Articles and Sections hereof, and the table of contents, are solely for convenience of reference and shall not constitute a part of this Agreement or affect its meaning, construction or effect. All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; and the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. Section 11.9. Funds and Accounts. Any fund required by this Agreement to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds shall at all times be maintained in accordance with sound industry practices and with due regard for the protection of the security of the Certificates and the rights of every Owner thereof. Section 11.10. Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the District, the Corporation or the Trustee shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void and shall be deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof or of the Certificates, and the Owners shall retain all the benefit, protection and security afforded to them under any applicable provisions of law. The District, the Corporation and the Trustee hereby declare that they would have executed this Agreement, and each and every other article, section, paragraph, subdivision, sentence, clause and phrase hereof and would have authorized the execution and delivery of the Certificates pursuant hereto irrespective of the fact that any one or more articles, sections, paragraphs, subdivisions, 34 DOCSSF/59525 v5/022925-0017 sentences, clauses or phrases hereof or the application thereof to any person or circumstances may be held to be unconstitutional, unenforceable or invalid. Section 11.11. California Law. THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Section 11.12. Notices. All written notices to be given under this Agreement to the parties hereto shall be given by mail or personal delivery to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other parties in writing from time to time. If to the District: P.O. Box 309 11570 Donner Pass Road Truckee, CA 96160 Attention: General Manager If to the Corporation: P.O. Box 309 11570 Donner Pass Road Truckee, CA 96160 Attention: President If to the Trustee: 700 South Flower Street, Suite 500 Los Angeles, CA 90017 Attention: Corporate Trust Department If to the Bond Insurer: [ l Attention: Section 11.13. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument. Section 11.14. Bond Insurer to be Deemed Owner: Rights of the Bond Insurer. (a) Notwithstanding any provision of this Agreement to the contrary, the Bond Insurer shall be deemed the sole Owner of the Outstanding Certificates for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the Owners are entitled to take pursuant to Article V and Article VIII of this Agreement or the Installment Purchase Agreement, and no amendment or supplement to the Agreement or the Installment Purchase Agreement may become effective except upon obtaining the prior written consent of the Bond Insurer; provided, however, that the rights of the Bond Insurer to direct or consent to District, Trustee or Certificate Owner actions under the Installment Purchase Agreement shall be suspended during any period in which the Bond Insurer is in default in its payment obligations under the Bond Insurance Policy (except to the extent of amounts previously paid by the Bond Insurer and due and owing to the Bond Insurer) and shall be of no force or effect in the event the Bond Insurance Policy is no longer in effect or the Bond Insurer asserts that the Bond Insurance Policy is not in effect or the Bond Insurer shall have provided written notice that it waives such rights. 35 DOCSSF/59525v5/022925-0017 (b) In the event that the principal or interest represented by a Certificate shall be paid by the Bond Insurer pursuant to the terms of the Bond Insurance Policy, such principal and interest shall not be deemed paid for purposes of the Agreement or the Installment Purchase Agreement and shall continue to be due and owing until paid by the District in accordance with the Installment Purchase Agreement and the Agreement, and such Certificate shall (to the extent of such principal and interest)remain Outstanding under this Agreement. (c) The Bond Insurer shall be included as a party in interest and as a party entitled to (i)notify the District, the Trustee, if any, or any applicable receiver of the occurrence of an event of default and(ii)request the Trustee or receiver to intervene in judicial proceedings that affect the Certificates or the security therefor. The Trustee or receiver shall be required to accept notice of an Event of Default from the Bond Insurer. Section 11.15. Bond Insurer as Third-Party Beneficiary. The Bond Insurer is a third-party beneficiary of this Agreement and the Installment Purchase Agreement and may enforce any right, remedy or claim given, conferred or granted hereunder. Section 11.16. Business Day. When any action is provided for herein to be done on a day named or within a specified time period, and the day or the last day of the period falls on a day other than a Business Day, such action may be performed on the next ensuing Business Day with the same effect as though performed on the appointed day or within the specified period with no interest accruing for the period after such nominal date. 36 DOCSSF/59525 v5/022925-0017 IN WITNESS WHEREOF, the parties have executed and attested this Agreement by their officers hereunto duly authorized as of the date and year first written above. THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee By: Authorized Officer TRUCKEE DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION By: President TRUCKEE DONNER PUBLIC UTILITY DISTRICT By: President By: Clerk of the Board S-1 DOCSSF/59525 v5/022925-0017 EXHIBIT A [FORM OF CERTIFICATE OF PARTICIPATION] TRUCKEE DONNER PUBLIC UTILITY DISTRICT REFUNDING REVENUE CERTIFICATE OF PARTICIPATION (WATER SYSTEM IMPROVEMENT PROJECTS), SERIES 2006 Evidencing an Interest of the Owner Hereof in Installment Payments to be Made by the TRUCKEE DONNER PUBLIC UTILITY DISTRICT CERTIFICATE INTEREST PAYMENT DATED RATE: DATE DATE CUSIP % November 15 , 2006 [ ] REGISTERED OWNER: CEDE &CO. PRINCIPAL AMOUNT: DOLLARS THIS IS TO CERTIFY that the Registered Owner (specified above) of this Certificate of Participation (herein called the "Certificate") is the owner of an undivided interest in the right to receive certain Installment Payments (as that term is defined in the Trust Agreement hereinafter mentioned) under that certain Installment Purchase Agreement (the "Installment Purchase Agreement"), dated as of September 1, 2006, by and between Truckee Donner Public Utility District Financing Corporation (the "Corporation") and the Truckee Donner Public Utility District (the "District'). The Installment Payments to be made thereunder have been assigned to The Bank of New York Trust Company, N.A., as trustee (the "Trustee"), having a corporate trust office in Los Angeles, California. The Trustee has executed and delivered $[ ] aggregate principal amount of Certificates. The Registered Owner of this Certificate is entitled to receive, subject to the terms of the Installment Purchase Agreement and the Trust Agreement, dated as of September 1, 2006, by and among the Trustee, the Corporation and the District (the "Trust Agreement") on the Certificate Payment Date (specified above) the Principal Amount (specified above) representing a portion of the Installment Payments designated as principal coming due on the Certificate Payment Date, and to receive an interest component on such principal component at the interest rate per annum specified above, from the Interest Payment Date (as hereinafter defined)preceding the date of execution hereof by the Trustee, unless such date of execution is after a Record Date (as hereinafter defined) and on or before the succeeding Interest Payment Date, in which case interest shall be payable from such Interest Payment Date, or unless such date of execution is on or before the first Record Date, in which case interest shall be payable from the Dated Date; provided, however, that if, as shown by the records of the Trustee, interest represented by this Certificate is in default, Certificates executed in A-1 DOCS S F/59525 v5/022925-0017 exchange for this Certificate surrendered for transfer or exchange shall represent interest from the last date to which interest has been paid in full or duly provided for with respect to this Certificate, or, if no interest has been paid or duly provided for with respect to this Certificate, from the Dated Date. Interest with respect to this Certificate shall be paid on May 15 and November 15 in each year, commencing May 15, 2007 (each, an"Interest Payment Date"), and continuing to and including the Certificate Payment Date or the date of prior prepayment hereof, whichever is earlier. Interest with respect to this Certificate shall be calculated on the basis of a 360-day year of twelve 30-day months. The principal with respect hereto and prepayment premiums, if any, are payable in lawful money of the United States of America upon presentation and surrender at the principal corporate trust office of the Trustee in Los Angeles, California or such other office as the Trustee may from time to time designate in writing to the District, the Corporation and the Registered Owners (the "Principal Corporate Trust Office"). Interest with respect hereto is payable by check or draft of the Trustee mailed by first class mail on each Interest Payment Date to the Registered Owner hereof as of the close of business on the fifteenth day of the calendar month prior to such Interest Payment Date (the "Record Dates") at the address shown on the books maintained by the Trustee or, upon the written request received by the Trustee of an Owner of at least $1,000,000 in aggregate principal amount of Certificates, by wire transfer of immediately available funds to an account in the United States designated by such Owner prior to the applicable Record Date, except, in each case that, if and to the extent that there is a default in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the owner in whose name this Certificate is registered at the close of business on a special record date as determined by the Trustee. This Certificate has been executed by the Trustee pursuant to the terms of the Trust Agreement. Copies of the Trust Agreement and the Installment Purchase Agreement are on file at the corporate trust office of the Trustee in Los Angeles, California, and reference is made to the Trust Agreement and the Installment Purchase Agreement and any and all amendments thereto for a description of the pledges and covenants securing the Certificates, the nature, extent and manner of enforcement of such pledges, the rights and remedies of the registered owners of the Certificates with respect thereto and the other terms and conditions upon which the Certificates are delivered thereunder. The Certificates are payable from Installment Payments payable by the District and other amounts on deposit in certain funds and accounts held under the Trust Agreement, including but not limited to the Reserve Fund and the Rate Stabilization Fund, all in accordance therewith. All Revenues and all amounts on deposit in the Revenue Fund and the Rate Stabilization Fund (as such terms are defined in the Installment Purchase Agreement) are irrevocably pledged to the payment of the Installment Payments and the Revenues shall not be used for any other purpose while any of the Installment Payments remain unpaid; provided that out of Revenues and amounts on deposit in the Revenue Fund and the Rate Stabilization Fund there may be apportioned such sums for such purposes as are expressly permitted in the Installment Purchase Agreement. This pledge, together with all other Contracts and Bonds (as such terms are defined in the Installment Purchase Agreement) constitutes a lien on Revenues, subject to application of Revenues and all amounts on deposit in the Revenue Fund as permitted in the Installment Purchase Agreement, and the Revenue Fund for the payment of the Installment Payments and all other Contracts and Bonds in accordance with the terms of the Installment Purchase Agreement and of the Trust Agreement. The obligation of the District to make Installment Payments is a special obligation of the District payable solely from Net Revenues (as defined in the Installment Purchase Agreement) and other funds described in the A-2 DOCSSF/59525v5/022925-0017 Installment Purchase Agreement and does not constitute a debt of the District or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. The District may at any time execute any Contract, the installment payments under which, or issue any Bonds (as such terms are defined in the Installment Purchase Agreement), the payments of which are on a parity with the Installment Payments and which are secured by a pledge of and lien on the Revenues in accordance with the Installment Purchase Agreement. The Certificates are authorized to be executed and delivered in the form of fully registered Certificates in the denomination of $5,000 each or any integral multiple thereof, provided that no Certificate shall have principal represented thereby maturing in more than one year. Subject to the limitations and conditions and upon payment of the taxes and governmental charges provided in the Trust Agreement, Certificates may be exchanged for a like aggregate principal amount of Certificates of the same Certificate Payment Date of other authorized denominations at the Principal Corporate Trust Office of the Trustee. This Certificate is transferable by the Registered Owner hereof, in person or by such person's duly authorized attorney, but only in the manner, subject to the limitations and conditions and upon payment of the taxes and governmental charges provided in the Trust Agreement, and upon surrender of this Certificate for cancellation at the Principal Corporate Trust Office of the Trustee, accompanied by delivery of a duly executed written instrument of transfer, in a form approved by the Trustee. Upon such transfer a new Certificate or Certificates of the same Certificate Payment Date and of authorized denomination or denominations, for a like aggregate principal amount will be delivered to the transferee in exchange herefor. The Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Trustee