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Home My WebLink AboutRES 2003-10 - Board Public Resolution No. 2003- 10 A RESOLUTION OF THE BOARD OF DIRECTORS AUTHORIZING THE EXECUTION AND DELIVERY OF AN INSTALLMENT PURCHASE AGREEMENT AND A TRUST AGREEMENT AND CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH WHEREAS, the Truckee-Donner Public Utility District, a public utility district duly organized and existing under and pursuant to the Constitution and laws of the State of California (the "District"), including the Public Utility District Act, Section 15501 et seq. of the Public Utilities Code of the State of California (the "Public Utilities Code") is authorized under provisions of the Constitution and laws of the State of California, including without limitation, Section 16431 of the Public Utilities Code, to dispose of and acquire certain equipment and facilities as the District may determine is necessary or proper; WHEREAS, the District has previously entered into a certain $26 million settlement obligation of the District owing to Idacorp Energy LP. ("Idacorp"), as evidenced by that certain promissory note of the District issued to Idacorp dated January 3, 2003 (the "Settlement Obligation"), and proposes to refinance the Settlement Obligation by authorizing and directing the execution and delivery of certificates of participation (the "Certificates") evidencing fractional interests in the installment payments to be made by the District to the Truckee-Donner Public Utility District Financing Corporation (the "Corporation") under the Installment Purchase Agreement described below; WHEREAS, in the judgment of this Board it is for the best interest of the District to enter into the Installment Purchase Agreement described below in order to refinance the Settlement Obligation; WHEREAS, by prior action, the Board approved forms of the Installment Purchase Agreement and Trust Agreement described below and took other actions related to the execution and delivery of the Certificates; WHEREAS, revised forms of such Installment Purchase Agreement and Trust Agreement are now presented to this Board for approval; WHEREAS, a majority of the Board of Directors of the District (the "Board") constituting a quorum for the transaction of business, is present, as required by Section 16071 of the Public Utilities Code; and WHEREAS, all acts, conditions and things required by the Constitution and law of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the financing authorized hereby do exist, have happened and have been performed in regular and due time, form, and manner as required by law, and the District is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such financing for the purpose, in the manner and upon the terms herein provided; NOW, THEREFORE the Board of Directors of the Truckee-Donner Public Utility District does hereby resolve as follows: Section 1. Installment Purchase Agreement. The form of Installment Purchase Agreement, dated as of March 1, 2003, between the District and the Truckee-Donner Public Utility District Financing Corporation (the "Corporation"), presented to this meeting and on file with the Clerk of the Board of the District, is hereby approved. In accordance with Section 16033 of the Public Utilities Code, the President of the Board (the "President") is hereby authorized and directed, for and in the name and on behalf of the District, to sign the Installment Purchase Agreement, and in accordance with Section 16115 of the Public Utilities Code, the Clerk of the District (the "Clerk") is hereby authorized to countersign the Installment Purchase Agreement, and both the President and the Clerk are hereby authorized and directed to deliver to the Corporation the Installment Purchase Agreement in substantially said form, with such changes therein as the President may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. Section 2. Trust Agreement. The form of Trust Agreement, dated as of March 1, 2003, among the District, the Corporation and the trustee named therein (the "Trustee"), presented to this meeting and on file with the Clerk, is hereby approved. In accordance with Section 16033 of the Public Utilities Code, the President is hereby authorized and directed, for and in the name and on behalf of the District, to sign the Trust Agreement, and in accordance with Section 16115 of the Public Utilities Code, the Clerk is authorized and directed to countersign the Trust Agreement, and both the President and the Clerk are hereby authorized and directed to deliver to the Corporation and the Trustee the Trust Agreement in substantially said form, with such changes therein as the President may require or approve, such approval to be conclusively evidenced by the execution and delivery- thereof. Section 3. Certificates. The Corporation is hereby directed to execute and deliver the Certificates, in the form and pursuant to the provisions of, the above-described Trust Agreement. Section 4. Purchase Contract. The Purchase Contract, in substantially the form on file with the District and, upon execution as authorized below, be and the same is hereby approved. The General Manager is hereby authorized and directed to execute and deliver the Purchase Contract with such changes, insertions and omissions as may be approved by the General Manager, said execution being conclusive evidence of such approval; provided, however, that in no event shall the principal amount of the Certificates exceed $30,000,000 (except such principal amount may be increased to provide original issue discount), nor shall the underwriter's discount (not including original issue discount) exceed 1.0% nor shall the net interest cost of the Certificates exceed 8% per annum. Section 5. Preliminary Official Statement. The preparation and distribution of the Preliminary Official Statement, in the form on file with the District, 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, Vice-President or General Manager is hereby authorized and directed to execute, approve and deliver the final Official Statement in the form of the Preliminary Official Statement which, upon execution as authorized below, with such changes, insertions and omissions as the officer executing said document may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof Bear, Stearns & Co. Inc. is hereby authorized to distribute copies of said Preliminary Official Statement to persons who may be interested in the initial purchase of the Certificates and is directed to deliver copies of any final Official Statement to all actual initial purchasers of the Certificates. Section 6. Continuin2 Disclosure Agreement. The Continuing Disclosure Agreement in substantially the form on file with the District and, upon execution as authorized below, be and the same is hereby approved. The President, Vice-President or General Manager are hereby authorized and directed to execute and deliver the Continuing Disclosure Agreement with such changes, insertions and omissions as may be approved by the officer executing the same, said execution being conclusive evidence of such approval. Section 7. Attestations. The Clerk is hereby authorized and directed to attest the signature of the President, Vice President or General Manager, if necessary, and to affix and attest the seal of the District, as may be required or appropriate in connection with the execution and delivery of the Installment Purchase Agreement and the Trust Agreement. Section 8. Other Actions. The President, the Vice-President, the General Manager, the Clerk and any other proper officer of the District are hereby authorized and directed to do any and all things and to execute and deliver, and the Clerk is hereby authorized and directed to do any and all things and to countersign, any and all documents which they may deem necessary or advisable in order to consummate the sale, execution and delivery of the Certificates by the Trustee and otherwise to carry out, give effect to and comply with the terms and intent of this resolution, the Certificates, the Purchase Contract, the Continuing Disclosure Agreement, the Installment Purchase Agreement and the Trust Agreement. Such actions heretofore taken by such officers are hereby ratified, confirmed and approved. Section 9. Settlement Obligation. The General Manager is directed to take actions necessary to cause a portion of the proceeds of the Certificates to be used to refinance and satisfy the Settlement Obligation. Section 10. Effective Date. This resolution shall take effect immediately upon its adoption. PASSED AND ADOPTED by the Board of Directors at a meeting duly called and held within the District on the 5th day of March, 2003 by the following roll call vote AYES: Directors Aguera, Hemig, Maass, Sutton and Van Gundy NOES: None ABSENT: None TRUCKEE-DONNER PUBLIC UTILITY DISTRICT B f &_0 J ' Ro emig, President of the Board 11 ATTEST: Peter L. Holzmeister, District Clerk Stradling Yocca Carlson& Rauth Draft of 02/18/03 INSTALLMENT PURCHASE AGREEMENT by and between TRUCKEE-DONNER PUBLIC UTILITY DISTRICT and TRUCKEE-DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION Dated as of March 1,2003 relating to TRUCKEE-DONNER PUBLIC UTILITY DISTRICT REVENUE CERTIFICATES OF PARTICIPATION, SERIES 2003A AND TAXABLE SERIES 2003B DOCSSF\35477v7\22925.0006 Accountant's Report The term "Accountant's Report" means a report signed by an Independent Certified Public Accountant. Adjusted Revenues The term "Adjusted Revenues" mean, for any Fiscal Year, the Revenues during such Fiscal Year, less, for purposes of determining compliance with Section 6.13 and conditions for the execution of Bonds or Contracts, any Payment Agreement Receipts taken into account in calculating Debt Service pursuant to the definition thereof, plus, for the purposes of determining compliance with Section 6.13 hereof only, the amounts which the District has authorized to be deposited in the Revenue Fund from the Rate Stabilization Fund as of the one hundredth day following the end of such Fiscal Year or twelve month period to pay Operation and Maintenance Costs and/or Debt Service. Adjusted Net Revenues The term "Adjusted Net Revenues" means, for any Fiscal Year, the Adjusted Revenues for such Fiscal Year less Operation and Maintenance Costs for such Fiscal Year. Agreement The term "Agreement" means this Agreement, by and between the District and the Corporation, dated as of March 1, 2003, as originally executed and as it may from time to time be amended or supplemented in accordance herewith. Assumed RBI-based Rate The term "Assumed RBI-based Rate" means, as of any date of calculation, an assumed interest rate equal to ninety percent(90%)of the average RBI during the twelve(12)calendar months immediately preceding the month in which the calculation is made. Bonds The term "Bonds" means all bonds, notes or similar obligations (but not including Contracts). of the District, the principal of and interest on which are payable from Net Revenues on a parity with the Installment Payments. 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 Revenue Certificates of Participation, Series 2003A and Taxable -2- DOCSSF\35477v7\22925.0006 provided that, as to any such Bonds or Parity Installment Payments 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 the Bonds or Parity Installment Payments are not yet outstanding,the initial rate (if established and binding), (ii) if the Bonds or Parity Installment Payments have been outstanding for at least twelve months, the average rate over the twelve months immediately preceding the date of calculation, and (iii) (1) if interest on the Bonds or Parity Installment Payments is excludable.from gross income under the applicable provisions of the Code, the most recently published Bond Buyer 25 Bond Revenue Index (or comparable index if no longer published) plus fifty (50) basis points, or (2) if interest is not so excludable, the interest rate on direct United States Treasury obligations with comparable maturities plus fifty(50)basis points; and provided further that if any series or issue of such Bonds or Parity Installment Payments 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 Fiscal Year of determination as if the principal of and interest on such series or issue of such Bonds or Parity Installment Payments were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of thirty(30)years from the date of calculation; - and provided further that, as to any such Bonds or Parity Installment Payments or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds or Parity Installment Payments or portions thereof, such accreted discount shall be treated as interest in the calculation of Debt Service; 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 in each preceding year until such amount is exhausted; and provided further that Debt Service shall be reduced by an amount equal to earnings on any reserve fund (including the Reserve Fund) transferred to the corresponding debt service fund (including the Interest Fund created under the Trust Agreement); and provided further that the amount of interest deemed to be payable on or with respect to any Contract or Bond with respect to which a Payment Agreement is in force shall, so long as the Qualified Counterparty thereto is not in default thereunder, be based on the net economic effect on the District expected to be produced by the terms of such Contract or Bond and such Payment Agreement, including but not limited to the effects that (i) such Contract or Bond would,but for such Payment Agreement, be treated as an obligation bearing interest at a Variable Interest Rate instead shall be treated as an obligation bearing interest at a fixed interest rate, and(ii) such Contract or Bond would, but for such Payment Agreement, be treated as an obligation bearing interest at a fixed interest rate instead shall be treated as an obligation bearing interest at a Variable Interest Rate; and accordingly, the amount of interest deemed to be payable on any Contract or Bond with respect to -4- DOCSSF\35477v7\22925.0006 interest rate equal to the rate that is one hundred and five percent(105%) of the fixed interest rate specified by the Payment Agreement to be paid by the District, and payments by the Qualified Counterparty to the District will be based on a rate equal to the Assumed RBI-based Rate as the variable interest rate deemed to apply to the Variable Interest Rate Parity Obligation. (4) Certain Payment Agreements May be Disregarded. Notwithstanding the provisions of subparagraphs (1), (2) and (3) of this definition, the District shall not be required to (but may at its option) take into account (for the purpose of determining Debt Service)the.effects of any Payment Agreement that has a remaining term of ten(10)years or less. 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, including the Law. Electric General Fund "Electric General Fund"means the fund by such name established by the District. Electric System The term "Electric System" means all properties and assets, real and personal, tangible and intangible, of the District now or hereafter existing, used or pertaining to the acquisition, . transmission, distribution and sale of electricity, including all additions, extensions, expansions, improvements and betterments thereto; provided, however, that to the extent the District is not the sole owner of an asset or property or to the extent that an asset or property is used in part for the above described electricity purposes, only the District's ownership interest in such asset or property or only the part of the asset or property so used for electricity purposes shall be considered to be part of the Electric System. Electricity Service The term "Electricity Service" means the electricity distribution service made available or provided by the Electric System. 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 1 of each year and ending on the last day of December of such year, or any other twelve-month period selected and designated as the official Fiscal Year of the District. -6- DOCSSF\35477v7\22925.0006 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. Mood's The term"Moody's"means Moody's Investors Service, or any successor thereto. 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 (1) costs spent or incurred for maintenance and operation of the Electric System calculated in accordance with generally accepted accounting principles, including (among other things), Purchased Power Costs, fuel expenses, the expenses of management and repair and other expenses necessary to maintain and preserve the " Electric System in good repair and working order, and including administrative costs of the District, salaries and wages of employees, employee retirement expenses, overhead, insurance, taxes (if any), fees of auditors, accountants, attorneys or engineers and insurance premiums, and (2) 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, but excluding in all cases (a) depreciation, replacement and obsolescence charges or reserves therefor, (b)amortization of intangibles or other bookkeeping entries of a similar nature, (c)costs of capital additions, replacements, betterments, extensions or improvements to the Electric System which under generally accepted accounting principles are chargeable to a capital account or to a reserve for depreciation, and(d) charges for the payment of Bonds or Contracts. Parity Project The term "Parity Project" means any additions, betterments, extensions or improvements 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. Participating Underwriter The term "Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Agreement. -8- DOCSSF\35477v7122925.0006 Rate Stabilization Fund The term "Rate Stabilization Fund" means the fund by such name established by the District pursuant to Resolution No. 9533 of the District. Rating Agency The term "Rating Agency" means S&P and Moody's, or any other nationally recognized securities rating agency as agencies rating the Certificates at the Written Request of the District delivered to the Trustee. RBI "RBI" means the Bond Buyer Revenue Bond Index or comparable index of long-term municipal obligations chosen by the District, or, if no comparable index can be obtained, eighty percent (80%) of the interest rate on actively traded thirty (30) year United States Treasury obligations. Reserve Requirement The term "Reserve Requirement" means, initially $ and thereafter shall be equal to the lesser of such amount and maximum annual Installment Payments in the current or any future Fiscal Year. Revenue Fund The term "Revenue Fund" means all revenue accounts maintained by the District as of the date of this Agreement which hold Revenues, including accounts numbered 131.10-10 and 136.10-10 of the District but not including accounts numbered 131.10-20 and 136.10-20 of the District,together with any revenue account created after the date of this Agreement and designated by the Treasurer of the District as a part of the Revenue Fund. Revenues The term "Revenues" means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Electric System, including, without limiting the generality of the foregoing, (1) all income, rents, rates, fees, charges or other moneys derived from the sale, distribution, furnishing and supplying of electricity or other services, facilities, and commodities sold, furnished or supplied through the facilities of the Electric System including standby charges and facility fees allocable to the Electric System,plus (2) except as set forth in(z)below, taxes or assessments, if any,the imposition of which is permitted by law, (3) the earnings on and income derived from the investment of the amounts described in clauses (1) and (2) above, the Rate Stabilization Fund and the general unrestricted funds of the District, and -10- DOCSSF\35477v7122925.0006 Variable Interest Rate Parity Obligations if the net economic effect of interest rates on particular payments of the Contracts or Bonds and interest rates on other payments of the same Contracts or Bonds, as set forth in such Contracts or Bonds, or the net economic effect of a Payment Agreement with respect to particular Contracts or Bonds, in either case, is to produce obligations that bear interest at a fixed interest rate, and(ii) Contracts or Bonds with respect to which a Payment Agreement is in force shall be treated as Variable Interest Rate Parity Obligations if the net economic effect of the Payment Agreement is to produce obligations that bear interest at a Variable Interest Rate. 