shall not be affected by any notice to the contrary. The Trustee shall not be required to register the transfer or exchange of any Certificate (i) within 15 days preceding selection of Certificates for prepayment or(ii) selected for prepayment. The Certificates are subject to prepayment prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as directed by the District in a written request to the Trustee and by lot within each maturity in integral multiples of$5,000, from prepaid Installment Payments made by the District from Net Proceeds (as defined in the Installment Purchase Agreement), under the circumstances and upon the terms prescribed in the Trust Agreement and the Installment Purchase Agreement, at a prepayment price equal to the principal amount thereof plus accrued interest evidenced and represented thereby to the date fixed for prepayment, without premium. The Certificates with stated maturities on or after November 15, 2017, are subject to prepayment prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as directed by the District in a written request to the Trustee and by lot within each maturity in integral multiples of$5,000, on or after November 15, 2016 from amounts prepaid by the District pursuant to the Installment Purchase Agreement, at a prepayment price equal to the principal amount of such Certificates to be prepaid plus accrued interest evidenced and represented thereby to the date fixed for prepayment without premium. A-3 DOCS S F/59525 v 5/022925-0017 As provided in the Trust Agreement, notice of prepayment hereof shall be mailed, first class postage prepaid, not less than 30 days nor more than 60 days prior to the prepayment date, to the Registered Owner of this Certificate at the address thereof appearing on the Certificate registration books. If this Certificate is called for prepayment and payment is duly provided therefor as specified in the Trust Agreement, interest represented hereby shall cease to accrue from and after the date fixed for prepayment. Any defect in the notice or the mailing thereof will not affect the validity of the prepayment of this Certificate. To the extent and in the manner permitted by the terms of the Trust Agreement and the Installment Purchase Agreement, as the case may be, the Trust Agreement and the rights and obligations of the District and of the registered owners of the Certificates and of the Trustee or the Installment Purchase Agreement and the rights and obligations of the Corporation and the District and the registered owners of the Certificates and the Trustee, respectively, may be modified or amended with the written consents of the registered owners of a majority in aggregate principal amount of the Certificates (as such terms is defined in the Trust Agreement) then outstanding and so long as the Bond Insurance Policy is in full force and effect, with the written consent of the Bond Insurer (as defined in the Trust Agreement), provided, however, that no such modification or amendment shall (1)extend the stated maturities of the Certificates, or reduce the rate of interest or yield-to-maturity represented thereby, or extend the time of payment of interest, or reduce the amount of principal represented thereby, or reduce any premium payable on the prepayment thereof, without the consent of the registered owner of each Certificate so affected, or (2)reduce the percentage of registered owners of Certificates whose consent is required for the execution of any amendment or modification of the Trust Agreement or the Installment Purchase Agreement, or (3) modify any of the rights or obligations of the Trustee or the Corporation without its written consent thereto. To the extent and in the manner permitted by the terms of the Trust Agreement and the Installment Purchase Agreement, as the case may be, the Trust Agreement and the rights and obligations of the Corporation and the District and of the registered obligations of the Corporation and the District and of the registered owners of the Certificates or the Installment Purchase Agreement and the rights and obligations of the Corporation and the District also be modified or amended, without the consent of the Owners of any Certificates but with the written consent of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect, but only to the extent permitted by law and only for any one or more of the following purposes - - (1) to add to the covenants and agreements of the Corporation or the District contained in the Trust Agreement or the Installment Purchase Agreement other covenants and agreements thereafter to be observed or to surrender any right or power in the Trust Agreement or the Installment Purchase Agreement reserved to or conferred upon the Corporation or the District, and which shall not adversely affect the interests of the registered owners of the Certificates; (2) to cure, correct or supplement any ambiguous or defective provision contained in the Trust Agreement or the Installment Purchase Agreement or in regard to questions arising under the Trust Agreement or the Installment Purchase Agreement, as the Corporation or the District may deem necessary or desirable and which shall not adversely affect the interests of the registered owners of the Certificates; and A-4 DOCS S F/5952 5 v 5/022925-0017 (3) to make such other amendments or modifications as may be in the best interests of the registered owners of the Certificates. Notwithstanding anything contained in the Trust Agreement, for certain purposes thereunder and so long as the Bond Insurance Policy is in full force and effect, the Bond Insurer shall be deemed to be the owner of all Certificates for purposes of exercising any voting right or privilege or giving any consent or direction or taking certain other actions pursuant to the Trust Agreement. Upon acceleration, the Installment Payments and the Certificates shall become due and payable immediately from the sources described in the Installment Purchase Agreement and the Trust Agreement, respectively. The Trustee has no obligation or liability to the registered owners of the Certificates for the payment of interest, principal or prepayment premium, if any, with respect to the Certificates out of the Trustee's own funds; the Trustee's sole obligations are those described in the Trust Agreement. The recitals of facts herein shall be taken as statements of the District and the Corporation and the Trustee does not have any responsibility for the accuracy thereof. The District has certified that all acts, conditions and things required by the Constitution and statutes of the State of California and the Trust Agreement to exist, to have happened and to have been performed precedent to and in the delivery of this Certificate, do exist, have happened and have been performed in due time, form and manner as required by law. IN WITNESS WHEREOF, this Certificate has been executed by the manual signature of an authorized signatory of the Trustee, all as of the date set forth below. Execution date: THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee By Authorized Signatory A-5 DOCSSF/59525v5/022925-0017 STATEMENT OF INSURANCE [TO COME] A-6 DOCSSF/59525v5/022925-0017 [FORM OF ASSIGNMENT] ASSIGNMENT For value received the undersigned do(es) hereby sell, assign and transfer unto the within mentioned Certificate and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the Certificate register of the Trustee with full power of substitution in the premises. Dated: Note: The signature(s) to this Assignment must correspond with the name(s) as written on the face of the within Certificate in every particular, without alteration or enlargement or any change whatsoever. Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible guarantor institution. A-7 DOCS S F/59525v5/022925-0017 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; CONTENTS OF CERTIFICATES AND OPINIONS; RECITALS Section1.1. Definitions..................................................................................................................1 Section 1.2. Rules of Construction.................................................................................................6 Section 1.3. Content of Statements and Opinions..........................................................................6 Section1.4. Recitals.......................................................................................................................7 ARTICLE II CERTIFICATES; TERMS AND PROVISIONS Section 2.1. Preparation of Certificates.........................................................................................7 Section 2.2. Denominations; Medium and Place of Payment; Dating...........................................7 Section 2.3. Payment of Principal and Interest with Respect to Certificates.................................8 Section 2.4. Form of Certificates...................................................................................................9 Section2.5. Execution...................................................................................................................9 Section 2.6. Transfer of Certificates..............................................................................................9 Section 2.7. Exchange of Certificates............................................................................................9 Section 2.8. Certificate Registration Books...................................................................................9 Section 2.9. Certificates Mutilated, Lost,Destroyed or Stolen....................................................10 Section2.10. Book-Entry System.................................................................................................. 10 ARTICLE III DELIVERY OF CERTIFICATES; DELIVERY COST FUND Section 3.1. Delivery of Certificates............................................................................................13 Section 3.2. Application of Proceeds of Certificates and Certain Other Moneys........................13 Section 3.3. Validity of Certificates.............................................................................................13 Section3.4. Delivery Cost Fund..................................................................................................13 ARTICLE IV PREPAYMENT OF CERTIFICATES Section 4.1. Terms of Prepayment...............................................................................................14 Section 4.2. Selection of Certificates for Prepayment.................................................................14 Section 4.3. Notice of Prepayment...............................................................................................14 Section 4.4. Partial Prepayment of Certificate.............................................................................15 Section 4.5. Effect of Prepayment...............................................................................................15 i DOCSSF/595250/022925-0017 TABLE OF CONTENTS (continued) Page ARTICLE V INSTALLMENT PAYMENTS Section 5.1. Pledge and Deposit of Installment Payments...........................................................15 Section 5.2. Certificate Payment Fund.........................................................................................15 Section 5.3. Investment of Moneys in Special Funds..................................................................16 Section5.4. Reserve Fund ...........................................................................................................17 Section 5.5. Pledge of Moneys in Funds......................................................................................18 Section5.6. Rebate Fund.............................................................................................................18 Section 5.7. Payments Under the Bond Insurance Policy............................................................20 ARTICLE VI COVENANTS Section 6.1. Corporation and District to Perform Under Installment Purchase Agreement........20 Section6.2. Budgets ....................................................................................................................20 Section6.3. Tax Covenants .........................................................................................................20 Section 6.4. Accounting Records and Reports.............................................................................21 Section 6.5. Compliance with Trust Agreement..........................................................................21 Section 6.6. Observance of Laws and Regulations......................................................................21 Section 6.7. Compliance with Contracts......................................................................................22 Section 6.8. Prosecution and Defense of Suits.............................................................................22 Section 6.9. Recordation and Filing.............................................................................................22 Section6.10. Eminent Domain......................................................................................................23 Section 6.11. Further Assurances...................................................................................................23 ARTICLE VII DEFAULT AND LIMITATION OF LIABILITY Section 7.1. Notice of Non-Payment...........................................................................................23 Section 7.2. Action on Default or Termination............................................................................23 Section 7.3. Other Remedies of the Trustee.................................................................................23 Section7.4. Non-Waiver..............................................................................................................24 Section 7.5. Remedies Not Exclusive..........................................................................................24 Section 7.6. No Obligation by the District to Owners.................................................................24 Section 7.7. Trustee Appointed Agent for Certificate-owners: Direction of Proceedings..........24 Section 7.8. Power of Trustee to Control Proceedings................................................................25 Section 7.9. Limitation