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 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 its General Manager or by the Secretary of its Board of Directors 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 Property under the terms of this Agreement being included in the gross income of the Certificate Owners or its assigns for purposes of federal or State of California income taxation. (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 the Settlement Obligation in the manner provided for in this Agreement. -12- DOCSSF135477v7\22925.0006 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. 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 Electric System or any part thereof is operating or operable, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. ARTICLE V SECURITY Section 5.1. Pledge of Revenues. All Revenues and all amounts on deposit in the Revenue 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 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 lien on Revenues and, subject to application of Revenues and all amounts on deposit therein as permitted herein,the Revenue Fund. -14- DOCSSF\35477v7\22925.0006 on file with the District, shall have produced a sum equal to at least one hundred twenty percent (120%) of the Debt Service for such Fiscal Year; or (b) The estimated Adjusted Net Revenues 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 to be financed from proceeds of such Contracts or Bonds, as evidenced by both a certificate of the General Manager of the District on file with the District and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant, including (after giving effect to the completion of all such uncompleted Parity Projects) an allowance for estimated Net Revenues 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 Electricity 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 and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant,shall produce a sum equal to at least one hundred twenty percent(120%)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 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. (c) This Section 5.3 notwithstanding, 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. (d) Nothing herein shall preclude the District from issuing any Bonds or executing and delivering any Contracts the payments under which are subordinate to any Bonds or Contracts of the District. Section 5.4. Investments. All moneys held by the District in the Revenue 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. Allocation to Revenue Fund Instantaneous. Revenues received by the District shall be deemed instantaneously allocated to the Revenue Fund not withstanding any delay with respect to the District's accounting therefor. 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 -16- DOCSSF\35477v7\22925.0006 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 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) Miscellaneous. The District and the Corporation will take no 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 issuing 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 Electric System. The District will maintain and preserve the Electric System in good repair and working order at all times and will operate the Electric 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 or the Trustee 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,but the District shall not be required to pay such claims if the validity thereof shall be contested in good faith. 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 -18- DOCSSF\35477v7\22925.0006 All policies of insurance required to be maintained herein shall provide that the Corporation and the Trustee shall be given thirty (30) days written notice of any intended cancellation thereof or reduction of coverage provided thereby. Section 6.10. Accounting Records; Financial Statements and Other Reports. The District will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the Electric System, which records shall be available for inspection by the Corporation, and the Trustee at reasonable hours and under reasonable conditions. 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 Reizulations. The District will pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Electric 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 Electric 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. The District shall fix, prescribe and collect rates and charges for the Electricity Service which will be at least sufficient to yield during each Fiscal Year Adjusted Net Revenues equal to one hundred twenty percent (120%) 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 classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Adjusted 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 Electricity 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 Electric System shall be taken by eminent domain proceedings,the Net Proceeds thereof may 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 District by reason of such eminent domain proceedings, (ii) a general description of the additions, betterments, extensions or improvements to the Electric 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 -20- DOCSSF\35477v7\22925.0006 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 by it or in any Contract or Bond to be performed by it, and such default shall have continued for a period of sixty (60) days after the District shall have been given notice in writing of such default by the Corporation; (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 -22- DOCSSF\35477v7\22925.0006 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 abandoned or determined adversely to the Corporation or the Bond Insurer, 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. 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 remedial action 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. Discharize of Obli ations. (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, 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 -24 DOCSSF\35477v7\22925.0006 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 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 parry 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 11570 Donner Pass Road Truckee, CA 96160 Attention: General Manager If to the Corporation: Truckee-Donner Public Utility District Financing Corporation c/o Truckee-Donner Public Utility District 11570 Donner Pass Road Truckee, CA 96160 Attention: President -26- DOCSSF\35477v7\22925.0006 (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 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. -28- DOCSSF135477v7\22925.0006 EXHIBIT A -� PURCHASE PRICE 1. The principal amount of payments to be made by the District hereunder is 2. The installment payments of principal and interest are payable in the amounts and on the Installment Payment Dates as follows: Installment Amount Attributable to Amount Attributable to Payment Date Principal Interest 5`h Day Prior To: A-1 DOCSSF\35477v7\22925.0006 Table of Contents Paize ARTICLE I DEFINITIONS Section1.1. Definitions........................................................................................................ I ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1. Representations by the District........................ Section 2.2. Representations and Warranties by the Corporation...................................... 13 ARTICLE III SALE AND PURCHASE OF THE PROPERTY Section 3.1. Sale and Purchase of the Property.................................................................. 13 Section 3.2. Purchase and Sale of the Property.................................................................. 13 Section3.3. Title................................................................................................................ 13 ARTICLE IV INSTALLMENT PAYMENTS Section4.1. Purchase Price. ................................................................................................ 14 Section 4.2. Installment Payments ..................................................................................... 14 ARTICLE V SECURITY Section 5.1. Pledge of Revenues........................................................................................ 14 Section 5.2. Allocation of Revenues.................................................................................. 15 Section 5.3. Additional Contracts and Bonds..................................................................... 15 Section5.4. Investments..................................................................................................... 16 Section 5.5. Allocation to Revenue Fund Instantaneous.................................................... 16 ARTICLE VI COVENANTS OF THE DISTRICT Section 6.1. Compliance with Installment Purchase Agreement and Ancillary Agreements16 Section 6.2. Against Encumbrances................................................................................... 17 Section 6.3. Against Sale or Other Disposition of Property............................................... 17 DOCSSF135477v7\22925.0006 Table of Contents (continued) Page Section 10.5. Article and Section Headings, Gender and References..................................26 Section10.6. Partial Invalidity.............................................................................................26 Section10.7. Assignment.....................................................................................................26 Section10.8. Net Contract...................................................................................................26 Section10.9. California Law................................................................................................26 Section10.10. Notices............................................................................................................26 . Section10.11. Effective Date.................................................................................................27 Section 10.12. Execution in Counterparts..............................................................................27 Section 10.13. Indemnification of Corporation......................................................................27 Section 10.14. Amendments Permitted..................................................................................27 DOCSSF\35477v7\22925.0006 Table of Contents (continued) Paize Section 6.4. Against Competitive Facilities....................................................................... 17 Section6.5. Tax Covenants................................................................................................ 18 Section 6.6. Maintenance and Operation of the Electric System....................................... 18 Section 6.7. Payment of Claims......................................................................................... 18 Section 6.8. Compliance with Contracts............................................................................ 18 Section6.9. Insurance. ....................................................................................................... 19 Section 6.10. Accounting Records; Financial Statements and Other Reports .....................20 Section 6.11. Protection of Security and Rights of the Corporation....................................20 Section 6.12. Payment of Taxes and Compliance with Governmental Regulations............20 Section 6.13. Amount of Rates and Charges........................................................................20 Section 6.14. Collection of Rates and Charges....................................................................20 Section 6.15. Eminent Domain Proceeds.............................................................................20 Section 6.16. Further Assurances.........................................................................................21 Section 6.17. Continuing Disclosure....................................................................................21 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............. Section 8.2. Application of Funds Upon Acceleration.......................................................23 Section 8.3. Other Remedies of the Corporation................................................................23 Section 8.4. Non-Waiver................. 23 ................................................................................... Section 8.5. Remedies Not Exclusive ................................................................................24 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 DOCSSF135477v7A22925.0006 EXHIBIT B DESCRIPTION OF THE PROPERTY The Property consists of the components of the Electric System described below: Component Approximate Value Overhead constructed facilities including but not limited to transmission $25,319,700 lines, utility poles and transformers Underground constructed facilities including but not limited to 18,886,300 transmission lines Donner Lake Substation 1,500,000 Tahoe Donner Substation 2,0001000 Truckee Substation 2,000,000 Martis Valley Substation 2,000,000 SCADA System 500,000 TOTAL $52,206,000 DOCSSF\35477v7\22925.0006 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 Clerk TRUCKEE-DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION President Secretary -29- DOCSSF\35477v7\22925.0006 If to the Bond Insurer: 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). 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 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; -27- DOCSSF\35477v7\22925.0006 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 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. 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. -25- DOCSSF135477v7\22925.0006 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 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; 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 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, the Corporation shall have no security interest in or mortgage on the Property, the Electric System or other assets of the District, and no default hereunder shall result in the loss of the Property,the Electric 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. -23- DOCSSF135477v7\22925.0006 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 may 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 of the rights and benefits provided to it herein. Section 6.17. Continuing_Disclosure. The District hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of this Agreement, failure of the District to comply with the Continuing Disclosure Agreement 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." ARTICLE VII PREPAYMENT OF INSTALLMENT PAYMENTS Section 7.1. Prepayment. 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. 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, 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 sixty (60) 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. -21- DOCSSF\35477v7\22925.0006 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, required to be performed by it contained in all other contracts affecting or involving the Electric 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 Electric System with responsible insurers in such amounts and against such risks (including damage to or destruction of the Electric System) as are usually covered in connection with facilities similar to the Electric System so long as such insurance is available from reputable insurance companies and such coverage is available on commercially reasonable terms. In the event of any damage to or destruction of the Electric 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 Electric 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 Electric 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 Electric System, and/or the cost of the construction of additions, betterments, extensions or improvements to the Electric System, then the excess Net Proceeds may be applied in part to the w . 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 Electric System, and/or not to construct other additions, betterments, extensions or improvements to the Electric System; and thereupon such Net Proceeds may 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 municipal electric systems similar to the Electric 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 electric systems similar to the Electric System and is, in the opinion of an Insurance Consultant,actuarially sound. -19- DOCSSF\35477v7\22925.0006 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 Electric System, 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. 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 Property and 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 except as permitted hereby. The District may at any time, or from time to time, issue Contracts and Bonds as permitted herein, or may issue or incur evidences of indebtedness or incur other obligations, 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 Electric System or any part thereof necessary to secure adequate Net Revenues for the payment of the Installment Payments, or which would otherwise impair the rights of the Corporation hereunder or the operation of the Electric System. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the Electric 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 Electric 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 Electric System exercising any remedy which would deprive the District of or otherwise interfere with its right to own and operate such portion of the Electric System. Section 6.4. Against Competitive Facilities . To the extent permitted by existing law, the District covenants that it will not acquire, construct, maintain or operate and will not permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the boundaries of the District any electric system competitive with the Electric System. -17- DOCSSF\35477v7\22925.0006 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 includes the accounts described in the definition thereof 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. All remaining moneys in the Revenue Fund thereafter shall be set aside 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. Not later than each Parity Installment Payment Date, the District shall, from moneys in the Revenue Fund, transfer to the applicable trustee the Parity Installment Payment due and payable on that Parity 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, transfer 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. (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. 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 Adjusted Net Revenues 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 -15- DOCS SF\35477 v7122925.0006 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 Property under the terms of this Agreement being included in the gross income of the Certificate Owners or its assigns for purposes of federal or State of California income taxation. ARTICLE III SALE AND PURCHASE OF THE PROPERTY Section 3.1. Sale and Purchase of the Property. In consideration for the Corporation's assistance in financing the Settlement Obligation, the District agrees to sell, and hereby sells, to the Corporation, and the Corporation agrees to purchase and hereby purchases, from the District, the Property 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 3.2. Purchase and Sale of the Property. 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 Property 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 Property shall be vested in the District upon execution and delivery of this Agreement. -13- DOCSSF\35477v7\22925.0006 (4) Payment Agreement Receipts, but excluding in all cases (x) connection fees; (y) customers' deposits or any other deposits subject to refund until such deposits have become the property of the District,and (z) reserves, taxes or assessments specifically pledged to the payment of debt service with respect to notes, bonds or other obligations of the District and which reserves, taxes or assessment are not available for any other purpose of the District. 'S&P The term"S&P"means Standard&Poor's Ratings Group, or any successor thereto. Settlement Obligation The term"Settlement Obligation" shall have the meaning given to such term in the recitals to the Installment Purchase Agreement. Trust Agreement The term "Trust Agreement" means the Trust Agreement, dated as of March 1, 2003, 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 BNY Western Trust Company, acting in its capacity as Trustee under and pursuant to the Trust Agreement, and its successors and assigns. Variable Interest Rate "Variable Interest Rate" means any variable interest rate or rates to be paid under any Contract or Bond, the method of computing which variable interest rate shall be as specified in the applicable Contract or Bond, which Contract or Bond shall also specify either(i)the payment period or periods or time or manner of determining such period or periods or time for which each value of such variable interest rate shall remain in effect, and (ii) the time or times based upon which any change in such variable interest rate shall become effective, and which variable interest rate may, without limitation, be based on the interest rate on certain bonds or may be based on interest rate, currency, commodity or other indices. Variable Interest Rate Parity Obligations "Variable Interest Rate Parity Obligations"mean,for any period of time, all in accordance with the definition of Debt Service" set forth in this Section 1.1, any Contract or Bond that bear a Variable Interest Rate during such period, except that(i)Contracts or Bonds shall not be treated as -11- DOCSSF\35477v7\22925.0006 Payment Agreement "Payment Agreement" means a written agreement for the purpose of managing or reducing the District's exposure to fluctuations in interest rates or for any other interest rate, investment, cash flow, asset or liability managing purposes, entered into either on a current or forward basis by the District and a Qualified Counterparty in connection with, or incidental to, the issuance or incurrence of any Contract or Bond, that provides for an exchange of payments based on interest rates, ceilings or floors on such payments, options on such payments, or any combination thereof or any similar device. Payment Agreement Payments "Payment Agreement Payments" mean the amounts required to be paid periodically by the District to the Qualified Counterparty pursuant to a Payment Agreement. Payment Agreement Receipts "Payment Agreement Receipts" mean the amounts required to be paid periodically by the Qualified Counterparty to the District pursuant to a Payment Agreement. Pro e The term"Property"means the property described in Exhibit B hereto. 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. Purchased Power Costs The term "Purchased Power Costs" means (1) costs associated with any power purchase contract for capacity and/or energy with respect to the Electric System, excluding any termination payments due pursuant to any such contract; (2) all costs associated with the transmission of energy to the Electric System; (3) all costs to schedule energy with respect to the Electric System; and (4) net payments due under any hedging contract executed by the District to reduce energy or fuel price risk, excluding any termination payments due pursuant to any such hedging contract. Qualified Counterparts "Qualified Counterparty" means a party (other than the District) who is the other party to a Payment Agreement and(1) (a)whose senior debt obligations are rated in one of the three (3)highest rating categories of each of the Rating Agencies then rating the Certificates (without regard to any gradations within a rating category), or (b) whose obligations under the Payment Agreement are guaranteed for the entire term of the Payment Agreement by a bond insurer or other institution which has been or whose debt service obligations have been assigned a credit rating in one of the three highest rating categories of each of the Rating Agencies then rating the Certificates (without regard to any gradations within a rating category), and (2) who is otherwise qualified to act as the other parry to a Payment Agreement with the District under any applicable laws. -9- DOCSSF\35477v7\22925.0006 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. 1 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 Pants The term "Installment Payments" means the Installment Payments scheduled to be paid by p the District under and pursuant hereto. The term"Parity Installment Payments" means the payments scheduled to be paid by the District under and pursuant to the Contracts. Insurance Consultant. The term "Insurance Consultant" means any insurance consultant or firm of insurance consultants generally recognized to be well qualified in insurance consulting matters relating to electric utility and other municipal systems, appointed and paid by the District, and who or each of whom (1) is in fact independent and not under the domination of the District; (2) does not have a substantial financial interest, direct or indirect, in the operations of the District; (3) and is not connected with the District as a board member, officer, or employee of the District, but may be regularly retained to make reports to the District. Interest Payment Date The term "Interest Payment Date" means January 1 and July 1 of each year, commencing July 1, 2003. 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 all laws amendatory thereof or supplemental thereto. -7- DOCSSF\35477v7\22925.0006 which a Payment Agreement is in force shall, so long as the Qualified Counterparty thereto is not in default thereunder, be an amount equal to the amount of interest that would be payable at the rate or rates stated in such Contract or Bond plus the Payment Agreement Payments minus the Payment Agreement Receipts, and for the purpose of calculating Payment Agreement Receipts and Payment Agreement Payments under such Payment Agreement,the following assumptions shall be made: (1) Counterparty Obligated to Pay Actual Variable Interest Rate on Variable Interest Rate Parity Obligations. If the Payment Agreement obligates a Qualified Counterparty to make payments to the District on the actual Variable Interest Rate on a Contract or Bond that would, but for the Payment Agreement, be treated as a Variable Interest Rate Parity Obligation and obligates the District to make payments to the Qualified Counterparty based on a fixed rate, payment by the District to the Qualified Counterparty shall be assumed to be made at the fixed rate specified by the Payment Agreement and payments by the Qualified Counterparty to the District shall be assumed to be made at the actual Variable Interest Rate on such Contract or Bond,without regard to the occurrence of any event that, under the provisions of the Payment Agreement, would permit the Qualified Counterparty to make payments on any basis other than the actual Variable Interest Rate on such Contract or Bond, and such Contract or Bond shall set forth a debt service schedule based on that assumption; (2) Variable Interest Rate Parity Obligations and Payment Agreements Having the Same Variable Interest Rate Component. If both a Payment Agreement and the related Contract or Bond that would, but for the Payment Agreement, be treated as a Variable Interest Rate Parity Obligation include a variable interest rate payment component that is required to be calculated on the same basis (including, without limitation, on the basis of the same variable interest rate index), it shall be assumed that the variable interest rate payment component payable pursuant to the Payment Agreement is equal in amount to the variable interest rate component payable on such Contract or Bond; (3) Variable Interest Rate Parity Obligations and Payment Agreements Having the Different Variable Interest Rate Component. If a Payment Agreement obligates either the District or the Qualified Counterparty to make payments of a variable interest rate payment component on a basis different (including, without limitation, on a different variable interest rate index), from the basis that is required to be used to calculate interest on the Contract or Bond that would, but for the Payment Agreement, be treated as a Variable Interest Rate Parity Obligation it shall be assumed: (a) District Obligated to Make Payments Based on Variable Interest Rate Index. If payments by the District under the Payment Agreement are based on a variable interest rate index and payments by the Qualified Counterparty are based on a fixed interest rate, payments by the District to the Qualified Counterparty will be based upon an interest rate equal to the Assumed RBI-based Rate, and payments by the Qualified Counterparty, to the District will be based on the fixed rate specified by the Payment Agreement; and (b) District Obligated to Make Payments Based on Fixed Interest Rate. If payments by the District under the Payment Agreement are based on a fixed interest rate and payments by the Qualified Counterparty are based on a variable interest rate index, payments by the District to the Qualified Counterparty will be based on an -5- DOCSSF\35477v7\22925.0006 Series 2003B, executed and delivered on behalf of the District and at any time Outstanding pursuant to the Trust Agreement. Continuing Disclosure Agreement The term "Continuing Disclosure Agreement" shall mean that certain Continuing Disclosure Agreement between the District and the dissemination agent named therein 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 all contracts of the District the Parity Installment Payments under which are payable from Net Revenues on a parity with the obligations of the District to make payments under this Agreement excluding contracts entered into for operation and maintenance of the Electric 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 Fiscal Year,the sum of: (1) the interest on all outstanding Bonds, payable during such Fiscal Year (except to the extent that such interest is capitalized); (2) that portion of the principal amounts of all outstanding serial Bonds maturing in such Fiscal Year; (3) that portion of the principal amounts of all outstanding term Bonds required to be prepaid or paid in such Fiscal Year; and (4) that portion of the Parity Installment Payments required to be made during such Fiscal Year (except to the extent the interest evidenced and represented thereby is capitalized); -3- DOCSSF\35477v7\22925.0006 INSTALLMENT PURCHASE AGREEMENT This INSTALLMENT PURCHASE AGREEMENT, made and entered into as of March 1, 2003 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 refinance a certain settlement obligation of the District owing to Idacorp Energy L.P. in the amount of$26 million(the"Settlement Obligation"); WHEREAS, the Corporation has agreed to assist the District in refinancing the Settlement Obligation; WHEREAS, the District is authorized by Division 7 of the Public Utilities Code of the State of California, including but not limited to Section 16431 to dispose of and acquire property; WHEREAS, the District and the Corporation propose to provide for the refinancing of the Settlement Obligation by entering into this Installment Purchase Agreement and authorizing and directing the execution and delivery of certificates of participation evidencing fractional interests in the installment payments to be made by the District to the Corporation hereunder; 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 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. DOCSSF\35477v7\22925.0006 s c 0 SAB&W LLP Draft of 2/8/2003 PRELIMINARY OFFICIAL STATEMENT DATED ,2003 NEW ISSUE-FULL BOOK-ENTRY ONLY Ratings:See"RATINGS"herein. In the opinion of Stradling Yocca Carlson&Rauth,a Professional Corporation,San Francisco,California("Special Counsel'),under existing statutes, to regulations,rulings and judicial decisions,and assuming certain representations and compliance with certain covenants and requirements described herein,the 2 portion of each Series A Installment Payment constituting interest is excluded from gross income for federal income tax purposes and is not an item of tax un- 8 preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel,the '13 o portion of each Series A Installment Payment constituting interest is exempt from State of California personal income tax. In addition,the difference between the O Q issue price of a 2003A Certificate(the first price at which a substantial amount of the 2003A Certificates of a maturity is to be sold to the public)and the stated redemption price at maturity with respect to the 2003A Certificates constitutes original issue discount,and the amount of original issue discount that accrues to 3 the owner of a 2003A Certificate is excluded from 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. In the opinion of Special Counsel,the portion of Series A Installment Payment and A Series B Installment Payment constituting interest is exempt from State of California personal income tax. See"TAX MATTERS"herein. N b REVENUE CERTIFICATES OF PARTICIPATION,SERIES 2003 Evidencing the Interests of the Owners Thereof in Installment Payments to be Made by the y y TRUCKEE-DONNER PUBLIC UTILITY DISTRICT lA Fr Series 2003A Taxable Series 2003B a U .r .� o Dated:Date of Delivery Due:January 1,as set forth on the inside cover 0 � This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors care advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this „o cover page not otherwise defined shall have the meanings set forth herein. U The Revenue Certificates of Participation,Series 2003A(the"2003A Certificates")and Taxable Series 2003B(the"2003B Certificates"and collectively with the 2003A Certificates,the"2003 Certificates")evidence the interests of the registered owners thereof(the"Owners")in the Series A Installment Payments 3 and the Series B Installment Payments(collectively,the"Installment Payments")to be made by the Truckee-Donner Public Utility District(the"District")under the terms of an Installment Purchase Agreement,dated as of ,2003(the"Installment Purchase Agreement"),between the District and the Truckee- Donner Public Utility District Financing Corporation(the"Corporation").Pursuant to the Installment Purchase Agreement,the District is obligated to make the o Installment Payments to the Corporation from Net Revenues of the District's Electric System. See"SECURITY AND SOURCES OF PAYMENT FOR THE o 0 2003 CERTIFICATES"herein. The 2003 Certificates are being sold to provide funds(i)to pay a termination payment to be made by the District in connection with the termination of a power purchase agreement,as described herein,(ii)to fund a deposit to a reserve fund for the 2003 Certificates,and(iii)to pay costs of delivery of the 2003 T Certificates. See"THE TRANSACTION"herein. cThe 2003 Certificates are being executed and delivered pursuant to a Trust Agreement;dated as of 1,2003(the"Trust Agreement"),by and among the District,the Corporation and BNY Western Trust Company,as trustee(the"Trustee"). The 2003 Certificates will be delivered in fully registered form, and, when executed and delivered, will be registered in the name of Cede&Co., as nominee of The Depository Trust Company("DTC' . DTC will act as �^ securities depository for the 2003 Certificates. Purchasers of interests in the 2003 Certificates will not receive securities certificates representing their interests in the 2003 Certificates purchased. Principal and interest evidenced by the 2003 Certificates are payable by the Trustee to DTC,which is obligated in turn to remit C N such principal and interest to its DTC participants for subsequent disbursement to the beneficial owners of the 2003 Certificates,as described herein. The 2003 Certificates are deliverable in denominations of$5,000 or any integral multiple thereof. Interest evidenced by the 2003 Certificates will be payable semiannually on January 1 and July 1 of each year,commencing July 1,2003. o ^v The 2003 Certificates are not subject to optional or mandatory prepayment prior to their stated maturity dates. The 2003 Certificates are subject to extraordinary prepayment prior to their stated maturity dates, as more fully described herein. See "THE 2003 CERTIFICATES—Prepayment Provisions"herein. oCd Payment of the principal of and interest evidenced by the 2003 Certificates when due(not including acceleration or prepayment)will be insured under o � separate municipal bond insurance policies to be issued by simultaneously with the delivery of the 2003 Certificates. •8 [Insurer logo[ 9 The obligation of the District to make the Installment Payments is a special obligation of the District payable solely from Net Revenues of the District's 42 y Electric System. The District may incur other obligations payable from Net Revenues on a parity with the Installment Payments, subject to the terms of the c ci Installment Purchase Agreement, as described herein. The obligation of the District to make the Installment Payments does not constitute a debt of the a ° District or of the State of California or of any political subdivision thereof in contravention of any constitution or statutory debt limitation or restriction. A c ° Maturity Schedule* o (See Inside Cover) o o c The 2003 Certificates are offered when, as and if executed and delivered to the Underwriter, subject to the approval of legality by Stradling Yocca p 4 Carlson&Rauth,a Professional Corporation,San Francisco,California Special Counsel,and certain other conditions. Certain legal matters will be passed upon e:, for the Underwriter by Sidley Austin Brown&Wood LLP,Los Angeles,California,and for the District and the Corporation by Porter Simon,Truckee,California, Cd.O ej General Counsel to the District. It is expected that the 2003 Certificates in definitive form will be available for delivery in New York,New York through the DTC book-entry system on or about April 2003. BEAR,STEARNS&CO.INC. o Dated: 12003 *Preliminary,subject to change. SF1 1329861v8 TRUCKEE-DONNER PUBLIC UTILITY DISTRICT Board of Directors Joseph R.Aguera J.Ron Hemig James A.Maass Patricia S.Sutton Nelson Van Gundy District Officials Peter L.Holzmeister,General Manager Stephen Hollabaugh,Assistant General Manager and Electric Utility Manager Raymond Edward Taylor,Water Utility Director Mary Chapman,Administrative Services Manager and Treasurer Kathleen Neus,Support Services Manager Joseph Horvath,District Electrical Engineer TRUCKEE-DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION Board of Directors Joseph R.Aguera J.Ron Hemig James A.Maass Patricia S. Sutton Nelson Van Gundy SPECIAL SERVICES Stradling Yocca Carlson&Rauth, BNY Western Trust Company A Professional Corporation San Francisco,California San Francisco,California Trustee