on Certificate-Owners' Right to Sue......................................................25 Section 7.10. No Obligation with Respect to Performance by Trustee.........................................25 Section 7.11. No Liability to Owners for Payment........................................................................26 Section 7.12. No Responsibility for Sufficiency............................................................................26 Section 7.13. Indemnification of Trustee.......................................................................................26 ii DOCSSF/59525 v5/022925-0017 TABLE OF CONTENTS (continued) Page ARTICLE VIII THE TRUSTEE Section 8.1. Employment of Trustee............................................................................................26 Section 8.2. Acceptance of Employment.....................................................................................26 Section 8.3. Trustee: Duties, Removal and Resignation.............................................................27 Section 8.4. Compensation of the Trustee...................................................................................27 Section 8.5. Protection of the Trustee..........................................................................................27 Section 8.6. Merger or Consolidation..........................................................................................29 ARTICLE IX AMENDMENT OF TRUST AGREEMENT Section 9.1. Amendments Permitted............................................................................................30 Section 9.2. Endorsement or Replacement of Certificates After Amendment or Supplement ..............................................................................................................31 Section 9.3. Amendment of Particular Certificates......................................................................31. ARTICLE X DEFEASANCE Section 10.1. Discharge of Trust Agreement.................................................................................31 Section 10.2. Deposit of Money or Securities with Trustee ..........................................................32 Section10.3. Unclaimed Moneys..................................................................................................32 ARTICLE XI MISCELLANEOUS Section 11.1. Benefits of Trust Agreement Limited to Parties......................................................33 Section 11.2. Successor Deemed Included in all References to Predecessor................................33 Section 11.3. Execution of Documents by Owners .......................................................................33 Section 11.4. Disqualified Certificates ..........................................................................................33 Section 11.5. Waiver of Personal Liability....................................................................................34 Section 11.6. Acquisition of Certificates by the District; Destruction of Certificates...................34 Section 11.7. Issuance of Additional Certificates..........................................................................34 Section11.8. Headings ..................................................................................................................34 Section 11.9. Funds and Accounts.................................................................................................34 Section11.10. Partial Invalidity.......................................................................................................34 Section11.11. California Law.........................................................................................................35 Section11.12. Notices.....................................................................................................................35 Section 11.13. Execution in Counterparts........................................................................................35 Section 11.14. Bond Insurer to be Deemed Owner: Rights of the Bond Insurer............................35 DOCSSF/59525 v5/022925-0017 TABLE OF CONTENTS (continued) Page Section 11.15. Bond Insurer as Third-Party Beneficiary.................................................................36 Section11.16. Business Day............................................................................................................36 EXHIBIT A FORM OF CURRENT INTEREST CERTIFICATE OF PARTICIPATION..........A-1 iv DOCSS F/59525v5/022925-0017 Stradling Yocca Carlson&Rauth Draft of 9/14/2006 ESCROW AGREEMENT THIS ESCROW AGREEMENT, dated as of September 1, 2006, by and between the Truckee Donner Public Utility District (the"District") and The Bank of New York Trust Company, N.A., Los Angeles, California, as escrow agent(the"Escrow Agent") and trustee (the "Trustee") with respect to the $[ ] outstanding principal amount of Truckee Donner Public Utility District Refunding Certificates of Participation (Water System Improvement Projects), Series 1996 (the "Refunded Certificates"), is entered into in accordance with Resolution No. 06-_ of the Truckee Donner Public Utility District, adopted on September 20, 2006 (the "Resolution"), and a Trust Agreement, dated as of November 1, 1996, by and among Truckee Donner Public Utility District Financing Corporation(the"Corporation"), the District, and the Trustee (the"1996 Trust Agreement"). WITNESSETH: WHEREAS, the District has previously authorized the issuance of the Refunded Certificates pursuant to the 1996 Trust Agreement; WHEREAS, the District has requested that the Corporation execute and deliver and the Corporation has determined that$[ ] aggregate principal amount of Truckee Donner Public Utility District Refunding Revenue Certificates of Participation (Water System Improvement Projects), Series 2006 (the "Certificates") shall be executed and delivered pursuant to the Trust Agreement, dated as of September 1, 2006, by and among the Corporation, the District, and the Trustee (the "Trust Agreement"), for the purpose of providing a portion of the funds to pay regularly scheduled principal and interest with respect to the Refunded Certificates on November 15, 2006, and to pay on November 15, 2006 the prepayment price of the Refunded Certificates maturing after November 15, 2006; and WHEREAS, by irrevocably depositing with the Escrow Agent cash (as permitted by, in the manner prescribed by, and all in accordance with the 1996 Trust Agreement) which cash will be used to purchase noncallable nonprepayable U.S. Treasury Obligations (the "Federal Securities"), the principal of and the interest on which when due will provide money sufficient to pay regularly scheduled principal and interest with respect to the Refunded Certificates on November 15, 2006, and to pay on November 15, 2006 the prepayment price of the Refunded Certificates maturing after November 15, 2006; and NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the District and the Escrow Agent agree as follows: Section 1. Deposit of Moneys. The District hereby deposits with the Escrow Agent in immediately available funds (a) $[ ] representing a portion of the net proceeds of the sale of the Certificates and(b) $[ ] of moneys from the Reserve Fund, $[ ] of moneys from the Interest Account and the Principal Account, in each case established pursuant to the 1996 Trust Agreement, to be held in irrevocable escrow by the Escrow Agent separate and apart from other funds of the District and the Escrow Agent in a fund hereby created and established to be known as the "Escrow Fund" and to be applied solely as provided in this Agreement. The moneys set forth above are at least equal to an amount sufficient to purchase the Federal Securities, plus $[ ] to be held in cash. DOCSSF/59583 v3/022925-0017 Section 2. Investment of Moneys. The Escrow Agent acknowledges receipt of the moneys described in Section 1 and agrees immediately to invest$[ ] of such moneys in the Federal Securities set forth in Schedule A hereto and to deposit such Federal Securities in the Escrow Fund. The Escrow Agent may rely upon the conclusion of [ ] (the "Verification Agent") that the Federal Securities listed on Schedule A hereto mature and bear interest payable in such amounts and at such times as, together with $[ ] in cash on deposit in the Escrow Fund, will be necessary and sufficient to pay regularly scheduled principal and interest with respect to the Refunded Certificates on November 15, 2006, and to pay on November 15, 2006 the prepayment price of the Refunded Certificates maturing after November 15, 2006. Section 3. Investment of Any Remaining Moneys. At the written direction of the District, the Escrow Agent may reinvest any other amount of principal and interest, or any portion thereof, received from the Federal Securities prior to the date on which such payment is required for the purposes set forth herein, in noncallable Federal Securities maturing not later than the date on which such payment or portion thereof is required for the purposes set forth in Section 5, at the written direction of the District, as verified in a report prepared by an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of obligations of political subdivisions and provided the District has obtained and delivered to the Escrow Agent an unqualified opinion of nationally recognized bond counsel that such reinvestment will not adversely affect the exclusion from gross income of interest with respect to the Certificates and the Refunded Certificates for purposes of federal income taxation. Any interest income resulting from investment or reinvestment of moneys pursuant to this Section 3 which is not required for the purposes set forth in Section 5, as verified in the letter of the Verification Agent originally obtained by the District with respect to the refunding of the Refunded Certificates or in any other report prepared by an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of obligations of political subdivisions, shall be paid to the District promptly upon the receipt of such interest income by the Escrow Agent. The District's determination as to whether an accountant qualifies under this Agreement shall be conclusive. Section 4. Substitution of Securities. Upon the written request of the District, and subject to the conditions and limitations herein set forth and applicable governmental rules and regulations, the Escrow Agent shall sell, redeem or otherwise dispose of the Federal Securities, provided that there are substituted therefor from the proceeds of the Federal Securities other Federal Securities, but only after the District has obtained and delivered to the Escrow Agent (i) an unqualified opinion of nationally recognized bond counsel that such substitution will not adversely affect the exclusion from gross income of interest payable with respect to the Refunded Certificates or the Certificates for purposes of federal income taxation, and (ii)a report by a nationally recognized consulting firm or firm of certified public accountants to the effect that such reinvestment will not adversely affect the sufficiency of the amounts of securities, investments and money in the Escrow Fund to pay regularly scheduled principal and interest with respect to the Refunded Certificates on November 15, 2006, and to pay on November 15, 2006 the prepayment price of the Refunded Certificates maturing after November 15, 2006. The Escrow Agent shall not be liable or responsible for any loss resulting from any reinvestment made pursuant to this Agreement and in full compliance with the provisions hereof. 2 DOCS SF/59583v3/022925-0017 Section 5. Payment of Refunded Certificates. (a) payment. From the maturing principal of the Federal Securities and the investment income and other earnings thereon and other moneys on deposit, the Escrow Agent shall pay regularly scheduled principal and interest with respect to the Refunded Certificates on November 15, 2006, and to pay on November 15, 2006 the prepayment price of the Refunded Certificates maturing after November 15, 2006. (b) Irrevocable Instructions to Provide Notice. The form of the notices required to be mailed pursuant to Section 10.01 and Section 4.03 of the 1996 Trust Agreement are attached hereto as Exhibit A and Exhibit B. The District hereby irrevocably instructs the Escrow Agent (i) to mail a notice to the owners of the Refunded Certificates in accordance with Section 10.01 of the 1996 Trust Agreement that an irrevocable deposit has been made with the Escrow Agent, that the Refunded Certificates have been deemed to be paid, all in accordance with the 1996 Trust Agreement, and that on November 15, 2006, sufficient moneys will be available for the payment of the prepayment price of the Refunded Certificates; and (ii)to mail a notice of redemption of the Refunded Certificates in accordance with Section 4.03 of the 1996 Trust Agreement as required to provide for the redemption on November 15, 2006 of the Refunded Certificates in accordance with this Section 5. The Trustee may add such further information to the notices as is necessary and appropriate. (c) Unclaimed Moneys. Any moneys which remain unclaimed for two years after November 15, 2006 shall, at the written request of the District, be repaid by the Escrow Agent to the District. (d) Priority of Payments. The owners of the Refunded Certificates shall have a first and exclusive lien on all moneys and securities in the Escrow Fund until such moneys and such securities are used and applied as provided in this Agreement. (e) Termination of Obligation. As provided in the 1996 Trust Agreement, upon deposit of moneys with the Escrow Agent in the Escrow Fund as set forth in Section 1 hereof and the purchase of the various Federal Securities as provided in Section 2 hereof, the obligations created by the 1996 Trust Agreement with respect to the Refunded Certificates shall thereupon cease, terminate, become void and be completely discharged and satisfied. Section 6. Application of Certain Terms of the 1996 Trust Agreement. All of the terms of the 1996 Trust Agreement relating to the making of payments of principal and interest with respect to the Refunded Certificates are incorporated in this Agreement as if set forth in full herein. The procedures set forth in Sections 8.03 of the 1996 Trust Agreement relating to the resignation and