Special Counsel McDonald Partners Porter Simon Alamo,California Truckee,California Financial Advisor District Counsel KPMG LLP Sacramento,California Independent Accountants SF1 1329861v8 TABLE OF CONTENTS Page INTRODUCTION.........................................................................................................................................................3 Purpose................................................................................................................................................................3 TheDistrict..........................................................................................................................................................3 The2003 Certificates..........................................................................................................................................3 Security and Sources of Payment for the 2003 Certificates................................................................................3 RateCovenant.....................................................................................................................................................4 ReserveFund.......................................................................................................................................................4 CertificateInsurance............................................................................................................................................4 ContinuingDisclosure.........................................................................................................................................4 OtherMatters.......................................................................................................................................................4 THETRANSACTION..................................................................................................................................................5 ESTIMATED SOURCES AND USES OF FUNDS.....................................................................................................6 THE 2003 CERTIFICATES..........................................................................................................................................6 General................................................................................................................................................................6 PrepaymentProvisions........................................................................................................................................6 SECURITY AND SOURCES OF PAYMENT FOR THE 2003 CERTIFICATES......................................................8 InstallmentPayments..........................................................................................................................................8 DefinedTerms.....................................................................................................................................................9 Pledgeof Net Revenues....................................................................................................................................10 RateCovenant...................................................................................................................................................10 ReserveFund.....................................................................................................................................................10 Applicationof Revenues...................................................................................................................................11 No Outstanding Parity Obligations...................................................................................................................12 Additional Parity Obligations................................................. Limitationon Remedies....................................................................................................................................12 CERTIFICATEINSURANCE....................................................................................................................................13 ThePolicy.........................................................................................................................................................13 THEDISTRICT..........................................................................................................................................................13 History...............................................................................................................................................................13 Governance........................................................................................................................................................14 Management......................................................................................................................................................15 Employees.........................................................................................................................................................15 Insurance...................................................................................................................:.......................................16 InvestmentPolicy..............................................................................................................................................16 BudgetaryProcess.............................................................................................................................................17 Significant Accounting Policies........................................................................................................................17 THE DISTRICT'S ELECTRIC SYSTEM..................................................................................................................17 General..............................................................................................................................................................17 PowerSupply Resources......................................................................:............................................................18 Interconnections and Distribution Facilities......................................................................................................19 FutureCapital Expenditures..............................................................................................................................20 Ratesand Charges.............................................................................................................................................20 TRUCKEE DONNER PUBLIC UTILITY DISTRICT HISTORY OF ELECTRIC SERVICE CHARGES.............20 Billing and Collection Procedures.....................................................................................................................22 Customers, Sales,Revenues and Demand.........................................................................................................22 LargestCustomers.............................................................................................................................................22 Outstanding Electric System Obligations..........................................................................................................23 Summary of Historical Net Revenues and Balance Sheet Information.............................................................23 DEVELOPMENTS IN THE ENERGY MARKETS..................................................................................................25 M Market Deregulation and the Energy Crisis......................................................................................................25 Effects of Restructuring on the District's Power Supply...................................................................................27 Likely Effects of Restructuring on the District's Future Costs and Power Supply...........................................27 i SF1 1329861v8 OFFICIAL STATEMENT Relating to REVENUE CERTIFICATES OF PARTICIPATION,SERIES 2003 Evidencing the Interests of the Owners Thereof in Installment Payments to be Made by the District TRUCKEE-DONNER PUBLIC UTILITY DISTRICT Series 2003A Taxable Series 2003B INTRODUCTION This Introduction is qualified in its entirety by reference to the more detailed information included and referred to elsewhere in this Official Statement. The offering of the 2003 Certificates to potential investors is made only by means of the entire Official Statement. Terms used in this Introduction and not otherwise defined shall have the respective meanings assigned to them elsewhere in this Official Statement. See "APPENDIX E—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—CERTAIN DEFINITIONS"herein. Purpose The purpose of this Official Statement(which includes the cover page and the appendices attached hereto) is to provide certain information concerning the sale and delivery of$ * aggregate principal amount of Revenue Certificates of Participation, Series 2003A(the"2003A Certificates")and$ * aggregate principal amount of Revenue Certificates of Participation, Taxable Series 2003B (the "200313 Certificates" and collectively with the 2003A Certificates,the"2003 Certificates"). The 2003 Certificates evidence the interests of the registered owners (the "Owners") thereof in Series A Installment Payments and Series B Installment Payments (collectively, the "Installment Payments") to be made by the Truckee-Donner Public Utility District (the "District") under the terms of an Installment Purchase Agreement, dated as of 1, 2003 (the "Installment Purchase Agreement"), between the District and the Truckee-Donner Public Utility District Financing Corporation (the "Corporation"). The District has sold certain assets and facilities comprising its Electric System to the Corporation pursuant to the Installment Purchase Agreement to be purchased back by the District from the Corporation in accordance with the terms thereof. The District The District is a public utility district, formed in 1927, pursuant to the Public Utility District Act of the State of California (being Division 7 of the Public Utilities Code of the State) (the "Act"). The District provides water and electric service within its boundaries, an area of approximately 45.5 square miles, located in the Sierra Nevada Mountains. See"THE DISTRICT"herein. The 2003 Certificates The 2003 Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of , 2003 (the"Trust Agreement"),by and among the District,the Corporation and BNY Western Trust Company, as trustee thereunder(the "Trustee"). The 2003 Certificates are being sold to provide funds (i)to pay a termination payment to be made by the District in connection with the termination of a power purchase agreement (see "THE TRANSACTION" herein), (ii)to fund a deposit to a reserve fund for the 2003 Certificates, and(iii)to pay costs of delivery of the 2003 Certificates. See"ESTIMATED SOURCES AND USES OF FUNDS"herein. Security and Sources of Payment for the 2003 Certificates The obligation of the District to make the Installment Payments pursuant to the Installment Purchase Agreement is a special obligation payable solely from and secured solely by Net Revenues of the District's Electric System. The District may incur additional obligations payable from and secured by the Net Revenues of the Electric SF1 1329861v8 Copies of the Trust Agreement and the Installment Purchase Agreement are available for inspection at the offices of the District in Truckee, California, and will be available from the Trustee upon request and payment of duplication costs. THE TRANSACTION The 2003 Certificates are being executed and delivered to provide funds(i)to pay a termination payment to be made by the District in connection with the termination of a power purchase agreement, (ii)to fund a deposit to the Reserve Fund for the 2003 Certificates,and(iii)to pay costs of delivery of the 2003 Certificates. Effective July 1, 1997, the District entered into an Agreement for the Sale and Purchase of Firm Capacity and Energy (the "Original Agreement") with Idaho Power Company ("Idaho Power"). During the period January 1999 through March 2001, the District entered into a series of amendments to the Original Agreement and certain transactions thereunder, including transactions which were assigned to IDACORP Energy L.P. (collectively, the"Prior Agreements")providing for the delivery of a block of 25 MW of power through December 31,2009. The Prior Agreements were executed by the District in order to assure the District an adequate supply of energy to satisfy the expected load requirement of the Electric System,in light of the then existing conditions in the California energy markets, as well as to provide certain surplus power to be sold into the market. See "DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS"herein. In 2002, certain disputes regarding the Prior Agreements arose between the District and IDACORP Energy L.P.,resulting in litigation(judicial and regulatory proceedings)between the parties. Effective January 3,2003,the District, Idaho Power and IDACORP Energy L.P. entered into a Mutual Release and Settlement Agreement (the "Settlement Agreement")in order to settle and resolve all claims against each other relating to the Prior Agreements, which claims have all been dismissed as of the date hereof. Pursuant to the Settlement Agreement, IDACORP Energy L.P. agreed to terminate the Prior Agreements effective January 3, 2003 and the District agreed to make payment to IDACORP Energy L.P. (or its designee) of a termination payment evidenced by a promissory note of the District (the "Settlement Obligation") in connection therewith. A portion of the proceeds of the 2003 Certificates will be applied to satisfy the District's obligation to pay the Settlement Obligation pursuant to the Settlement Agreement. Concurrent with the negotiation of the Settlement Agreement, IDACORP Energy L.P. and the District additionally agreed to the terms of an Interim Power Supply Agreement for the delivery of energy to the District through March 31,2003. See"THE ELECTRIC SYSTEM—Power Supply Resources"herein. 5 SF1 1329861v8 Extraordinary Prepayment The 2003 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 and by lot within each maturity,in integral multiples of$5,000, from prepaid Installment Payments made by the District from the proceeds of casualty insurance and condemnation awards remaining after payment of all expenses incurred in the collection of such proceeds ("Net Proceeds"), at a prepayment price equal to the principal amount thereof plus accrued interest evidenced thereby to the date fixed for prepayment,without premium. Notice of Prepayment Notice of prepayment shall be mailed, first class postage prepaid, to the respective Owners of any 2003 Certificates designated for prepayment at their addresses appearing on the registration books required to be maintained by the Trustee for the 2003 Certificates 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 2003 Certificates of any such maturity are to be prepaid,the serial numbers of the 2003 Certificates of such maturity to be prepaid by giving the individual number of each 2003 Certificate or by stating that all 2003 Certificates between two stated numbers,both inclusive,have been called for prepayment and,in the case of 2003 Certificates to be prepaid in part only, the portions thereof to be prepaid. Each such notice shall also state that on said date there will become due and payable on each of said 2003 Certificates the prepayment price thereof or of said specified portion of the principal represented thereby in the case of a 2003 Certificate to be prepaid in part only,together with interest accrued 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 2003 Certificates be then surrendered to the Trustee. Any defect in the notice or the mailing thereof will not affect the validity of the prepayment of any 2003 Certificate. Unless the book-entry only system shall have been discontinued, the Corporation, the District and the Trustee will recognize only DTC or its nominee as an Owner. Conveyance of notices and other communications by DTC to DTC Participants and by DTC Participants to beneficial owners will be governed by arrangements between them,subject to any statutory and regulatory requirements as may be in effect from time to time. Selection of 2003 Certificates for Prepayment Whenever less than all of the Outstanding 2003 Certificates of any Series are called for prepayment, the Trustee shall select the 2003 Certificates of such Series or portions thereof to be prepaid as described under "Extraordinary Prepayment"above and in a manner which the Trustee deems to be fair. Effect of Prepayment When notice of prepayment has been duly given as aforesaid, and moneys for the payment of the prepayment price of,together with interest accrued to the prepayment date with respect to,the 2003 Certificates(or portions thereof) so called for prepayment are held by the Trustee, the 2003 Certificates (or portions thereof) so called for prepayment shall, on the prepayment date designated in such notice, become due and payable, and from and after the prepayment date so designated, interest represented by the 2003 Certificates so called for prepayment shall cease to accrue, such 2003 Certificates(or portions thereof) shall cease to be entitled to any benefit or security under the Trust Agreement, and the Owners of such 2003 Certificates shall have no rights in respect thereof except to receive payment of the prepayment price thereof and accrued interest. 7 SF1 1329861A Defined Terms Set forth below are definitions of certain terms as provided pursuant to the Trust Agreement and the Installment Purchase Agreement and used herein. For definitions of additional terms used in the Installment Purchase Agreement and the Trust Agreement, see "APPENDIX E—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—CERTAIN DEFINITIONS"herein. "Adjusted Net Revenues" is defined to mean, for any Fiscal Year, the Adjusted Revenues for such Fiscal Year less the Operation and Maintenance Costs for such Fiscal Year. "Adjusted Revenues" is defined to mean, for any Fiscal Year, the Revenues during such Fiscal Year, less, for purposes of determining compliance with the District's Rate Covenant set forth in the Installment Purchase Agreement and conditions for the execution of Bonds or Contracts, any Payment Agreement Receipts taken into account in calculating Debt Service pursuant to the definition thereof, plus, for the purposes of determining compliance with the District's Rate Covenant set forth in the Installment Purchase Agreement, the amounts which the District has authorized to be deposited in the Revenue Fund from the Rate Stabilization Fund not later than days following the end of such Fiscal Year or twelve-moth period to pay Operation and Maintenance Costs and/or Debt Service. "Bonds" is defined to mean all bonds, notes or similar obligations (but not including Contracts) of the District, the principal of and interest on which are payable from Net Revenues on a parity with the Installment Payments. "Contracts" is defined to mean, the Installment Purchase Agreement and all contracts of the District the installment payments under which are payable from Net Revenues on a parity with the obligations of the District to make payments under the Installment Purchase Agreement excluding contracts entered into for operation and maintenance of the Electric System. "Electric System"is defined to mean all properties and assets,real and personal,tangible and intangible,of the District now or hereafter existing, used or pertaining to the acquisition, transmission, distribution and sale of electricity, including all additions, extensions, expansions, improvements and betterments thereto; provided, however, that to the extent the District is not the sole owner of an asset or property or to the extent that an asset or property is used in part for the above described purposes, only the District's ownership interest in such asset or property or only the part of the asset or property so used for such purposes shall be considered to be part of the Electric System. "Net Revenues" is defined to mean, for any Fiscal Year, the Revenues for such Fiscal Year less the Operation and Maintenance Costs for such Fiscal Year. "Operation and Maintenance Costs" is defined to mean (1)costs spent or incurred for maintenance and operation of the Electric System calculated in accordance with generally accepted accounting principles, including (among other things) Purchased Power Costs, fuel expenses, the expenses of management and repair and other expenses necessary to maintain and preserve the Electric System in good repair and working order, and including administrative costs of the District, salaries and wages of employees, payments to the retirement system for the District employees, overhead, insurance, taxes (if any), fees of auditors, accountants, attorneys or engineers and insurance premiums, and (2)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 the Installment Purchase Agreement or any other Contract or of any resolution or indenture authorizing the issuance of any Bonds or of such Bonds,but excluding in all cases(a)depreciation, replacement and obsolescence charges or reserves therefor, (b)amortization of intangibles or other bookkeeping entries of a similar nature, (c)costs of capital additions,replacements,betterments,extensions or improvements to the Electric System which under generally accepted accounting principles are chargeable to a capital account or to a reserve for depreciation,and(d)charges for the payment of Bonds or Contracts. "Purchased Power Costs" is defined to mean (1)costs associated with any power purchase contract for capacity and/or energy, (2)all costs associated with the transmission of energy to the District's Electric System, 9 SF1 1329861A 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 2003 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 market value. The District may substitute a municipal bond debt service reserve fund policy or a surety bond or a letter of credit (a "Reserve Insurance Policy") for money or substitute money for any Reserve Insurance Policy held by the Trustee in the Reserve Fund; provided,that(i)in the case of a municipal bond debt service reserve fund policy or a surety bond, bonds which are insured by the issuer thereof are rated in the highest rating category by Standard& Poor's Ratings Group and Moody's Investors Service(collectively,the"Rating Agencies"),or,in the case of a letter of credit, the unsecured debt obligations of the issuing bank thereof are rated in the highest short-term rating category by the Rating Agencies; (ii)the sum of the money and face amount of any Reserve Insurance Policy in effect after such substitution will be equal to the Reserve Requirement; and (iii)in the case of the substitution of a new Reserve Insurance Policy for money or an existing Reserve Insurance Policy,the Trustee receives an opinion of Special Counsel to the effect that such substitution will not adversely affect the exclusion from gross income for federal income tax purposes of interest with respect to the 2003 Certificates. Application of Revenues The District agrees and covenants in the Installment Purchase Agreement that all Revenues it receives will be deposited when and as received in the Revenue Fund,which the District established and which the District agrees to maintain separate and apart from other moneys of the District so long as any Contracts or Bonds remain unpaid, and all money on deposit in the Revenue Fund shall be applied and used only as provided in the Installment Purchase Agreement. The Installment Purchase Agreement provides that the District is to 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) from the Revenue Fund as they become due and payable and all remaining money in the Electric Revenue Fund shall be set aside and deposited by the District at the following times in the following order of priority: (a) Installment Payments. Not later than the fifth day prior to each Interest Payment Date(an . "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. Not later than each Parity Installment Payment Date, the District shall, from moneys in the Revenue Fund, transfer to the applicable trustee the Parity Installment Payment due and payable on that Parity 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, transfer 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 the Installment Purchase 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 the Trust Agreement. (c) Surplus. Moneys on deposit in the Revenue Fund on each Installment Payment Date not necessary to make any of the payments described above may be expended by the District at any time for any purpose permitted by law. 11 SF1 1329861A CERTIFICATE INSURANCE The following information has been furnished by the Insurer for use in this Official Statement. Such information has not been independently confirmed or verified by the District. No representation is made herein by the District as to the accuracy or adequacy of such information subsequent to the date hereof, or that the information contained and incorporated herein by reference is correct. Reference is made to Appendix H for a specimen of the Insurer's financial guaranty insurance policy(the "Policy'). The Policy [To Come] THE DISTRICT History The District was formed in 1927,pursuant to the Act. The District has the powers under the Act to,among other things, provide water service and engage in the transmission, distribution, sale and delivery of electric power and energy. Headquartered in Truckee, California, 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. Its boundaries are comprised of approximately 44 square miles in eastern Nevada County, California and approximately 1.5 square miles of adjacent Placer County,California. The District's service area includes the Town of Truckee. Incorporated in 1993, the Town of Truckee was originally established in 1862 and became an important location on the Central Pacific Railroad,forming the first transcontinental railroad in 1869. The District is owned and controlled by registered voters residing in the area. The District was formed following a five-year drought as a result of which the Truckee River flow was insufficient to turn the water wheel for Truckee Electric Company's private generator and area voters petitioned for the formation of a special public utility district. Thereafter, the.District was able to buy power from the downstream generators of Sierra Pacific Power Company,a more reliable power supply,and sell it to local residents. For the first 20 years of operation,the District,with a staff of four part-time employees,served a few dozen houses and shops in the downtown area, while Sierra Pacific Power Company maintained the electric lines on a contract basis. In the 1940's, as the community grew,the District bought some of the private water companies that provided the town with fresh water from underground springs. The land, acquired with the springs, was sold for development,and the proceeds were used to drill wells,install more power lines and hire maintenance crews. In the 1960's, the District expanded its services, provided public school sites and helped to develop organized recreation for the community by building a golf course, now known as the Ponderosa Golf Course. The golf course was later sold to a private party, and residents voted to form a separate recreation and park district. During this time, the District built the Truckee substation, purchased Donner Lake distribution facilities from Sierra Pacific Power Company and expanded its electric system. In the 1980's, the District expanded its service area to include Tahoe Donner and Hirschdale, developed a water master plan, adopted an electric master plan and implemented many electric and water improvements. In the 1990's, the District acquired transmission access, enabling it to purchase power on the open market. In 2000 and 2001,the District water service area grew to include Glenshire and Donner Lake. At the east end of Donner Pass,the Town of Truckee has remained an important transportation center as the gateway to the mountain pass leading to the west and San Francisco. The Town of Truckee's close proximity to surrounding ski areas and Lake Tahoe resorts has made it a growing center of tourism as well. It is currently 13 SF1 1329861v8 Signshine for the Hearing Impaired, Donner Lake Village Home Owner's Association, Truckee Donner Railroad Society and has been involved in various musical and community activities. Management The management of the District is under the direction of Mr.Peter L. Holzmeister, General Manager,who serves at the discretion of the Board. The following are members of the District's management staff and their background. PETER L.HOLZMEISTER,was named General Manager in April 1984. He received a Bachelor's Degree from Fairfield University and a Masters Degree in Public Administration from the University of Hartford. Prior to joining the District, Mr.Holzmeister was Municipal Services Consultant with the Connecticut Public Expenditure council, Assistant Town Manager of Wilmington, Massachusetts and City Manager of Grove City, Pennsylvania. He is active in the Truckee Rotary Club and serves on the board of Governors of the California Municipal Utilities Association. STEPHEN HOLLABAUGH, Assistant General Manager and Electric Utility Manager,joined the District in April 1994 as District Electrical Engineer. Mr.l-1ollabaugh received a Bachelor of Science degree in Electrical Engineering from California Polytechnic State University in 1985 after which he was employed by the Pacific Gas and Electric Company for nine years. He is a registered professional electrical engineer in the State of California. Since 1996, his duties at the District included development of Truckee's power supply and transmission arrangements. In addition, he held increasingly responsible positions in electric operations, distribution facilities and power supply resources. In 1997, Mr.Hollabaugh was promoted to Power Supply Engineer, and in September 2000,he was named Assistant General Manager and Electric Utility Manager. RAYMOND EDWARD TAYLOR, Water Utility Director, has been with the District since March 1997. Mr.Taylor has had twenty-six years of public works management experience. He is licensed in California, Ohio and Colorado for water treatment and water system operations. He prepares budgets and capital improvement plans for review of the General Manager. He develops methods and procedures for efficient operation, sets departmental goals and review progress of those engaged in water system operations,repairs,maintenance and new construction. MARY CHAPMAN, Administrative Services Manager and Treasurer, was hired by the District in 1974 as the District's bookkeeper. She was promoted to Office Manager in 1978. Ms. Chapman was later appointed to the position of Administrative Services Manager and District Treasurer. She has been responsible for the District's accounting system for most of the period from 1974 to present. Ms. Chapman received her Bachelor of Arts degree in General Studies with an emphasis in business management from the University of Nevada,Reno. She is an active member and current treasurer of the Soroptimist International of Truckee Donner. KATHLEEN NEUS, Support Services Manager,was hired by the District in April 1989 as a meter reader, worked on the water crew for one year and was promoted to her current position of Support Services Manager in 199_. She is responsible for management of the District's building and grounds, vehicles, purchasing and warehousing. Ms.Neus is continuing her education in mechanical engineering at University of Nevada, Reno. She was past president of Soroptimist International of Truckee Donner and is a current active member. JOSEPH HORVATH, District Electrical Engineer, has been with the District since December 1997. Mr.Horvath designs primary line extensions, prepares construction standards and equipment specifications, and supervises the preparation of design drawings and construction cost estimates. Mr.Horvath received a Bachelor of Science in Electrical Engineering degree from the University of Washington in 1984 and is a registered professional engineer. Prior to joining th%District,he was a senior engineer for eleven years at the Seattle office of R.W.Beck,a consulting engineering firm. Employees As of December 31, 2002, the District had 57 full-time employees (of which 33 were assigned to the Electric System). All of the non-management/exempt District personnel are represented by the International 15 SF1 1329861v8 therefore,that the State of California law and/or the Investment Policy will not be amended in the future to allow for investments which are currently not permitted under such State law or the Investment Policy, or that the objectives of the District with respect to investments will not change. All investments, including the Permitted Investments and those authorized by law from time to time for investments by public agencies, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the Trust Agreement and Installment Purchase Agreement, or other amounts held by the District, could have a material adverse effect on the District's finances. Budgetary Process The District's operating budget, in the form of a one-year financial plan, is adopted in its entirety by the Board of Directors. The budgetary process begins each year by Labor Day,with a first draft presented to the Board of Directors in November. The final budget is adopted in December, to take effect on January 1 of each calendar year. Significant Accounting Policies The District's annual financial statements for the Fiscal Years ended December 31, 2001 and 2000 were audited by Arthur Anderson LLP in accordance with generally accepted auditing standards as set forth in their report thereon. The report includes certain notes to the financial statements. Such notes constitute an integral part of the audited financial statements. See "APPENDIX A—AUDITED FINANCIAL STATEMENTS OF THE DISTRICT AS OF DECEMBER 31,2001 AND 2000"herein. No review or investigation with respect to subsequent events has been undertaken by Arthur Anderson LLP in connection with such financial statements. The District has not obtained Arthur Anderson LLP's consent to include the attached financial statements in this Official Statement. Unaudited financial statements of the District for the Fiscal Year ended December 31,2002 are attached as APPENDIX B hereto. Beginning with the Fiscal Year ended December 31,2002,the District's financial statements will be audited by KPMG LLP. Copies of these reports when available can be obtained upon request to the District's Administrative Services Manager and Treasurer, Truckee-Donner Public Utility District, P.O. Box 309, Truckee, California 96160. The accounting policies of the District conform to generally accepted accounting principles (GAAP). The accounting treatment of the Settlement Obligation incurred in connection with the termination of the Prior Agreement for the District's power supply, as described under "THE TRANSACTION" above, materially adversely impacted the District's financial results for the Fiscal Year ended December 31, 2002. See "THE DISTRICT'S ELECTRIC SYSTEM — Summary of Historical Net Revenues and Balance Sheet Information—Management's Discussion of Operating Results"herein. THE DISTRICT'S ELECTRIC SYSTEM General The District's service area is comprised of approximately 44 square miles in eastern Nevada County and approximately 1.5 square miles in adjacent Placer County. The Electric System serves the entire area of the District and has more than 157 miles of 12.47 kV distribution lines, including about 21 miles of underground distribution cables. The District is a transmission-dependent utility located within the control area of Sierra Pacific Power Company(hereinafter"Sierra Pacific"),and is not interconnected with any utility other than Sierra Pacific. During the Fiscal Year ended December 31,2002,the Electric System served 11,697 customers,comprised _ of 10,424 residential customers, and 1,273 commercial and other customers. During such period, the Electric System supplied 126,878,783 kWh of energy and had a peak demand of 30,245 kW. 17 SF1 1329861v8 Future Power Supply Resources Western Contract. On October 27,2000,the District signed a 20-year agreement(the"Western Contract") with Western Area Power Administration ("Western") for the purchase of hydroelectricity from the Central Valley Project ("CVP"). The CVP, for which Western serves as marketing agency, is a series of federal hydroelectric facilities in Northern California operated by the United States Bureau of Reclamation. Service under the Western Contract will begin on January 1,2005 and continue through December 31,2024,with the District receiving a"slice of the system" allocation from Western. The District's allocation is 0.220% of the CVP output. Under current projections, this is expected to equate to a base resource during normal hydrologic years of 2.20 MW, and ranging from 1.10 MW during a dry year to 3.30 MW during a wet year depending upon the hydrology of the CVP. Western has not yet announced pricing for CVP output under this contract but it will be cost-based. Power provided to the District under the Western Contract will be on a take-or-pay basis; the District is obligated to pay its share of Western costs whether or not it uses its full entitlement under the Western Contract. The combination of the amounts to be purchased under the Power Purchase Agreement and the Western Contract is expected to provide the District with sufficient capacity resources through December 31,2007. These resources will accommodate the projected growth in the District's load of 2%per year. The District plans to evaluate new generation resources that UAMPS and NCPA are currently investigating to meet some, or all of its long-term resource needs. The cost of meeting the District's energy requirements will vary depending on such factors as the availability of generating resources in the region,cost of fuel and weather conditions. Transmission Service and Dispatch/Scheduling Arrangements Sierra Pacific Transmission Service Agreement. In September 1999, the District entered into a service agreement for network integration transmission service (the "Sierra Pacific Transmission Service Agreement")with .Sierra Pacific. Pursuant to the Sierra Pacific Transmission Service Agreement, Sierra Pacific grants the District import rights into Sierra Pacific's transmission control area and transmission service within the Sierra Pacific transmission control area for the District's full load requirements through December 31, 2027 at FERC=approved tariff rates. Delivery of power under the IDACorp Interim Power Supply Agreement is made to the District within the Sierra Pacific control area and transmitted to the District pursuant to the Sierra Pacific Transmission Service Agreement. [The Sierra Pacific Transmission Service Agreement will be modified to accommodate the delivery of power under the Power Purchase Agreement at the delivery points to be specified by the District.] NCPA.Dispatch and Scheduling Services. The District has executed a letter of agreement for dispatch and scheduling services with NCPA. Pursuant to the letter agreement, NCPA provides pre-scheduling and real-time scheduling services to the District for all of the Districts power deliveries. Interconnections and Distribution Facilities The District's Electric System is interconnected with the system of Sierra Pacific at five locations (four substations and one distribution meter at various voltages (one at 120kV, three at 60kV and one at 14.4kV). The District owns facilities for the distribution of electric power within the service area of the District,which consist of four substations and approximately 157 miles of 12.47 kV distribution lines, including about 21 miles of underground distribution cables. 