removal and merger of the 1996 Trustee are also incorporated in this Agreement as if set forth in full herein and shall be the procedures to be followed with respect to any resignation or removal of the Escrow Agent hereunder. Section 7. Performance of Duties. The Escrow Agent agrees to perform only the duties set forth herein and shall have no responsibility to take any action or omit to take any action not set forth herein. Section 8. Escrow Agent's Authority to Make Investments. Except as provided in Sections 2, 3 and 4 hereof, the Escrow Agent shall have no power or duty to invest any funds held 3 DOCSSF/59583v3/022925-0017 under this Agreement or to sell, transfer or otherwise dispose of the moneys or Federal Securities held hereunder other than as provided in Section 5 hereof. Section 9. Indemnity. The District hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Agent and its respective successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any time (whether or not also indemnified against the same by the District or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of this Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the funds and securities deposited therein, the purchase of the Federal Securities, the retention of the Federal Securities or the proceeds thereof and any payment, transfer or other application of moneys or securities by the Escrow Agent in accordance with the provisions of this Agreement; provided, however, that the District shall not be required to indemnify the Escrow Agent against the Escrow Agent's own negligence or misconduct or the negligence or misconduct of the Escrow Agent's respective employees or the willful breach by the Escrow Agent of the terms of this Agreement. In no event shall the District or the Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this Section. The indemnities contained in this Section shall survive the termination of this Agreement. Section 10. Responsibilities of Escrow Agent. The Escrow Agent and its agents and servants shall not be held to any personal liability whatsoever, in tort, contract, or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys or securities deposited therein, the purchase of the Federal Securities, the retention of the Federal Securities or the proceeds thereof, the sufficiency of the Federal Securities to pay the Refunded Certificates or any payment, transfer or other application of moneys or obligations by the Escrow Agent in accordance with the provisions of this Agreement or by reason of any non-negligent act, non-negligent omission or non-negligent error of the Escrow Agent made in good faith in the conduct of its duties. The recitals of fact contained in the "Whereas" clauses herein shall be taken as the statements of the District, and the Escrow Agent assumes no responsibility for the correctness thereof. The Escrow Agent makes no representation as to the sufficiency of the Federal Securities to accomplish the refunding of the Refunded Certificates or to the validity of this Agreement as to the District and, except as otherwise provided herein, the Escrow Agent shall incur no liability in respect thereof. The Escrow Agent shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, misconduct or default, and the duties and obligations of the Escrow Agent shall be determined by the express provisions of this Agreement. The Escrow Agent may consult with counsel, who may or may not be counsel to the District, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter may be deemed to be conclusively established by a certificate signed by an officer of the District. Section 11. Amendments. This Agreement is made for the benefit of the District and the owners from time to time of the various Refunded Certificates and it shall not be repealed, revoked, 4 DOCS S F/59583v3/022925-0017 altered or amended without the written consent of all such owners, the Escrow Agent and the District; provided, however, that the District and the Escrow Agent may, without the consent of, or notice to, such owners, amend this Agreement or enter into such agreements supplemental to this Agreement as shall not adversely affect the rights of such owners and as shall not be inconsistent with the terms and provisions of this Agreement, the laws of Division 7 of the Public Utilities Code of the State of California or the 1996 Trust Agreement, for any one or more of the following purposes: (i)to cure any ambiguity or formal defect or omission in this Agreement; (ii)to grant to, or confer upon, the Escrow Agent for the benefit of the owners of the various Refunded Certificates, any additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such owners or the Escrow Agent; and (iii)to include under this Agreement additional funds, securities or properties. The Escrow Agent shall be entitled to rely conclusively upon an unqualified opinion of nationally recognized municipal bond attorneys with respect to compliance with this Section, including the extent, if any, to which any change, modification, addition or elimination affects the rights of the owners of the Refunded Certificates or that any instrument executed hereunder complies with the conditions and provisions of this Section. Section 12. Notice to Moody's and Standard and Poor's. In the event that this agreement or any provision thereof is severed, amended or revoked the Escrow Agent shall provide written notice of such severance, amendment or revocation to Moody's Investors Service at 99 Church Street, New York, New York 10007, Attention: Public Finance Rating Desk/Refunded Certificates and to Standard and Poor's Corporation at 25 Broadway, New York, New York 10004, Attention: Muni Ratings Desk. The Escrow Agent shall provide written notice of any such amendment, together with a draft thereof, prior to execution and delivery to Moody's Investors Service at the address set forth above. Section 13. Term. This Agreement shall commence upon its execution and delivery and shall terminate on the later to occur of either(i)the date upon which the Refunded Certificates have been paid in accordance with this Agreement or (ii)the date upon which no unclaimed moneys remain on deposit with the Escrow Agent pursuant to Section 5(c) of this Agreement. Section 14. Compensation. The Escrow Agent shall receive its reasonable fees and expenses as previously agreed to by the Escrow Agent and the District and any other reasonable fees and expenses approved by the District; provided, however, that under no circumstances shall the Escrow Agent be entitled to any lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of fees and expenses for services rendered or expenses incurred by the Escrow Agent under this Agreement. Section 15. Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the District or the Escrow Agent to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. Section 16. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as an original but all of which shall constitute and be but one and the same instrument. Section 17. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF CALIFORNIA. 5 DOCS S F/59583 v 3/02292 5-0017 Section 18. Insufficient Funds. If at any time the Escrow Agent has actual knowledge that the moneys and investments in the Escrow Fund, including the anticipated proceeds of and earnings thereon, will not be sufficient to make all payments required by this Agreement, the Escrow Agent shall notify the District in writing, immediately upon becoming aware of such deficiency, of the amount thereof and the reason therefor and the District shall provide funds to cure said deficiency. The Escrow Agent shall have no further responsibility regarding any such deficiency. Section 19. Notice to District and Escrow Agent. Any notice to or demand upon the Escrow Agent may be served or presented, and such demand may be made, at the principal corporate trust office of the Escrow Agent specified by the Escrow Agent in accordance with the provisions of the Trust Agreement. Any notice to or demand upon the District shall be deemed to have been sufficiently given or served for all purposes by being mailed by registered or certified mail, and deposited, postage prepaid, in a post office letter box, addressed to the District at P.O. Box 309, 11570 Donner Pass Road, Truckee, California 96160, Attention: General Manager (or such other address as may have been filed in writing by the District with the Escrow Agent). 6 DOCSSF/595 83 v3/022925-00 l7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers and their seals to be hereunto affixed and attested as of the date first above written. TRUCKEE DONNER PUBLIC UTILITY DISTRICT By: President ATTEST: Clerk of the Board of the District THE BANK OF NEW YORK TRUST COMPANY, N.A., as Escrow Agent and as 1996 Trustee By: Authorized Officer S-1 DOCSSF/59583 v3/022925-0017 SCHEDULE A FEDERAL SECURITIES Maturity Type Coupon Par Amount Cost Schedule A-I DOCSS F/59583 v3/022925-0017 SCHEDULE B Reserved. Schedule B-1 DOCSSF/59583 v 3/022925-0017 EXHIBIT A NOTICE OF DEFEASANCE $[ l TRUCKEE DONNER PUBLIC UTILITY DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION (WATER SYSTEM IMPROVEMENT PROJECTS), SERIES 1996 NOTICE IS HEREBY GIVEN to the owners of the above-captioned Certificates of the Truckee Donner Public Utility District (the "District"), that there has been deposited with The Bank of New York Trust Company, N.A., Los Angeles, California, as trustee for said Certificates (the "1996 Trustee")by the District, cash and obligations of the United States of America, the principal of and interest on which when paid will provide moneys sufficient to pay: (a)regularly scheduled principal and interest with respect to the Certificates on November 15, 2006; and (b) on November 15, 2006, the prepayment price of the Certificates maturing after November 15, 2006. In accordance with the Trust Agreement, dated as of November 1, 1996, by and among the District, the Corporation, and the 1996 Trustee (the "1996 Trust Agreement"), such Certificates are deemed to have been paid in accordance with Section 10.01 thereof and on November 15, 2006, money will be available to pay with respect to the Certificates the prepayment price of such Certificates and the obligations created by the 1996 Trust Agreement with respect to the Certificates to be defeased shall thereupon cease, terminate and become void with respect to such Certificates. DATED this day of , 2006. Exhibit A-1 DOCS S F/59583v3/022925-0017 EXHIBIT B NOTICE OF REDEMPTION $L TRUCKEE DONNER PUBLIC UTILITY DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION(WATER SYSTEM IMPROVEMENT PROJECTS), SERIES 1996 NOTICE IS HEREBY GIVEN to the owners of the above-captioned Certificates (the "Certificates") of the Truckee Donner Public Utility District (the "District") pursuant to the Trust Agreement, dated as of November 1, 1996, by and between the District and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"), that the Certificates maturing after November 15, 2006 (the "Refunded Certificates") in the amount of$ have been called for redemption on November 15, 2006. Owners of such Refunded Certificates should present and surrender such Refunded Certificates on the redemption date at the applicable address of the Trustee set forth below: Hand Delivery Mailing Address On November 15, 2006, the Refunded Certificates will be payable at a prepayment price of 102 percent of the principal amount. From and after November 15, 2006 interest with respect to the Refunded Certificates will cease to accrue. DATED this day of October_, 2006. Exhibit B-1 DOCSSF/59583 v3/022925-0017 1 DOCSSF/59583 v3/022925-0017 Stradling Yocca Carlson & Rauth Draft of 9/14/2006 CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the Truckee Donner Public Utility District (the "District") in connection with the execution and delivery of $[ ] Truckee Donner Public Utility District Refunding Revenue Certificates of Participation, Series 2006 (the "Certificates"). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of September 1, 2006 (the "Trust Agreement"), by and among the District, the Truckee Donner Public Utility District Financing Corporation (the "Corporation") and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"). The District covenants and agrees as follows: 1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Certificates and in order to assist the Participating Underwriter in complying with the Rule. 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Beneficial Owner" shall mean any person which (a)has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes. "Fiscal Year" shall mean the one-year period ending on the last day of December of each year. "Holder" means a registered owner of the Certificates. "Installment Purchase Agreement" shall mean that certain Installment Purchase Agreement executed and entered into as of September 1, 2006, by and between the District and the Corporation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are included in a list which is maintained on the Internet at http://Www.sec.gov/info/municipal/nrmsir.htm. "Participating Underwriter" shall mean any of the original underwriters of the Certificates required to comply with the Rule in connection with offering of the Certificates. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. DOCSS F/59572v3/022925-0017 "State" shall mean the State of California. "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. 3. Provision of Annual Reports. The District shall provide not later than 270 days following the end of its Fiscal Year (commencing with the Fiscal Year 2006) to each Repository an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate. If the District is unable to provide to each Repository an Annual Report by the date required in subsection (a), the District shall send to each Repository a notice in substantially the form attached hereto as Exhibit A. 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) The audited financial statements of the District for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 4(l), the Annual Report shall contain unaudited financing statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available. (b) Principal amount of the Certificates outstanding. (c) Balance in the Reserve Fund and a statement of the reserve requirement with respect thereto. (d) An update of the information in the following tables under caption entitled "THE WATER SYSTEM OF THE DISTRICT" in the Official Statement: (i) "TRUCKEE DONNER PUBLIC UTILITY DISTRICT— Historic Water Production and Accounts"on page_of the Official Statement. (ii) "TRUCKEE DONNER PUBLIC UTILITY DISTRICT — Historic Sales Revenues" on page_of the Official Statement. (iii) "TRUCKEE DONNER PUBLIC UTILITY DISTRICT—Largest Customers" on page_of the Official Statement. (iv) "TRUCKEE DONNER PUBLIC UTILITY DISTRICT— Historic Operating Results of Debt Service Coverage" on page_of the Official Statement. 2 DOCS SF/59572v3/022925-0017 Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to each of the Repositories; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the District shall clearly identify each such document so included by reference. 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates, if material: (i) principal and interest payment delinquencies; (ii) non-payment related defaults; (iii) unscheduled draws on the debt service reserves reflecting financial difficulties; (iv) unscheduled draws on the credit enhancements reflecting financial difficulties; (v) substitution of the credit or liquidity providers or their failure to perform; (vi) adverse tax opinions or events affecting the tax-exempt status of the Certificates; (vii) modifications to rights of Certificateholders; (viii) optional, contingent or unscheduled Certificate calls; (ix) defeasances; (x) release, substitution or sale of property securing repayment of the Certificates; and (xi) rating changes. (b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. (c) If the District determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the District shall promptly file a notice of such occurrence with the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(iv) and (v) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Certificates pursuant to the Trust Agreement. 3 DOCSSF/59572v3/022925-0017 6. Customarily Prepared and Public Information. Upon request, the District shall provide to any person financial information and operating data regarding the District which is customarily prepared by the District and is a public document subject to disclosure pursuant to the California Public Records Act(Government Code sections 6250 et seq.). 7. Termination of Obli ag tion. The District's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior prepayment or payment in full of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any Holders or Beneficial Owners of at least 50% aggregate principal amount of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Certificates, and shall create no rights in any other person or entity. Dated: October_, 2006 TRUCKEE DONNER PUBLIC UTILITY DISTRICT By: Its: President ATTEST: Clerk of the Board of the District 4 DOCSSF/59572v 3/022925-0017 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Obligor: TRUCKEE DONNER PUBLIC UTILITY DISTRICT Name of Issue: REFUNDING REVENUE CERTIFICATES OF PARTICIPATION, SERIES 2006 Date of Execution and Delivery Octoberr_, 2006 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Certificates as required by the Continuing Disclosure Certificate approved pursuant to a Resolution adopted by the Board of Directors of the District on September 20, 2006. The District anticipates that the Annual Report will be filed by Dated: TRUCKEE DONNER PUBLIC UTILITY DISTRICT By A-1 DOCSSF/59572v3/022925-0017 Fulbright Draft of 9/13/06 TRUCKEE DONNER PUBLIC UTILITY DISTRICT REFUNDING REVENUE CERTIFICATES OF PARTICIPATION (WATER SYSTEM IMPROVEMENT PROJECTS) SERIES 2006 PURCHASE CONTRACT October_, 2006 Board of Directors Truckee Donner Public Utility District Truckee, California Ladies and Gentlemen: The undersigned, Stone & Youngberg LLC (the "Underwriter"), hereby offers to enter into this Purchase Contract (the "Purchase Contract") with you, the Truckee Donner Public Utility District(the "District"), which upon the District's acceptance of this offer, will be binding upon the District and the Underwriter. This offer is made subject to acceptance by you prior to 11:59 P.M., California time, on the date hereof. If this offer is not so accepted, this offer will be subject to withdrawal by the Underwriter upon notice delivered to you at any time prior to acceptance. Upon acceptance, this Purchase Contract shall be in full force and effect in accordance with its terms and shall be binding upon the District and the Underwriter. All capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed thereto in the Official Statement(as hereinafter defined). 1. Purchase Sale and Delivery of the Certificates. (a) Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter hereby agrees to purchase and the District agrees to cause the Trustee (as defined below) to execute and deliver to the Underwriter all (but not less than all) of the $ aggregate principal amount of Truckee Donner Public Utility District Refunding Revenue Certificates of Participation (Water System Improvement Projects) Series 2006 (the "Certificates"). The Certificates are being delivered to provide funds to (i)prepay the $8,465,000 outstanding principal amount of Truckee Donner Public Utility District Refunding Certificates of Participation (Water System Improvement Projects) Series 1996 (the "Refunded Certificates"), (ii) to finance capital improvements to the District Water System, (iii)to make a deposit to the Reserve Fund, and (iv) pay certain costs of delivering the Certificates. The Certificates will be executed and delivered under a Trust Agreement, dated as of September 1, 2006 (the "Trust Agreement"), by and among The Bank of New York Trust Company, N.A., as trustee (the "Trustee"), the District and Truckee Donner Public 45821644.4 Utility District Financing Corporation (the "Corporation"). The Corporation will assign to the Trustee, for the benefit of the Owners, the right of the Corporation to receive and collect the Installment Payments due from the District to the Corporation under the Installment Purchase Agreement, dated as of September 1, 2006 (the "Installment Purchase Agreement"), and other amounts payable by the District to the Corporation pursuant to the Assignment Agreement, dated as of September 1, 2006, by and between the Trustee and the Corporation (the "Assignment Agreement"). In connection with the prepayment of the Refunded Certificates, the District will enter into an Escrow Agreement, dated as of September 1, 2006 (the "Escrow Agreement"), by and between the District and The Bank of New York Trust Company, N.A., as escrow agent (the "Escrow Agent"). The Certificates shall be dated the date of delivery thereof. The Certificates shall mature in the amounts and on the dates and will represent interest at the rates set forth in Exhibit A hereto. The Certificates shall be substantially in the form described in, and shall be issued and secured under, the provisions of the Trust Agreement. Payment of the scheduled principal and interest evidenced by the Certificates when due (not including acceleration or prepayment) will be guaranteed under a municipal bond insurance policy (the"Policy") to be issued by (the "Insurer") simultaneously with the delivery of the Certificates. (b) The purchase price for the Certificates shall be $ (representing the $ aggregate principal amount of the Certificates, plus $ original issue premium and less $ of Underwriter's discount). (c) At 8:00 o'clock A.M., California time, on October _, 2006, or at such other time or on such other date as the District and the Underwriter mutually agree upon (the "Closing Date"), the Trustee will, subject to the terms and conditions hereof, deliver or cause to be delivered to the Underwriter, at a location or locations to be designated by the Underwriter, the Certificates (delivered through the book-entry system of The Depository Trust Company, New York, New York), duly executed, and the parties will deliver or cause to be delivered, at the offices of Stradling Yocca Carlson & Rauth, A Professional Corporation, 44 Montgomery Street, Suite 4200, San Francisco, California 94104, or at such other place as shall have been mutually agreed upon by the District and the Underwriter, the other documents mentioned herein. The Underwriter will accept such delivery and pay the purchase price of the Certificates as set forth in subparagraph (b) above in immediately available funds (such delivery and payment being herein referred to as the "Closing") to the order of the Trustee in an amount equal to the purchase price. (d) The Underwriter agrees to make a bona fide public offering of the Certificates at the initial offering prices set forth in the Official Statement, which prices may be changed from time to time by the Underwriter after such offering. (e) The District will undertake pursuant to a Continuing Disclosure Certificate, to provide certain annual financial information and operating data and notices of the occurrence of certain events, if material. A description of this undertaking is set 45821644.4 2 forth in Preliminary Official Statement (as hereinafter defined) and will also be set forth in the final Official Statement(as hereinafter defined). 2. Use and Preparation of Preliminary Official Statement. The District hereby ratifies, confirms and approves of the use and distribution by the Underwriter prior to the date hereof of the Preliminary Official Statement, dated September _, 2006, relating to the Certificates (which, including the cover page and all appendices thereto, is referred to herein as the "Preliminary Official Statement"). The District has deemed final the Preliminary Official Statement as of its date for purposes of Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended ("Rule 15c2-12"), except for information permitted to be omitted therefrom by Rule 15c2-12. The District hereby acknowledges that the Preliminary Official Statement has been made available to investors. The District hereby agrees to cause to be delivered to the Underwriter, within seven(7)business days of the date hereof, copies of the final Official Statement, dated the date hereof (including any amendments or supplements to such Official Statement as have been approved by the District and the Underwriter) (the "Official Statement"). The District hereby agrees to deliver or cause to be delivered to the Underwriter copies of the Official Statement in sufficient quantity to enable the Underwriter to comply with applicable rules of the Municipal Securities Rulemaking Board ("MSRB"). The Underwriter hereby agrees to deliver a copy of the Official Statement to a national repository as soon as practicable after the date hereof and to each investor that purchases any of the Certificates. The Underwriter shall advise the District of the date and repository of such filing. 3. Representations Warranties and Agreements of the District. The District hereby represents and agrees with the Underwriter as follows: (a) The District is, and will be on the Closing Date, a public utility district of the State of California organized and operating pursuant to the laws of the State of California with the full power and authority to execute and deliver the Official Statement and to enter into the Trust Agreement, the Installment Purchase Agreement, the Continuing Disclosure Certificate, the Escrow Agreement and this Purchase Contract (collectively, the "Legal Documents"); (b) By all necessary official action of the District prior to or concurrently with the acceptance hereof, the District has duly approved, ratified and confirmed the execution, delivery and distribution of the Official Statement, and has duly authorized and approved the execution and delivery of, and the performance by the District of the obligations on its part contained in, the Legal Documents; (c) The District is not in any material respect in breach of or default under any applicable constitutional provision, law or administrative regulation to which it is subject or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the District is a party or to which the District or any of its property or assets is otherwise subject, and no event has occurred and is continuing which with the passage of time or the giving of notice, or both, would 45821644.4 3 constitute such a default or event of default in any material respect under any such instrument; and the execution and delivery of the Legal Documents, and compliance with the provisions on the District's part contained herein and therein, will not in any material respect conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the District is a party or is otherwise subject, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any material nature whatsoever upon any of the properties or assets of the District under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided in the Trust Agreement or the Installment Purchase Agreement; (d) There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public board or body, to the best knowledge of the District, after reasonable investigation, pending or threatened against the District in any material respect affecting the existence of the District or the titles of its officers to their respective offices or contesting or affecting, as to the District, the validity or enforceability of the Legal Documents or contesting the powers of the District or its authority to enter into, adopt or perform its obligations under any of the foregoing, or contesting in any way the completeness or accuracy of the Official Statement, or any amendment or supplement thereto, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Legal Documents; (e) All authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the matter which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by, the District of its obligations in connection with the execution and delivery of the Certificates have been duly obtained, except for such approvals, consents and orders as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Certificates, and, except as described in or contemplated by the Official Statement, all authorizations, approvals, licenses, permits, consents and orders of any governmental authority, board, agency or commission having jurisdiction of the matter which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by, the District of its obligations under the Legal Documents have been duly obtained; (f) The