19 SF1 1329861v8 Beginning in January 1998,the District credited back to electric customers an 11%wholesale energy credit reflecting the refund to its customers of the savings obtained by the District as a result of its ability to reduce its power supply costs after obtaining transmission access to additional markets. In January 2000, this credit was eliminated from customers billings. See "DEVELOPMENTS IN THE ENERGY MARKETS — Effects of Restructuring on the District's Power Supply"herein. AB 1890 requires that the District spend approximately 2.85% of gross operating revenues per year on public benefit programs. It is the policy of the District that a public benefits program be developed each year as part of the annual operating budget. Each element of the program is designed to promote one or more of the following benefits: energy conservation; the use of renewable energy resources; research, development or demonstration of a new electric energy technology;or assistance to low-income persons. In addition to the electric rates described above, the District also imposes standby charges, connection charges and facilities fees. Standby Charges. Any local agency which is authorized by law to provide electric 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 electric services are available,whether or not the services are actually used. Since 1975, the District has levied a standby charge for the availability of electric service to undeveloped property. The annual standby charge for electric service is $10.00 per parcel for parcels less than one acre and$20.00 per parcel for parcels one acre or larger. Standby charges are accounted for as Revenues of the Electric System when billed. Connection Charges. The District imposes a connection charge based on the actual cost of connecting new service lines to the Electric System. The connection charges do not constitute the Revenues of the Electric System. They are applied to pay the District's capital costs in making such connection. Facilities Fees. Each new electric service customer of the District is charged a facilities fee. The facilities fee is made by the District to cover the pro rata share of the cost of any expansions or additions to the Electric System which are required to serve the additional demand. The cost of future 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 fees constitute Revenues of the Electric System (in the form of contributed capital) during the year in which they are collected. The following table lists the current Electric System connection charges and facilities fees. Connection Size and Type of Service Charge Facilities Fee Three Wire Overhead -Temporary Actual Cost -Permanent connection to structure $1,100 $200 -Temporary connection to pole and transfer to structure $1,350 Three Wire Underground(overhead transformer) -Permanent connection to structure $1,100 $200 -Temporary connection to pole and transfer to structure $1,350 Three Wire Underground(padmount transformer) -Permanent connection to structure $1,100 $200 -Temporary connection to pole and transfer to structure $1,350 21 SF1 1329861v8 TRUCKEE-DONNER PUBLIC UTILITY DISTRICT Largest Electric Customers (as of December 31,2002) 12 Months Customer Type of Business kWh Sold Electrical Billings District Water Departmed1)(2) Water Utility 10,590,125 $1,086,928 Tahoe Truckee Sanitation Agency(2) Sewer Plant 5,492,416 504,224 Tahoe Forest Hospital(2) Hospital 3,590,115 348,649 Safeway Stores,Inc. Grocery Store 2,247,000 200,238 Teichert&Son Aggregate Plant 2,207,700 277,006 (1) Represents pumping charges incurred by District water system. (2) Denotes customer with multiple meters and service locations. The kWh sold and electrical billings are a sum of all of customer's meter locations. Source: Truckee-Donner Public Utility District. Outstanding Electric System Obligations As of December 31,2002, the District had outstanding $2,030,000 principal amount of Refunding Certificates of Participation(Headquarters Complex Project)(the"1993 Electric Certificates"). The lease payments represented by the 1993 Electric Certificates were payable from Net Revenues of the District's Electric System. On March 3,2003, the District prepaid the outstanding 1993 Electric Certificates from available funds of the District. As of the date hereof,the District has no outstanding long-term indebtedness payable from revenues of the Electric System. Summary of Historical Net Revenues and Balance Sheet Information A summary of Net Revenues of the District's Electric System.for the five Fiscal Years ended December 31, 1998 through December 31, 2002 is shown in the following table. The Net Revenues shown in the following table have been calculated in accordance with the terms of the Installment Purchase Agreement. Also included in the table is selected balance sheet information as of December 31, 2002 and the four prior year-ends. The financial results for the Fiscal Years ended December 31, 1998 through 2001 were prepared by the District from audited annual financial reports. The financial results for the Fiscal Year ended December 31, 2002 were prepared by the District on the basis of unaudited financial information. 23 SF1 1329861v8 Management's Discussion of Operating Results. The District's Electric System operating results for the Fiscal Year ended December 31,2002 were substantially affected by lingering effects of the California power crisis. The District's Electric System posted a loss in 2002 of$27,353,737,compared to a gain in 2001 of$2,728,868. During 2001, the District determined that the wholesale power market turmoil would have a negative impact on its operations going forward. In March 2001 the District entered into a fixed price contract with IDACORP Energy to hedge future power costs and began to implement a series of rate increases. The rate increases were intended to improve cash flow through 2002 and to achieve a more stable position in 2003. The first rate increase occurred in August 2001. This rate increase, coupled with a very favorable wholesale power contract in 2001, allowed the District to deposit$1,806,491 into a Rate Stabilization Fund for use in 2002. The District ended 2001, an extraordinary year in western power markets,with the operating gain of$2.7 million. In Fiscal Year 2002,.the District increased retail rates in January, February and December. Funds in the amount of $2,024,062 were transferred from the Rate Stabilization Fund to the electric general fund to pay for operations. In 2002, the District experiences an increase in operation and maintenance costs of$473,721. The 31.5% increase was primarily due to the cost of restoring power service lost during two major snowstorms in December. The District recorded an operating loss of$1.35 million, prior to adjustments for extraordinary losses associated with the termination of the power contract,in 2002. In 2002, the District negotiated the Settlement Agreement and the termination of the existing wholesale power supply arrangement with Idaho Power and IDACORP Energy L.P. (see "THE TRANSACTION" herein) to mitigate the negative impact the Prior Agreements were anticipated to have on the District's finances between 2003 and 2009 In early December 2002,the District agreed to pay the$26 million Settlement Obligation to terminate the contract. As a result,the District was required to record an incremental$26 million cost for purchased power in the Fiscal Year 2002. The expense was a non-cash item in Fiscal Year 2002 (and is not reflected in the table above)and will be paid out of the proceeds of the 2003 Certificates. On March_ 2003, the District executed a new power supply contract that the District believes will better fit the District's load requirements and minimize market exposure through 2007. District management believes the District's operating results in 2003 and beyond will return to.greater stability and further operating losses are not expected. DEVELOPMENTS IN THE ENERGY MARKETS Market Deregulation and the Energy Crisis Background. Following FERC actions in the 1990s to allow suppliers of wholesale electric generation services to make sales of capacity and energy at negotiated "market-based" rates and the enactment by FERC (in 1996) of Order No. 888 requiring the provision of open access transmission services on a non-discriminatory basis by jurisdictional utilities (which, by definition, does not include municipal entities like the District), the State of California attempted to establish a more competitive electric energy market. By September 1996, State Legislative Assembly Bill 1890 ("AB 1890") had become effective, which established a framework for the deregulation of the California electric energy market. AB 1890 mandated the organization of an Independent System Operator, or "ISO", to regulate non-discriminatory access to transmission facilities, consistent with FERC-approved tariffs, and an independent power exchange, or "PX," to provide a spot market for the purchase of output of the IOUs' generating assets and for the sale of electricity to meet the IOU's power requirements. Although AB 1890 applied primarily to the California IOUs, municipal utilities were encouraged to participate in the competitive framework by gradually providing open access to competitive energy providers. In mid-2000, wholesale electricity prices in California began to rise, swiftly and dramatically. Retail electricity rates permitted to be charged by the three major IOUs in California, Pacific Gas& Electric Company ("PG&E"), San Diego Gas&Electric Co. ("SDG&E") and Southern California Edison("Edison"), at the time were frozen by California law (pursuant to provisions of AB 1890). Although SDG&E satisfied the statutory condition which permitted it to "unfreeze" its rates, PG&E and Edison continued to be subject to the rate freeze and their 25 SF1 1329861v8 On January 16, 2003,the Administrative Law Judge issued a decision on the standard of review to be applied to the remaining contracts and certified the record to FERC for a decision on the remaining issues. Effects of Restructuring on the District's Power Supply Although the District is located in California, it is not part of the California electric grid or market. The District is within the transmission service area of Sierra Pacific Power Company ("Sierra Pacific"), which covers much of northern Nevada and a small portion of California in the Lake Tahoe area. The District is not interconnected with any other utility besides Sierra Pacific. Sierra Pacific's control area is recognized as a "load pocket." The generation resources within the Sierra Pacific control area are insufficient to meet the total load within the control area, and the ability to serve load within the control area from generating resources located outside of it (which are generally lower-priced than those located within it) is severely limited by transmission import constraints. As discussed herein (see "THE TRANSACTION"), for many years before July 1, 1997, the District purchased its full power and energy requirements from Sierra Pacific while attempting to get transmission access to be able to reach outside suppliers. In July 1997,the District entered into the Original Agreement with Idaho Power. The rates for such service were based each month on market prices reflected in the Mid-Columbia Index, plus an adder; however, the District also had the right to switch from the indexed energy rate to a fixed energy rate from time to time for periods of its choosing. For the first year and a half of the three-year contract term, Sierra's refusal to allow the District to use more than a load-ratio share (4 MW) of Sierra's import capacity prevented the District from obtaining the full benefits of the Original Agreement. The District finally succeeded in getting import capacity sufficient to meet its entire load in late 1998,as the result of a settlement with Sierra Pacific. When the District began purchasing its full requirements from Idaho Power in the late 1990s, the restructured wholesale markets in California and throughout the West were in their relatively early development stages. Generating capacity was ample, and the ready availability of low-cost hydroelectric power in particular led to favorable wholesale market prices in the region and on the Mid-Columbia Index specifically. The District's ability to obtain a power supply priced on the basis of this competitive market resulted in significant savings to the District by comparison to continued purchases from generation within the Sierra Pacific load pocket. The District used the resulting savings to provide a refund to its customers (see "THE ELECTRIC SYSTEM—Rates and Charges"above)and to build up rate stabilization funds. As described above, in mid-2000, wholesale electricity prices in California began to rise dramatically, and the market disruptions in California soon spread throughout the region. Massive price volatility and sustained price increases, in both spot and forward markets throughout California and the northwestern United States, and in particular the Mid Columbia Index,lasted well into 2001. The District's prices under its existing agreement with Idaho Power increased significantly as market prices rose. Moreover, the District was faced with the prospect of having to acquire future capacity and energy supplies in a drastically volatile, high-priced market. As a result, in March 2001, the District sought to hedge its exposure to such market forces and entered into the additional Prior Agreements with Idaho Power that have now been terminated(see"THE TRANSACTION"). In late 2000, FERC took initial steps to address the spiraling cost of energy in the California markets, but its initial orders were largely ineffective to curb prices in California. Further, FERC expressly denied requests to impose mitigation measures for markets outside California, leaving those markets unconstrained. Subsequent to the District's execution of the Prior Agreements,FERC did order and implement effective cost-based price mitigation in the spot electricity markets for California and the rest of the Western Systems Coordinating Council (as described under"FERC Price Mitigation and Other FERC Actions"above). This action significantly reduced both spot power and long-term prices in the western United States beginning in June 2001. Likely Effects of Restructuring on the District's Future Costs and Power Supply Through the Settlement Agreement with Idaho Power, the District has attempted to mitigate the effects on its customers of the 2000-2001 market dysfunctions. In addition, the District is in the process of developing new power-supply arrangements, which it will attempt to structure in a manner that will reasonably protect the District against adverse market influences. (See "THE DISTRICT'S ELECTRIC SYSTEM—Power Supply Resources- 27 SF1 1329861v8 transmitting less expensive electricity from much greater distances over an interconnected system)and new methods of, and new facilities for, producing low-cost electricity, (e)the proposed repeal of certain federal statutes that would have the effect of increasing the competitiveness of many IOUs, (f)increased competition from independent power producers and marketers,brokers and federal power marketing agencies, (g)"self-generation"or"distributed generation" (such as microturbines and fuel cells) by industrial and commercial customers and others, (h)issues relating to the ability to issue tax-exempt obligations, including severe restrictions on the ability to sell to nongovernmental entities electricity from generation projects and transmission service from transmission line projects financed with outstanding tax-exempt obligations, (i)effects of inflation on the operating and maintenance costs of an electric utility and its facilities,0)changes from projected future load requirements,(k)increases in costs and uncertain availability of capital, (1)shifts in the availability and relative costs of different fuels (including the cost of natural gas),(m)sudden and dramatic increases in the price of energy purchased on the open market that may occur in times of high peak demand in an area of the country experiencing such high peak demand, such as has occurred in California, (n)inadequate risk management procedures and practices with respect to, among other things, the purchase and sale of energy and transmission capacity, (o)other legislative changes, voter initiatives, referenda and statewide propositions, (p)effects of changes in the economy, (q)effects of the filing by Enron Corporation for bankruptcy protection under Chapter 11 of the federal Bankruptcy Code and(r)effects of possible manipulation of electric markets. Any of these factors(as well as other factors)could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways. The District cannot predict what effects such factors will have on the business operations and financial condition of the District, but the effects could be significant. The foregoing is a brief discussion of certain of these factors. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof. Extensive information on the electric utility industry is, and will be, available from the legislative and regulatory bodies and other sources in the public domain, and potential purchasers of the 2003 Certificates should obtain and review such information. RATE REGULATION The District sets rates, fees and charges for electric service provided at retail within its boundaries. The authority of the District to impose and collect rates and charges for electric power and energy sold and delivered at retail within its city boundaries is not subject to the general regulatory jurisdiction of the CPUC. Currently neither the CPUC nor any other regulatory authority of the State of California nor FERC reviews such rates and charges. It is possible that future Constitutional, legislative, and/or regulatory changes could subject such rates and/or service area of the District to the jurisdiction of the CPUC or to other limitations or requirements under Federal or state law. The California Energy Commission is authorized to evaluate rate policies for electric energy as related to the goals of the Energy Resources Conservation and Development Act and to make recommendations to the Governor,the Legislature and publicly owned electric utilities. CONTINUING DISCLOSURE The District has agreed pursuant to a Continuing Disclosure Agreement, between the District and the Trustee, to provide certain financial information and operating data relating to the District by not later than six months following the end of the District's Fiscal Year,which Fiscal Year presently ends December 31 (the"Annual Report"), commencing with the Annual Report for the Fiscal Year ended December 31, 2003 (provided, however that the District will provide the audited financial statements of the District for the Fiscal Year ended December 31, 2002 within 30 business days after such audited financial statements are available), and to provide notices of the occurrence of certain enumerated events, if material, under federal securities law. The Annual Report will be filed by the Trustee, as Dissemination Agent on behalf of the District, with each nationally recognized municipal securities information repository and with the appropriate State repository, if any(collectively,the"Repositories"). The notices of material events will be filed by the Trustee, as Dissemination Agent on behalf of the District,with the Municipal Securities Rulemaking Board and the Repositories. The specific nature of the information to be contained in the Annual Report and the notices of material events are set forth in "APPENDIX F—PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT" herein. These covenants have been made to assist the 29 SF1 13298610 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 Series A 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 Series A 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 2003A Certificate (the first price at which a substantial amount of the 2003A Certificates of a maturity is to be sold to the public)and the stated redemption price at maturity with respect to the 2003A Certificates constitutes original issue discount, and the amount of original issue discount that accrues to the owner of a 2003A Certificate is excluded from 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. Special Counsel's opinion as to the exclusion from gross income of the portion of each Series A Installment Payment constituting interest (and original issue discount) is based upon certain representation of fact and certifications made by the District and others and 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 2003A Certificates to assure that the portion of each Series A 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 Series A 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 2003A Certificates. The District has covenanted to comply with all such requirements. 