District will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order (i)to qualify the Certificates for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate and (ii) to determine the eligibility of the Certificates for investment under the laws of such states and other jurisdictions, and will use its best efforts to continue such qualification in effect so long as required for distribution of the Certificates; provided, however, that in no event shall the District be assz 16".a 4 required to take any action which would subject it to service of process in any jurisdiction in which it is not now so subject; (g) As of the date thereof, the Preliminary Official Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (h) As of the date thereof and at all times subsequent thereto to and including the date which is 25 days following the End of the Underwriting Period (as such term is hereinafter defined) for the Certificates, the Official Statement did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (i) If between the date thereof and the date which is 25 days following the End of the Underwriting Period for the Certificates, an event occurs which might or would cause the information contained in the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was presented, not misleading, the District will notify the Underwriter, and, if in the opinion of the District, the Underwriter or their respective counsel, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the District will forthwith prepare and furnish to the Underwriter (at the expense of the District) a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance reasonably satisfactory to the Underwriter). For the purposes of this subsection, between the date of the Official Statement and the date which is 25 days following the End of the Underwriting Period, the District will furnish such information with respect to itself as the Underwriter may from time to time reasonably request; 0) If the information contained in the Official Statement is amended or supplemented pursuant to paragraph(i) hereof, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such subparagraph) at all times subsequent thereto up to and including the date which is 25 days following the End of the Underwriting Period, the portions of the Official Statement so supplemented or amended will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was presented,not misleading; (k) After the Closing, the District will not participate in the issuance of any amendment of or supplement to the Official Statement to which, after being furnished with a copy, the Underwriter shall reasonably object in writing or which should be disapproved by counsel for the Underwriter; 45821644.4 5 (1) Between the date of this Purchase Contract and the Closing Date, except as disclosed in the Official Statement, the District will not, without the prior written consent of the Underwriter, offer or issue any bonds, notes or other obligations for borrowed money, or incur any material liabilities direct or contingent, payable from Net Revenues of its Water System, other than in the ordinary course of its business; (m) As used herein and for the purposes of the foregoing, the term "End of the Underwriting Period" for the Certificates shall mean the earlier of (i) the Closing Date unless the District shall have been notified in writing to the contrary by the Underwriter on or prior to the Closing Date, or (ii)the date on which the End of the Underwriting Period for the Certificates has occurred under Rule 15c2-12; provided, however, that the District may treat as the End of the Underwriting Period for the Certificates the date specified as such in a notice from the Underwriter stating the date which is the End of the Underwriting Period; (n) The audited financial statements of the District contained in Appendix B to the Official Statement do and will fairly present the financial position and results of operations of the District as of the dates and for the periods therein set forth in accordance with generally accepted accounting principles applied consistently; and (o) Any certificate signed by any authorized official of the District and delivered to the Underwriter in connection with the execution and delivery of the Certificates, shall be deemed a representation and warranty by the District to the Underwriter as to the statements made therein. 4. Conditions to the Obligations of the Underwriter. The Underwriter hereby enters into this Purchase Contract in reliance upon the representations and warranties of the District contained herein and the representations to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the District of its obligations both on and as of the date hereof and as of the Closing Date. Accordingly, the Underwriter's obligations under this Purchase Contract to purchase, to accept delivery of and to pay for the Certificates shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations of the District contained herein as of the date hereof and as of the Closing Date, to the accuracy in all material respects of the statements of the officers and other officials of the District made in any certificate or other document furnished pursuant to the provisions hereof, to the performance by the District of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing Date, and also shall be subject to the following additional conditions: (a) The Underwriter shall receive, within seven (7) business days of the date hereof, copies of the Official Statement and any amendments or supplements as have been approved by the Underwriter, in such reasonable quantity as the Underwriter shall have requested; 45821644.4 6 (b) The representations and warranties of the District contained herein shall be true and correct in all material respects on the date hereof and on the Closing Date, as if made on and at the Closing Date; (c) At the Closing Date, the Trust Agreement, the Installment Purchase Agreement, the Assignment Agreement, the Continuing Disclosure Certificate, the Escrow Agreement and this Purchase Contract shall have been duly authorized, executed and delivered by the respective parties thereto, and the Official Statement shall have been duly authorized, executed and delivered by the District, as applicable, all in substantially the forms heretofore submitted to the Underwriter, with only such changes as shall have been agreed to in writing by the Underwriter, and shall be in full force and effect; and there shall be in full force and effect such resolution or resolutions of the board of directors of the District as, in the opinion of Stradling Yocca Carlson & Rauth, A Professional Corporation, San Francisco, California ("Special Counsel"), shall be necessary or appropriate in connection with the transactions contemplated hereby; (d) Between the date hereof and the Closing Date, the market price or marketability of the Certificates shall not have been materially adversely affected, in the reasonable judgment of the Underwriter (evidenced by a written notice to the District terminating the obligation of the Underwriter to accept delivery of and make any payment for the Certificates), by reason of any of the following: (1) an amendment to the Constitution of the United States or by any legislation (A) enacted by the United States, (B)recommended to the Congress or otherwise endorsed for passage, by press release, other form of notice or otherwise, by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, (C)presented as an option for consideration by either such Committee by the staff of such Committee or by the staff of the Joint Committee on Taxation of the United States Congress or (D)favorably reported for passage to either House of the Congress by any Committee of such House or by a Conference Committee of both Houses to which such legislation has been referred for consideration, or by any decision of any court of the United States or by any ruling or regulation(final, temporary or proposed) on behalf of the Treasury Department of the United States, the Internal Revenue Service or any other authority of the United States or by any comparable legislative, judicial or administrative development affecting the federal tax status of the District, its property or income, or the interest on its bonds or other obligations of the general character of the Certificates (including the Certificates); (2) legislation enacted, introduced in the Congress or recommended for passage by the President of the United States, or a decision rendered by a court established under Article III of the Constitution of the United States or by the Tax Court of the United States, or an order, ruling, regulation (final, temporary or proposed) or official statement issued or made by or on behalf of the Securities 45821644.4 7 and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter shall have been made or issued to the effect that obligations of the general character of the Certificates, or the Certificates are not exempt from registration under the Securities Act of 1933, as amended, or that the Trust Agreement is not exempt from qualification under the Trust Indenture Act of 1939, as amended; (3) the declaration of war or any outbreak of or escalation of hostilities or acts of terrorism involving the United States or the occurrence of any other national or international emergency or calamity, crisis or event relating to the effective operation of the government of, or the financial community in, the United States; (4) the declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange or any material disruption in commercial banking or securities settlement or clearing services; (5) the imposition by the New York Stock Exchange or other national securities exchange, or any governmental authority, of any material restrictions not now in force with respect to the Certificates or obligations of the general character of the Certificates or securities generally, or the material increase of any such restrictions now in force, including those relating to the extension of credit by, or the charge to the net capital requirements of,the Underwriter; (6) an order, decree or injunction of any court of competent jurisdiction, or order, ruling, regulation or official statement by the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, issued or made to the effect that the issuance, offering or sale of obligations of the general character of the Certificates, or the issuance, offering or sale of the Certificates, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of the federal securities laws as amended and then in effect; (7) the downgrading, suspension or withdrawal, or any official statement as to a possible downgrading, suspension or withdrawal, of any rating of the Certificates by any rating agency then rating the Certificates; or (8) any event occurring, or information becoming known which in the reasonable judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Official Statement, or has the effect that the Official Statement contains any untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; 45821644.4 8 (e) Prior to or simultaneous with the execution of this Purchase Contract, the Underwriter shall have received from the District a letter, dated the date of the Preliminary Official Statement, addressed to the Underwriter, consenting to the posting of the Preliminary Official Statement, substantially in the form attached hereto as Exhibit D; (f) At or prior to the Closing Date, the Underwriter shall have received the following documents, in each case satisfactory in form and substance to the Underwriter: (1) The Official Statement and each supplement or amendment, if any thereto, executed on behalf of the District; (2) Copies of the Trust Agreement, the Installment Purchase Agreement, the Assignment Agreement, the Escrow Agreement and the Continuing Disclosure Certificate, duly executed and delivered by the respective parties thereto; (3) The approving opinion of Special Counsel, dated the Closing Date and addressed to the District, in substantially the form attached to the Official Statement as Appendix C thereto; (4) The supplemental opinion of Special Counsel, dated the Closing Date and addressed to the Underwriter in substantially the form attached hereto as Exhibit B; (5) The defeasance opinion of Special Counsel with respect to the Refunded Certificates, dated the Closing Date and addressed to the District, the Insurer, the Trustee and the Underwriter in form and substance acceptable to such entities; (6) The opinion of General Counsel of the District, dated the Closing Date and addressed to the Insurer and the Underwriter, in substantially the form attached hereto as Exhibit C; (7) The opinion of counsel to the Corporation, dated the Closing Date and addressed to the Insurer, the District and the Underwriter, to the effect that (i) the Corporation is a California corporation duly organized and validly existing pursuant to the laws of the State of California; (ii)the Trust Agreement, the Installment Purchase Agreement and the Assignment Agreement have been duly authorized, executed and delivered by the Corporation and, assuming due authorization, execution and delivery by the other parties thereto, constitute legal, valid and binding agreements of the Corporation enforceable in accordance with their respective terms, subject to laws relating to bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and the application of equitable principles if equitable remedies are sought; and (iii) assuming due execution and delivery thereof by the Trustee, the execution and delivery of the Assignment Agreement by the Corporation is effective and sufficient to transfer all right, title and interest of the Corporation in the Installment Purchase 45821644.4 9 Agreement as are purported to be transferred thereby (including the Installment Payments)to the Trustee; (8) The opinion of counsel to the Trustee, dated the Closing Date and addressed to the Insurer, the District and the Underwriter, to the effect that (i)the Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States and has full power and authority to execute and deliver the Trust Agreement and the Assignment Agreement and to perform its obligations thereunder; (ii) the Trust Agreement and the Assignment Agreement have been duly authorized, executed and delivered by the Trustee and constitute the valid and binding obligations of the Trustee enforceable against the Trustee in accordance with their respective terms, except insofar as the validity, binding nature and enforceability of the Trustee's obligations thereunder may be limited by the effect of (a) insolvency, reorganization, arrangement, moratorium, fraudulent transfer and other similar laws, (b)the discretion of any court of competent jurisdiction in awarding equitable remedies, including, without limitation, specific performance or injunctive relief and(c)the effect of general principles of equity; (9) The opinion of counsel to the Escrow Agent, dated the Closing Date and addressed to the Insurer, the District and the Underwriter, to the effect that(i)the Escrow Agent is a national banking association duly organized, validly existing and in good standing under the laws of the United States and has full power and authority to execute and deliver the Escrow Agreement and to perform its obligations thereunder; (ii)the Escrow Agreement has been duly authorized, executed and delivered by the Escrow Agent and constitutes the valid and binding obligation of the Escrow Agent enforceable against the Escrow Agent in accordance with its terms, except insofar as the validity, binding nature and enforceability of the Escrow Agent's obligations thereunder may be limited by the effect of (a) insolvency, reorganization, arrangement, moratorium, fraudulent transfer and other similar laws, (b)the discretion of any court of competent jurisdiction in awarding equitable remedies, including, without limitation, specific performance or injunctive relief and(c) the effect of general principles of equity; (10) The opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Underwriter's Counsel, dated the Closing Date and addressed to the Underwriter, in form and substance acceptable to the Underwriter; (11) A certificate or certificates, dated the Closing Date, signed by a duly authorized official of the District satisfactory to the Underwriter, in form and substance satisfactory to the Underwriter, to the effect that (i)the representations of the District contained in this Purchase Contract are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date; (ii) there is no action, suit, proceeding, inquiry or investigation, to the best knowledge of such official, pending or threatened (a) to restrain or enjoin the execution or delivery of the Certificates, (b) in any way contesting or affecting the validity of the Certificates or any of the Legal Documents or (c) in 45821644.4 10 any way contesting the existence or powers of the District, nor to the best knowledge of such official after reasonable investigation, is there any basis for any such action, suit, proceeding, inquiry or investigation, wherein an unfavorable decision, ruling or finding would make invalid or materially adversely affect the authorization, execution, delivery or performance by the District of any of the foregoing; and (iii)no event affecting the District has occurred since the date of the Official Statement which either makes untrue or incorrect in any material respect as of the Closing Date any statement or information contained in the Official Statement relating to the District or is not reflected in the Official Statement but should be reflected therein in order to make the statements and information therein relating to the District not misleading in any material respect; and (iv) since December 31, 2005, except as referred to in or as contemplated by the Official Statement, with respect to its Water System, the District has not incurred any financial liabilities, direct or contingent, or entered into any transactions and there has not been any adverse change in the condition, financial or physical, of the Water System, in any case that would materially and adversely affect the ability of the District to meet its obligations under the Installment Purchase Agreement; (12) A certificate or certificates, dated the Closing Date, signed by a duly authorized official of the Corporation satisfactory to the Underwriter, in form and substance satisfactory to the Underwriter,to the effect that(i)the Corporation is, and was at all relevant times, a California corporation duly organized and validly existing under the laws of the State of California; (ii)the Installment Purchase Agreement, the Assignment Agreement and the Trust Agreement were duly executed and delivered in the name and on behalf of the Corporation by officers of the Corporation duly authorized to execute, attest and deliver such agreements on behalf of the Corporation, and constitute the legal, valid and binding obligations of the Corporation enforceable against the Corporation in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, assignment, fraudulent conveyance, moratorium or other laws affecting the enforcement of the rights of creditors of the Corporation and by general principles of equity; (iii)the Corporation has complied with all the terms of the Trust Agreement, the Assignment Agreement and the Installment Purchase Agreement to be complied with by the Corporation prior to or concurrently with the Closing and such documents are in full force and effect as to the Corporation; and (iv)the information in the Official Statement under the caption"THE CORPORATION" is true and correct; (13) A certificate, dated the Closing Date, signed by a duly authorized officer of the Trustee, satisfactory in form and substance to the Underwriter, to the effect that (i) the Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States, having the full power and being qualified to enter into and perform its duties under the Trust Agreement and the Assignment Agreement; (ii) to the best of such officer's knowledge, the execution and delivery of the Trust Agreement and the Assignment Agreement and compliance with the provisions on the Trustee's part 45821644.4 11 contained therein, will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Trustee is a party or is otherwise subject; (iii) to the best of such officer's knowledge, the Trustee has not been served with any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public board or body, nor is any such action threatened against the Trustee, affecting the existence of the Trustee, or the titles of its officers to their respective offices, or contesting or affecting the validity or enforceability of the Trust Agreement or the Assignment Agreement against the Trustee, or contesting the powers of the Trustee or its authority to enter into, adopt or perform its obligations under any of the foregoing, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Trust Agreement or the Assignment Agreement against the Trustee; (14) A certificate, dated the Closing Date, signed by a duly authorized officer of the Escrow Agent, satisfactory in form and substance to the Insurer, the District and the Underwriter, to the effect that (i)the Escrow Agent is a national banking association duly organized, validly existing and in good standing under the laws of the United States, having the full power and being qualified to enter into and perform its duties under the Escrow Agreement; (ii) to the best of such officer's knowledge, the execution and delivery of the Escrow Agreement and compliance with the provisions on the Escrow Agent's part contained therein, will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Escrow Agent is a party or is otherwise subject; (iii)to the best of such officer's knowledge, the Escrow Agent has not been served with any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public board or body, nor is any such action threatened against the Escrow Agent, affecting the existence of the Escrow Agent, or the titles of its officers to their respective offices, or contesting or affecting the validity or enforceability of the Escrow Agreement against the Escrow Agent, or contesting the powers of the Escrow Agent or its authority to enter into, adopt or perform its obligations under the foregoing, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Escrow Agreement against the Escrow Agent; (15) A specimen of the Policy issued by the Insurer; (16) The opinion of counsel to the Insurer, dated the Closing Date, addressed to the District, the Corporation and the Underwriter, and a certificate of the Insurer in form and substance acceptable to Special Counsel and the Underwriter; 45821644.4 12 (17) Certified copies of the resolution or resolutions of the District authorizing the execution and delivery of the Legal Documents and the Official Statement; (18) Certified copies of the resolution or resolutions of the Corporation authorizing the execution and delivery of the Trust Agreement, the Assignment Agreement and the Installment Purchase Agreement; (19) Evidence that any ratings on the Certificates described in the Official Statement are in full force and effect as of the Closing Date; (20) A copy of any Preliminary Blue Sky Survey; (21) A copy of the audited financial statements of the District included as Appendix B to the Official Statement; (22) An arbitrage certification by the District with respect to the Certificates in form satisfactory to Special Counsel; (23) A Verification Report acceptable to Special Counsel; and (24) Such additional legal opinions, certificates, proceedings, instruments, insurance policies or evidences thereof and other documents as the Underwriter, Underwriter's Counsel or Special Counsel may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the representations of the District herein and of the statements and information contained in the Official Statement, and the due performance or satisfaction by the District at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the District in connection with the transactions contemplated hereby and by the Legal Documents and the Official Statement. If the District shall be unable to satisfy the conditions to the Underwriter's obligations contained in this Purchase Contract or if the Underwriter's obligations shall be terminated for any reason permitted herein, all obligations of the Underwriter hereunder may be terminated by the Underwriter at, or at any time prior to, the Closing Date by written notice to the District and neither the Underwriter nor the District shall have any further obligations hereunder. In the event that the Underwriter fails (other than for a reason permitted by this Purchase Contract) to accept and pay for the Certificates at the Closing, the amount of one percent (1%) of the principal amount of the Certificates will be accepted as liquidated damages for such failure and for any and all defaults hereunder on the part of the Underwriter and the acceptance of such amount shall constitute a full release and discharge of all claims and rights of the District against the Underwriter. 5. Ex,enses. All expenses and costs incident to the authorization, execution, delivery and sale of the Certificates to the Underwriter, including the costs of preparing and printing of the Certificates, 45821644.4 13 the Preliminary Official Statement and the Official Statement (in reasonable quantities), any bond insurance premium, the fees of accountants, financial advisors, verification agents and consultants, the initial fees of the Trustee and its counsel, the initial fees of the Escrow Agent and its counsel, the initial fees and expenses of the Corporation and its counsel in connection with the execution and delivery of the Certificates and the fees and expenses of Special Counsel shall be paid from the proceeds of the Certificates. If the Certificates for any reason are not executed and delivered, or to the extent proceeds of the Certificates are insufficient or unavailable therefor, any such fees, costs and expenses owed by the District, which otherwise would have been paid from the proceeds of the Certificates, shall be paid by the District. All out-of-pocket expenses of the Underwriter, including traveling and other expenses,the California Debt and Investment Advisory Commission fee and the fees and expenses of Underwriter's Counsel, shall be paid by the Underwriter. 6. Notices. Any notice or other communication to be given under this Purchase Contract may be given by delivering the same in writing to the respective parties at the following address: Underwriter: Stone &Youngberg LLC 450 Lexington Avenue Suite 3750 New York, New York 10017 Attention: John E. Muus District: Truckee Donner Public Utility District 11570 Donner Pass Road Truckee, California 96160 Attention: General Manager 7. Survival of Representations and Warranties. The representations and warranties of the District set forth in or made pursuant to this Purchase Contract shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of this Purchase Contract regardless of any investigations or statements as to the results thereof made by or on behalf of the Underwriter and regardless of delivery of and payment for the Certificates. 8. Effectiveness and Counterpart Signatures. This Purchase Contract shall become effective and binding upon the respective parties hereto upon the execution hereof by a duly authorized officer of the District and shall be valid and enforceable as of the time of such execution. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 45821644.4 14 9. Parties in Interest. This Purchase Contract is made solely for the benefit of the District and the Underwriter (including the successors or assigns of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. No assignment of this Purchase Contract shall be made by the Underwriter without the consent of the District. 10. Headings. The headings of the sections of this Purchase Contract are inserted for convenience only and shall not be deemed to be a part hereof. 