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 the portion of each Series A Installment Payment constituting interest(and original issue discount) for federal income tax purposes with respect to any 2003A Certificate if any such action is taken or omitted based upon the advise of counsel other than Stradling Yocca Carlson& Rauth. Although Special Counsel has rendered an opinion that the portion of the Series A 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 2003A 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 2003A Certificates, all potential purchasers should consult their tax advisers with respect to collateral tax consequences with respect to 2003A Certificates. In the further opinion of Special Counsel, the portion of each Series A Installment Payment due under the Installment Purchase Agreement designated as and comprising interest with respect to the 2003A Certificates is not treated as an item of tax preference in calculating the federal alternative minimum taxable income of individuals and corporations. Such portion of each Series A Installment Payment, however, is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore .affect a corporation's alternative minimum tax and environmental tax liabilities. Ownership of,or the receipt of interest on,tax-exempt obligations may result in collateral tax consequences to certain taxpayers, including, without limitation, financial institutions,property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with excess passive income, individual recipients of Social Security or Railroad Retirement benefits, taxpayers that may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations and taxpayers who may be eligible for the earned income tax credit. Special Counsel expresses no opinion with respect to any collateral tax consequences and, accordingly,prospective purchasers of the 2003A Certificates should consult their tax advisors as to the applicability of any collateral tax consequences. 31 SF1 1329861v8 District undertakes no responsibility to oppose any such revision or withdrawal. Any downward revision or withdrawal of such rating may have an adverse effect on the market price of the 2003 Certificates. FINANCIAL ADVISOR McDonald Partners (the "Financial Advisor") has assisted the District with various matters relating to the planning, structuring and delivery of the 2003 Certificates. The Financial Advisor is a financial advisory firm and is not engaged in the business of underwriting or distributing municipal securities or any other public securities. The Financial Advisor assumes no responsibility for the accuracy,completeness or fairness of this Official Statement. UNDERWRITING The Underwriter has agreed, subject to certain conditions,to purchase the 2003A Certificates at a price of $ (representing the aggregate principal amount of the 2003A Certificates plus $ original issue premium and less $ Underwriter's discount) and the 2003B Certificates at a price of $ (representing the aggregate principal amount of the 2003B Certificates plus $ original issue premium and less $ Underwriter's discount). The Purchase Contract for the 2003 Certificates provides that the Underwriter will purchase all the 2003 Certificates,if any are purchased. The 2003 Certificates may be offered and sold by the Underwriter to certain dealers and others at prices lower than such public offering price stated on the cover page of this Official Statement, and such public offering price may be changed, from time to time, by the Underwriter. EXECUTION AND DELIVERY The execution and delivery of this Official Statement has been duly authorized by the District. TRUCKEE-DONNER PUBLIC UTILITY DISTRICT By: General Manager 33 SF1 1329861v8 APPENDIX B UNAUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED DECEMBER 31,2002 B-1 SFl 1329861v8 „. APPENDIX D BOOK-ENTRY ONLY SYSTEM General The 2003 Certificates will be delivered in book-entry only form. DTC will act as securities depository for the 2003 Certificates. The 2003 Certificates will be issued as fully-registered certificates 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 2003 Certificate will be delivered for each maturity of each Series of the 2003 Certificates,in the aggregate principal amount of such maturity,and will be deposited with DTC. DTC 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, as amended. DTC holds securities that its participants (the "Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and 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 securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly("Indirect Participants"). The Rules applicable to DTC and its Direct and Indirect Participants (collectively, "Participants") are on file with the Securities and Exchange Commission. Purchases of the 2003 Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2003 Certificates on DTC's records. The ownership interest of each actual purchaser of each 2003 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, but Beneficial Owners are 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 2003 Certificates are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2003 Certificates, except in the event that use of the book- entry system for the 2003 Certificates is discontinued. To facilitate subsequent transfers,all 2003 Certificates deposited by 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 representatives of DTC. The deposit of 2003 Certificates with DTC and their registration in the name of Cede& Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2003 Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such securities are credited, which may or may not be the Beneficial Owners. The 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 will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The District, the Corporation and the Trustee will not have any responsibility or obligation to such DTC �. Participants or the persons for whom they act as nominees with respect to the 2003 Certificates. D-1 SF1 1329861v8 . In the event that the book-entry system is discontinued,the following provisions would also apply:(a)2003 Certificates may be exchanged at the principal corporate trust office of the Trustee for a like aggregate principal amount of such 2003 Certificates of other authorized denominations and of the same maturity;(b)2003 Certificates may be transferred on the registration books maintained by the Trustee under the Trust Agreement for such purpose by the person in whose name it is registered,in person or by such person's duly authorized attorney,upon surrender of such 2003 Certificate for cancellation at the principal corporate trust office of the Trustee accompanied by a duly executed written instrument of transfer in a form approved by the Trustee;(c)for every exchange or transfer of 2003 Certificates, the Trustee may require the payment by any Owner requesting such transfer or exchange of any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer; (d)the Trustee shall not be required to register the exchange or transfer of any 2003 Certificate within 15 days preceding the selection of 2003 Certificates for prepayment, or of any 2003 Certificate that has been selected for prepayment; (e)all interest payments on the 2003 Certificates will be made by check or draft mailed by first-class mail on each interest payment dates therefor as provided in the Trust Agreement to the respective Owners of record thereof as of the close of business on the 151b day of the calendar month preceding such interest payment date (the "Record Date"), or upon written request received by the Trustee of an Owner of at least $1,000,000 in aggregate principal amount of 2003 Certificates,by wire transfer of immediately available funds to an account in the United States; and (f)all payments of principal and any prepayment price of the 2003 Certificates, will be made upon presentation and surrender thereof at the principal corporate trust office of the Trustee. D-3 SF1 1329861A APPENDIX F PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT F-1 SF1 1329861v8 APPENDIX H SPECIMEN MUNICIPAL BOND INSURANCE POLICY H-1 SF1 1329861v8 While the 2003 Certificates are in the book-entry-only system,prepayment and tender notices shall be sent to Cede& Co. If less than all of the 2003 Certificates are being prepaid, DTC's practice is to determine by lot the amount of the interest of each Direct DTC Participant in such issue to be prepaid. Neither DTC nor Cede& Co. (nor such other DTC nominee)will consent or vote with respect to the 2003 Certificates. Under its usual procedures, DTC will mail 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 the 2003 Certificates are credited on the record date(identified in a listing attached to.the Omnibus Proxy). Principal,premium,if any,and interest payments with respect to the 2003 Certificates will be made to DTC or its nominee. 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 each payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the date payable. Payments by Participants to Beneficial Owner will be governed by standing instructions and customer 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,the Trustee,the Corporation or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the District or the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the 2003 Certificates at any time by giving reasonable notice to the District or the. Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, 2003 Certificates are required to be printed and delivered as described in the Trust Agreement. The District,the Corporation and the Trustee cannot and do not give any assurance that DTC,DTC Participants or others will distribute payments of principal,interest or any premium with respect to the 2003 Certificates paid to DTC or its nominee as the registered owner, or any prepayment or other notices, to the Beneficial Owner, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The District, the Corporation and the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner with respect to the 2003 Certificates or any error or delay relating thereto. The foregoing description of the procedures and record-keeping with respect to beneficial ownership interest in the 2003 Certificates, payment of principal, premium, if any, interest and other payments on the 2003 Certificates to DTC Participants or Beneficial Owners,confirmation and transfer of beneficial ownership interests in such 2003 Certificates and other related transactions by and between DTC,the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Discontinuance of DTC Services In the event that(a)DTC determines not to continue to act as securities depository for the 2003 Certificates or(b)the District determines to remove DTC from its functions as a depository, DTC's role as securities depository for the 2003 Certificates and use of the book-entry system will be discontinued. If the District fails to select a qualified securities depository to replace DTC, the District will cause the Trustee to execute and deliver new 2003 Certificates in fully registered form in such denominations and numbered in the manner determined by the Trustee. and registered in the names of such persons as are requested in a written request of the District. The Trustee shall not be required to deliver such new 2003 Certificates within a period of less than 60 days from the date of receipt of such written request of the District. Upon such registration, such persons in whose names the 2003 Certificates are registered will become the registered owners of the 2003 Certificates for all purposes. D-2 SF1 1329861v8 APPENDIX C GENERAL INFORMATION:DISTRICT SERVICE AREA C-1 SF1 1329861v8 APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED DECEMBER 31,2001 A-1 SH 1329861v8 Certain requirements and procedures contained or referred to in the Trust Agreement and other documents relating to the 2003A Certificates may be changed, and certain actions may be taken, under the circumstances and subject to the tens and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax-exempt obligations. Special Counsel expresses no opinion as to the exclusion of the portion of each Series A Installment Payment due under the Installment Purchase Agreement designated as and comprising interest with respect to the 2003A Certificates from gross income for federal income tax purposes on and after the date on which any such change occurs or action is taken upon the advice or approval of counsel other than Stradling Yocca Carlson&Rauth,a Professional Corporation. In the further opinion of Special Counsel, the portion of each Series A Installment Payment due under the Installment Purchase Agreement designated as and comprising interest with respect to the 2003A Certificates is exempt from personal income taxes imposed by the State of California. 2003B Certificates In the opinion of Special Counsel,based on existing statutes,regulations,rulings and judicial decisions,the portion of each Series B Installment Payment designated as and comprising interest with respect to the 2003B Certificates is exempt from personal income taxes imposed by the State of California but are not excluded from gross income for federal income tax purposes. The form of legal opinion is attached hereto as APPENDIX G. ABSENCE OF LITIGATION To the knowledge of the District, there is no controversy or litigation of any nature now pending or threatened restraining or enjoining the execution and delivery of the 2003 Certificates or in any way contesting or affecting the validity of the 2003 Certificates or any proceedings of the District or the Corporation taken with respect to the execution and delivery thereof. In addition,to the knowledge of the District,there is no litigation pending or threatened against the District or the Corporation that, in the opinion of the District's General Counsel, would materially adversely affect the Electric System or the sources of payment for the 2003 Certificates. APPROVAL OF LEGALITY The execution and delivery of the 2003 Certificates is subject to the approving opinion of Stradling Yocca Carlson& Rauth, A Professional Corporation, San Francisco, California, Special Counsel, substantially in the form set forth as Appendix G. Certain legal matters will be passed upon for the Underwriter by Sidley Austin Brown& Wood LLP, Los Angeles, California, and for the District and the Corporation by Porter Simon, Truckee, California, General Counsel to the District. RATINGS Moody's Investors Service("Moody's")is expected to assign the 2003 Certificates the long-term ratings of [upon the delivery by the Insurer of a policy insuring the payment of the principal and interest represented by the 2003 Certificates when due]. The rating reflects only the views of the rating agency,and any explanation of the significance of such rating may be obtained only from such rating agency as follows: Moody's Investors Service, 99 Church Street,New York, New York 90017. The District and the Insurer furnished to the rating agency certain information and materials concerning the 2003 Certificates and themselves. Generally, rating agencies base their ratings on information and materials furnished to them and on investigations, studies and assumptions by the rating agency. There is no assurance that the rating will remain in effect for any given period of time or that it will not be revised downward or withdrawn entirely by such rating agency, if, in its judgment, circumstances so warrant. The 32 SF1 1329861A Underwriter in complying with Rule 15c2-12 of the Securities and Exchange Commission(the "Rule"). As of the date hereof, the District has never failed to comply in any material respect with any previous undertakings with regard to the provision of annual reports or material events notices as required by the Rule. THE CORPORATION The Corporation was incorporated under the Nonprofit Public Benefit Corporation Law of the State of California. The Corporation was organized as a nonprofit corporation for the purpose,among others,of assisting the District in the acquisition, construction and financing of public improvements which are of public benefit to the District. Members of the District Board of Director serve on the Board of Directors of the Corporation. CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS California Constitution Article XIIIB Under Article XIIIB of the California Constitution, state and local government entities have an annual "appropriations limit"which limits their ability to spend certain moneys called"appropriations subject to limitation" (which consist of tax revenues, certain state subventions and certain other moneys). Article XIIIB does not affect the appropriations of monies which are excluded from the definition of "appropriations subject to limitation." Among the exclusions are"appropriations of any special district which existed on January 1, 1978 and which did not as of the 1977/78 fiscal year levy an ad valorem tax on property in excess of 12.5 cents per$100 of assessed value." In the opinion of the District's General Counsel, the appropriations of the District are excluded from the limitations of Article XIIIB under this clause. Constitutional Changes in California Proposition 218, a State ballot initiative known as the "Right to Vote on Taxes Act,"was approved by the voters of the State of California on November 5, 1996. Proposition 218 added Articles XIIIC and XIIID to the State Constitution. Article XIIID creates additional requirements for the imposition by most local governments(including the District) of general taxes, special taxes, assessments and "property-related" fees and charges. Article XIIID explicitly exempts fees for the provision of electric service from the provisions of such article. In the opinion of the District's General Counsel,the District's electric charges, electric standby charges, connection charges and facilities fees are exempt from the provisions