11. Governinp-Law, This Purchase Contract shall be construed in accordance with the laws of the State of California. Very truly yours, STONE &YOUNGBERG LLC, as Underwriter By: Director ACCEPTED: TRUCKEE DONNER PUBLIC UTILITY DISTRICT By: President ATTESTED: By: Clerk ACKNOWLEDGED: TRUCKEE DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION By: Treasurer 45821644.4 15 EXHIBIT A MATURITY SCHEDULE Payment Date Principal Interest Price or (November 15) Amount Rate Yield 45821644.4 A-I EXHIBIT B FORM OF SUPPLEMENTAL OPINION OF STRADLING YOCCA CARLSON & RAUTH Stone &Youngberg LLC San Francisco, California Re: Truckee Donner Public Utility District Refunding Revenue Certificates of Participation(Water System Improvement Projects) Series 2006 Ladies and Gentlemen: This letter is addressed to you as the Underwriter (the "Underwriter") pursuant to Section 4(f)(4) of the Purchase Contract, dated October _, 2006 (the "Purchase Contract"), by and between you and the Truckee Donner Public Utility District(the"District") providing for the purchase of $ principal amount of Truckee Donner Public Utility District Refunding Revenue Certificates of Participation (Water System Improvement Projects) Series 2006 (the "Certificates") evidencing interests of the Owners thereof in Installment Payments to be made by the District. The Certificates are being executed and delivered pursuant to a Trust Agreement (the "Trust Agreement") dated as of September 1, 2006, by and among the District, the Truckee Donner Public Utility District Financing Corporation (the "Corporation") and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"). In connection with the prepayment of the $8,465,000 outstanding principal amount of Truckee Donner Public Utility District Refunding Certificates of Participation (Water System Improvement Projects) Series 1996, the District will enter into an Escrow Agreement, dated as of September 1, 2006 (the "Escrow Agreement"), by and between the District and The Bank of New York Trust Company, N.A. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Trust Agreement or, if not defined in the Trust Agreement, in the Purchase Contract. In addition to the opinions set forth in our final legal opinion concerning the validity of the Certificates and certain other matters, dated the date hereof and addressed to the Corporation (but which may be relied upon by yourselves to the same extent as if such opinion were addressed to you), as of the date hereof, we are of the following opinions or conclusions: I. The Certificates are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Trust Agreement is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended. 2. The Official Statement, dated October _, 2006, with respect to the Certificates (the"Official Statement") and the execution and delivery thereof have been duly approved by the District. 45821644.4 B-I 3. The Purchase Contract, the Escrow Agreement and the Continuing Disclosure Certificate have been duly authorized, executed and delivered by the District and (assuming due authorization, execution and delivery by and validity against the other parties thereto) are valid and binding agreements of the District. We call attention to the fact that the rights and obligations under the Purchase Contract, the Escrow Agreement and the Continuing Disclosure Certificate and their enforceability may be subject to bankruptcy, insolvency, reorganization, assignment, 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 the limitations or legal remedies against public entities in the State of California. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the Purchase Contract, the Escrow Agreement or the Continuing Disclosure Certificate. 4. The statements contained in the Official Statement under the captions "THE REFUNDING PLAN," "THE CERTIFICATES," "SECURITY FOR THE CERTIFICATES," "TAX EXEMPTION," APPENDIX A — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS," and APPENDIX C — "FORM OF LEGAL OPINION" and APPENDIX E — "FORM OF CONTINUING DISCLOSURE CERTIFICATE," insofar as such statements expressly summarize certain provisions of the Trust Agreement, the Installment Purchase Agreement, the Escrow Agreement and the Continuing Disclosure Certificate, and our opinion concerning certain federal tax matters relating to the Certificates, are accurate in all material respects. This letter is furnished by us as Special Counsel. No attorney-client relationship has existed or exists between our firm and you in connection with the Certificates or by virtue of this letter. We disclaim any obligation to update this letter. This letter is delivered to you as Underwriter of the Certificates, is solely for your benefit as such Underwriter and is not to be used, circulated, quoted or otherwise referred to or relied upon for any other purpose or by any other person. This letter is not intended to, and may not, be relied upon by owners of the Certificates or by any other party to whom it is not specifically addressed. Very truly yours, 45821644.4 B-2 EXHIBIT C FORM OF OPINION OF DISTRICT COUNSEL [Insurer; City and State of Insurer] Stone&Youngberg LLC San Francisco, California Re: Truckee Donner Public Utility District Refunding Revenue Certificates of Participation(Water System Improvement Projects) Series 2006 Ladies and Gentlemen: I am General Counsel to the Truckee Donner Public Utility District (the "District"), a public utility district organized and existing pursuant to Division 7 of the Public Utilities Code of the State of California, as amended. This opinion is rendered in connection with the execution, sale and delivery of $ principal amount of Truckee Donner Public Utility District Refunding Revenue Certificates of Participation (Water System Improvement Projects) Series 2006 (the "Certificates") evidencing interests of the Owners thereof in Installment Payments to be made by the District. Capitalized terms used herein not otherwise defined shall have the meanings ascribed thereto in the hereinafter referenced Trust Agreement. In rendering this opinion, I have examined the following documents: (i) the Trust Agreement, dated as of September 1, 2006 (the "Trust Agreement"), by and among the District, the Truckee Donner Public Utility District Financing Corporation (the "Corporation") and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"); (ii) the Installment Purchase Agreement dated as of September 1, 2006 (the "Installment Purchase Agreement"), by and between the District and the Corporation; (iii)the Purchase Contract, dated October _, 2006 (the "Purchase Contract"), by and between the District and the Underwriter; (iv) the Continuing Disclosure Certificate, dated as of September 1, 2006 (the "Continuing Disclosure Certificate"), by and between the District and the Trustee; (v)the Escrow Agreement, dated as of September 1, 2006 (the "Escrow Agreement"), by and between the District and The Bank of New York Trust Company, N.A., as escrow agent; and (vi) the Official Statement, dated October _, 2006 (the "Official Statement'), relating to the Certificates. In connection with the prepayment of the $8,465,000 outstanding principal amount of Truckee Donner Public Utility District Refunding Certificates of Participation (Water System Improvement Projects) Series 1996, the District will enter into the Escrow Agreement. In addition, I have examined such other documents and instruments, including certificates of public officials, and have made such investigations of law and of fact as I have deemed necessary or appropriate for the purpose of rendering the opinions set forth herein. 45821644.4 C-1 Based on the foregoing, I am of the opinion that: 1. The District is, and was at all relevant times, a public utility district duly organized and validly existing under the laws of the State of California. 2. The resolution or resolutions of the District (the "District Resolutions") approving and authorizing the execution and delivery of the Trust Agreement, the Installment Purchase Agreement, the Purchase Contract, the Escrow Agreement and the Continuing Disclosure Certificate by the District and the transactions contemplated thereby were duly adopted at meetings of the Board of Directors of the District, which were called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout. 3. There is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body, pending (with service of process having been accomplished) or, to my current actual knowledge after reasonable investigation, threatened against or affecting the District to restrain or enjoin the Installment Payments under the Installment Purchase Agreement, in any way contesting or affecting the validity of the Certificates, the Trust Agreement, the Installment Purchase Agreement, the Continuing Disclosure Certificate, the Escrow Agreement or the Purchase Contract. 4. The adoption of the District Resolutions and the execution and delivery by the District of the Trust Agreement, the Installment Purchase Agreement, the Continuing Disclosure Certificate, the Purchase Contract, the Escrow Agreement and the Official Statement, and compliance by the District with the provisions of the foregoing, as appropriate, under the circumstances contemplated thereby, does not and will not in any material respect conflict with or constitute on the part of the District a breach or default under any agreement or other instrument to which the District is a party (and of which I have current actual knowledge after reasonable investigation) or by which it is bound (and of which I have current actual knowledge after reasonable investigation) or any existing law, regulation, court order or consent decree to which the District is subject. 5. The Official Statement, the Trust Agreement, the Installment Purchase Agreement, the Continuing Disclosure Certificate, the Escrow Agreement and the Purchase Contract have been duly authorized, executed and delivered by the District and, assuming due authorization, execution and delivery by other parties thereto, the Trust Agreement, the Installment Purchase Agreement, the Continuing Disclosure Certificate, the Escrow Agreement and the Purchase Contract constitute legal, valid and binding agreements of the District, enforceable in accordance with their respective terms, subject in each case to laws relating to bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and the application of equitable principles if equitable remedies are sought. The enforceability of the foregoing agreements may be subject or limited by the unenforceability under certain circumstances of provisions imposing penalties, forfeitures or late payment charges upon delinquency in payment or occurrence of a default, and no opinion is expressed as to any indemnification provisions contained therein. 45821644.4 C-2 6. Except as described in the Official Statement, no authorization, approval, consent, or other order of the State of California or any other governmental authority or agency within the State of California having jurisdiction over the District is required for the adoption of the District Resolutions and for the valid authorization, execution, delivery and performance by the District of the Official Statement, the Trust Agreement, the Installment Purchase Agreement, the Continuing Disclosure Certificate, the Escrow Agreement or the Purchase Contract which has not been obtained, provided that no opinion is expressed with respect to qualification under Blue Sky or other state securities laws. 7. Without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement and based upon the information made available to me in the course of my participation in the preparation of the Official Statement as General Counsel for the District, nothing has come to my attention which would cause me to believe that the Official Statement (excluding therefrom the information concerning the Insurer and its Policy, The Depository Trust Company, New York, New York and its book-entry system and the financial statements and the statistical data included in the Official Statement, as to which no opinion is expressed), as of the date thereof and the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made,not misleading. 8. Under the laws of the State of California, the District has the authority to fix and collect rates and charges for water service and is not presently subject to the regulatory jurisdiction of any state, regional or local governmental regulatory authority in connection with fixing and collecting such charges, and, to my current actual knowledge after reasonable investigation, no legislation is proposed or pending to restrict or limit such rates and charges except as set forth in the Official Statement. 9. The Net Revenues of the Water System (as defined in the Official Statement) are free and clear of and from any and all liens and encumbrances other than as set forth in the Official Statement. This letter is furnished by me as General Counsel to the District. No attorney-client relationship has existed or exists between me and yourselves in connection with the delivery of the Certificates or by virtue of this letter. This letter is delivered to you as the Insurer and the Underwriter of the Certificates and is solely for your benefit as such Insurer and Underwriter, respectively, and is not to be used, circulated, quoted or otherwise referred to or relied upon for any other purpose or by any other person. Respectfully submitted, 45821644.4 C-3 EXHIBIT D FORM OF LETTER TO UNDERWRITER October_, 2006 Stone&Youngberg LLC San Francisco, California Ladies and Gentlemen: With respect to the proposed sale to you, the Underwriter, of its Truckee Donner Public Utility District Refunding Revenue Certificates of Participation (Water System Improvement Projects) Series 2006 (the "Certificates") evidencing interests of the Owners thereof in Installment Payments to be made by the Truckee Donner Public Utility District (the "District"), the District has delivered to you a Preliminary Official Statement, dated September _, 2006, relating to the Certificates (the "Preliminary Official Statement"). The District, for purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission (the "Rule"), deems the Preliminary Official Statement to be final as of its date for purposes of the Rule, except for the omission of no more than the following information: the offering prices, interest rates, selling compensation, aggregate principal amount, principal amount per maturity, dates of mandatory sinking fund payments, delivery date, ratings, any other terms of the Certificates relating to such matters, information relating to the municipal bond insurer, and the policy to be issued by such insurer. The District hereby approves the use and the distribution by the Underwriter of the Preliminary Official Statement and the posting and distribution of the Preliminary Official Statement. Sincerely, TRUCKEE DONNER PUBLIC UTILITY DISTRICT By: Name: Title: 45821644.4 D-1