of Article XIIID pursuant to this provision. Article XIIIC expressly extends the people's initiative power to reduce or repeal previously authorized local taxes, assessments, and fees and charges. Since the terms"fees and charges"are not defined in Article XIIIC, the initiative powers may affect more than "property-related" fees and charges, as defined in Article XIIID. Additionally, in the case of Bock v. City Council of Lompoc, 109 Cal.App.3d (1980), the Court of Appeal determined that electric rates are subject to the initiative power. Thus, even electric service charges (which are expressly exempted from the provisions of Article XIIID) might be subject to the initiative provision of Article XIIIC, thereby subjecting such fees and charges imposed by the District to reduction by the electorate. The District believes that, even if the electric rates of the District are subject to the initiative power,under Article XIIIC or otherwise, the electorate of the District would be precluded from reducing electric rates and charges in a manner adversely affecting the payment of the 2003 Certificates by virtue of the "impairments clause" of the United States and California Constitutions. TAX MATTERS 2003A Certificates In the opinion of Stradling Yocca Carlson&Rauth, a Professional Corporation, San Francisco, California, Special Counsel, based on existing statutes, regulations, rulings and judicial decisions,the portion of each Series A 30 SF1 1329861v8 Power Supply Arrangements"herein). Nonetheless,there are a number of factors beyond the District's control that - may affect the District's costs and power supplies. Such uncertainties involve transmission availability and pricing, as well as wholesale generation market conditions. The District's current transmission service agreement with Sierra Pacific entitles it to import its entire load requirements from outside of the Sierra control area, subject only to certain caps on load growth, through 2027. However, it is possible that certain FERC developments may adversely affect the District's transmission rights and/or impose higher costs on the District's use of its import rights. On December 20, 1999, in Order 2000,FERC issued a rulemaking encouraging the voluntary formation of regional transmission organizations ("RTOs") that are to operate independently of owners of generation and other market participants and provide transmission access on a non-discriminatory basis to buyers and sellers of power. Sierra Pacific has committed to join the RTO West in compliance with Order 2000. RTO West has proposed, and FERC has accepted, certain provisions (regarding "Catalogued Transmission Rights")that should largely preserve the value of the District's import rights as they exist under the current transmission service agreement with Sierra Pacific. Furthermore, FERC has stated that it will not require these provisions to be revised in the near future to conform with FERC.'s forthcoming Standard Market Design, which is still in the rulemaking process. Notwithstanding these rulings, it is possible that as a result of future actions by RTO West, FERC, and/or the courts or legislative bodies, the District's import rights may be . eroded. Further, there may be other impacts on the District (and virtually every other participant in wholesale electric markets)from FERC's eventual adoption of a final Standard Market Design rule. In addition, even with the District's existing import rights, Sierra Pacific's total transmission import limitations may adversely impact power prices under the District's new contract (and possibly beyond) by limiting the number of suppliers that can reach Sierra Pacific's interfaces at competitive prices. In this regard, the development of RTO West may eventually be a mitigating factor. Once RTO West begins operations,it will charge a single rate for use of the entire regional grid. Through the elimination of"pancaking" of separate transmission charges assessed by individual transmission owners between a source of supply and the load it serves, more resources may be able to reach the Sierra Pacific control area on an economical basis. Such availability will, however, depend on many other factors, including the adequacy of transmission infrastructure throughout RTO West and thus the number and degree of constraints within the regional transmission grid that could increase the costs of moving power to the Sierra Pacific control area even after pancaking is eliminated. OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY Proposed Federal Deregulation and Tax Legislation Many bills have been introduced in the United States House of Representatives and the United States Senate to deregulate the electric utility industry on the federal or state level. Many of the bills provide for open competition in the furnishing of electricity to all retail customers (i.e., retail wheeling). In addition, various bills have been introduced which would impact the issuance of tax-exempt bonds for transmission and generation facilities. No prediction can be made by the District as to whether any of these bills or any similar federal bills proposed in the future will become law or,if they become law,what their final form or effect would be. Such effect, however,could be material to the District. However,the Internal Revenue Service has recently issued new rules that will,preserve the tax-exempt status of bonds issued to finance transmission facilities,where control is turned over to an Independent System Operator or Regional Transmission Organization,subject to certain conditions. Other Factors The electric utility industry in general has been, or in the future may be; affected by a number of other factors which could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. In addition to the factors discussed above, such factors include, among others, (a)effects of compliance with rapidly changing environmental, safety, licensing, regulatory and legislative requirements other than those described above, (b)changes resulting from conservation and demand-side management programs on the timing and use of electric energy, (c)changes resulting from a national energy policy, .., (d)effects of competition from other electric utilities (including increased competition resulting from mergers, acquisitions, and "strategic alliances" of competing electric and natural gas utilities and from competitors 28 SF1 1329861v8 financial condition deteriorated rapidly. An emergency, 30% rate increase by the CPUC in March 2001 proved insufficient to stem the losses. On April6, 2001, PG&E filed for bankruptcy protection. PG&E remains in bankruptcy today. In order to avert a second bankruptcy, the State, in October 2001, announced a settlement with Edison allowing Edison to recover from ratepayers a substantial portion of its accumulated debts. The settlement between Edison and the CPUC was approved by the district court over the objections of The Utility Reform Network("TURN"),a nonprofit consumer organization. TURN appealed the stipulated judgment resulting from the settlement. The Ninth Circuit Court of Appeals affirmed the decision of the district court as to certain questions arising under federal law, but certified to the California Supreme Court certain questions relating to the validity of the settlement agreement under California law. The potential impacts of further proceedings relating to this suit on the creditworthiness of Edison are uncertain. At the same time, the creditworthiness of the ISO and the PX, which was directly tied to creditworthiness of the IOUs, also deteriorated. On December 15, 2000, the PX had functionally ceased operation and filed for bankruptcy protection shortly thereafter,and the ISO was effectively frozen out of the energy market. State Intervention. In response to the chaotic energy situation and the reluctance of energy providers to engage in transactions with the State's two largest IOUs, the Governor of the State of California declared a state of emergency and ordered the State's Department of Water Resources ("DWR") to begin buying power for the IOUs. Shortly thereafter, the State formally authorized DWR's power purchase program by enacting Assembly Bill 1X ("AB 1X"). AB I authorized DWR to enter into power supply contracts in order to supply the shortfall(the"net short")between each IOU's power needs and its own retained generation. AB 1 X also required the IOUs to deliver DWR's energy to the IOU customers, and authorized.DWR to collect a charge from the IOU customers to allow DWR to recover its costs, including repayment of over$11 billion of revenue bonds issued by DWR in November 2002. DWR's contracting power expired on December 31,2002,although DWR continues to supply power to the IOUs under contracts entered into prior to this date. On January 1,2003 the IOUs,under the auspices of the CPUC, resumed responsibility for the provision of the residual net short and the administration of DWR contracts although for the foreseeable future DWR will remain the named contractual party to the contracts. AB 1 X also required the CPUC to suspend the right of retail customers of the IOUs to purchase electricity from suppliers other than DWR and the IOUs(i.e.,direct access)until DWR is no longer a supplier of electricity. In March 2002, the CPUC adopted a decision suspending, as of September 20, 2001, any new direct access. In a subsequent decision,the CPUC established a surcharge mechanism under which direct access customers were made responsible for paying costs incurred by DWR and by the IOUs during the energy crisis. The decision adopted an initial interim cap of 2.7 cents/kWh,in response to concerns that the surcharges might cause direct access to become uneconomic. Bundled (IOU) customers will finance any undercollection resulting from the cap, and they will be repaid with interest over a reasonable period. The cap is subject to adjustment as determined in further proceedings ordered in the decision. FERC Price Mitigation and Other FERC Actions. Beginning in late 2000, FERC took several steps to address the spiraling cost of energy in the California markets, including the implementation of cost-based price mitigation in the spot electricity markets. In July 2002 FERC replaced the previous formula for calculating the price cap with a hard cap of$91.87 per MWh,effective through September 30,2002. FERC subsequently issued an order establishing a hard price cap of$250 per MWh effective October 1,2002 which remains in place. FERC indicated it established the price cap at this level to promote further development of new generating resources in California: The CPUC and the California Electricity Oversight Board have each brought action (which actions have been consolidated) at FERC against all sellers of energy under long-term contracts to DWR. These actions seek rescission of, or in the alternative, a reduction in the rates charged under the long-term contracts on the basis that such rates are unjust and unreasonable. In April 2002, FERC required that the parties first engage in mediation to attempt to achieve resolution through settlement prior to the matter going to hearing. As a result of the mediation process, the CPUC and the California Electricity Oversight Board have withdrawn their complaints against certain of the generators with whom negotiations have resulted in renegotiated contracts. On December 17, 2002, FERC directed that a number of the contracts be granted expedited treatment with briefs to be filed directly with FERC. 26 SF1 1329861v8 TRUCKEE-DONNER PUBLIC UTILITY DISTRICT Electric System Summary of Historical Net Revenues and Balance Sheet Information (Fiscal Year Ending December 31) 1998 1999 2000 2001 2002") Revenues(l): Sales to Customers $8,862,727 $9,069,361 $9,334,548 $ 9,759,286 $12,891,095 Consumer Electric Refund(2) (962,806) (991,001) (931,032) 0 0 Interdivisional Sales(3) 655,809 799,165 787,366 923,640 1,424,288 Standby Charges 33,433 31,259 28,957 39,333 24,015 Facilities Fees(4) 62,466 106,763 98,372 77,694 126,377 Other(') 245,224 224,398 258,500 172,188 167,232 Income from Investments 225,805 224,115 239,045 158,809 173,796 Total Revenues $9,122,658 $9,464,060 $9,815,756 $11,130,950 $14,806,803 Rate Stabilization Fund Transfer(6) 0 0 0 0 2,024,062(14) Total Adjusted Revenues $9,122,658 $9,464,060 $9,815,756 $11,130,950 $16,830,865 Operation and Maintenance Costs(7): Power Purchases $4,895,065 $4,385,928 $4,683,112 $3,986,550 $11,093,289(1s) Operation and Maintenance 1,090,358 1,218,950 1,460,439 1,501,714 1,975,435 Administrative and General 1,347,737 1,266,990 1,334,514 1,612,485 1,937,247 Consumer Services($) 327,813 351,095 504,916 599,315 483,969 Interest Expense(9) 40,297 56,174 32,236 35,282 43,202 Total Operation and Maintenance Costs $7,701,270 $7,279,137 $8,015,217 $7,735,346 $15,533,142 Adjusted Net Revenues/Funds Available for Debt Service $1,421,388 $2,184,923 $1,800,534 $3,395,604 $1,297,723 Debt Service�10� 260,076 264,395 258,462 266,543 255,225 Debt Service Coverage(ll) 5.47 8.26 6.97 12.74 5.08 Selected Balance Sheet Information Fund Balances(December 31): System Fund Balance $1,236,010 $ 670,346 $ 844,250 $ 225,829 $2,017,068 Rate Stabilization Fund Balance 573,940 596,584 641,790 2,448,281 424,219 Total Fund Balances $1,809,950 $1,266,930 $1,486,040 $2,674,110 $2,441,287 Net Plant in Service $11,857,265 $11,986,890 $13,004,380 $13,288,280 $12,625,751 Construction Work in Progress 324,327 1,461,373 1,584,186 1,844,911 3,579,044 Net Electric Utility Plant(12) $12,181,592 $13,448,263 $14,588,566 $15,133,191 $16,204,795 Excludes Connection Charges. See"Rates and Charges"above. (2) Represents an 11%credit to customers discontinued in 2000. See"Rates and Charges"above. (3) Represents pumping charges to District water system and interdepartmental rent charged to the water department for use of the District Administrative Building which was financed by the Electric System. �4> Facilities Fees are charged to applicants for new service to cover the costs of infrastructure needed to meet the additional system demand. See"Rates and Charges"above. (5) Represents service transfer charges,late payment fees,building room rentals and miscellaneous receipts. (6) The Rate Stabilization Fund is used to mitigate rate increases. Pursuant to the Installment Purchase Agreement,Adjusted Revenues for coverage purposes include the amounts the District has authorized to be deposited in the Revenue Fund from the Rate Stabilization Fund to pay Operation and Maintenance Costs and/or Debt Service. See "SECURITY AND SOURCES OF PAYMENT FOR THE 2003 CERTIFICATES-Defined Terms"and"-Rate Covenant"herein. (7) Excludes depreciation and amortization. (8) Includes all customer service,billing activity and customer information expenses. (9) Excludes interest on the 1993 Electric Certificates which is shown under Debt Service below. 1101 Represents Debt Service on the District's 1993 Electric Certificates which were retired as of March 3,2003. See"Outstanding Electric System Obligations"above. Adjusted Net Revenues divided by Debt Service. (12) Prior to 2001contributed capital was applied to reduce the cost of the assets funded and booked either as a reduction of Plant Serving Customers or Funds Received for Construction of Facilities. Beginning in 2001 such amounts are treated as revenues and new plant is recorded as an asset in the amount of the full acquisition cost. Unaudited. (14) The District funded a portion of its Electric System expenses from the Rate Stabilization Fund in 2002. Additional rate increases have been implemented for 2003. See"Rates and Charges"above. ('S) Exclusive of $26 million Settlement Obligation which is a one-time expense relating to the termination of the Prior Agreements(see"THE TRANSACTION"herein)which was accrued as of December 31,2002 but will be funded from proceeds of the 2003 Certificates in fiscal year 2003. 24 SFI 1329861v8 Billing and Collection Procedures Customers are billed for electric services on a monthly basis. All electric bills are due and payable on the date of billing and become delinquent 19 days thereafter. If such bills remain unpaid on the 301h day after billing,all electric services are assessed a late payment fee and are subject to termination pursuant to the District's disconnect procedures. Over the last five fiscal years, delinquencies for monthly electric service have averaged less than 0.08 of one percent of total billings for the year. Standby charges are collected twice annually with ad valorem property tax bills by the Counties of Nevada and Placer. Like property taxes, standby charges are due twice a year on November Is'and February I`of the year. If unpaid, these standby charges become delinquent on December 10`h and April 10`h, respectively. Property taxes are not considered paid in full unless standby charges are also paid. Connection charges and facilities fees are collected by the District at the time a property is developed. Electric service is not initiated by the District until these amounts are paid in full. Customers,Sales,Revenues and Demand The average number of customers, kWh sales, revenues derived from sales by classification of service and peak demand during the past five Fiscal Years are listed below. TRUCKEE-DONNER PUBLIC UTILITY DISTRICT Electric System Customers,Sales,Revenues and Demand Fiscal Years Ended December 31, 1998 1999 2000 2001 2002(1) Number of Customers: Residential 9,080 9,352 9,623 10,238 10,424 Commercial and Other 1,110 1,182 1,204 1,203 1,273 Total Customers 10,190 10,534 10,827 11,441 11,697 Kilowatt-Hour(kWh)Sales: Residential 65,335,576 66,981,022 67,439,920 65,014,735 65,041,548 Commercial and Other 52,075,197 55,786,416 58,761,003 57,467,440 58,837,235 Total kWh sales 117,410,773 122,767,438 126,200,923 122,482,175 126,878,783 Revenues from Sale of Energy: Residential $ 4,709,622 $ 4,838,767 $ 4,872,323 $ 5,522,632 $ 7,579,083 Commercial and Other 3,636,056 3,881,162 4,047,453 4,672,587 6,337,757 Total Revenues from Sale of Energy: $ 8,345,678 $ 8,719,929 $ 8,919,776 $ 10,195,219 $ 13,916,840 Peak Demand(kW) 28,815 28,591 28,277 29,040 30,245 Preliminary estimates,unaudited. Source: Truckee-Donner Public Utility District. Largest Customers The five largest customers of the District's Electric System in terms of kWh sales, as of December 31, 2002, accounted for 19% of total kWh sales and 17% of revenues. The largest customer accounted for 8%of total - kWh sales and 7% of total revenues. The five largest electricity purchasers in the District for the 12-month billing period ended December 31,2002 are set forth below. 22 SF1 13298610 Future Capital Expenditures In July 2002,the District approved an Electric System Master Plan for capital improvement projects for the District's Electric System planned improvements will provide for projected load growth over a 15-year planning period from 2003 to 2017. The capital improvements contemplated by the Electric System Master Plan have an estimated cost,in 2002 dollars,of$9,390,400 over the 15-year period. The average cost to the District to implement the proposed capital improvements is estimated to be approximately $626,000 per year. Improvements include various distribution system and substation improvements. The timing of projects is contingent upon the rate and location of development within the District. If development occurs differently than assumed in the Electric System Master Plan, the timing of individual capital projects may shift from year to year. The capital improvements are expected to be funded primarily from Electric System facilities fees. See"Rates and Charges"below. Rates and Charges The District has the exclusive jurisdiction to set electric rates within its service area. These rates are not subject to review by any state or federal agency. For the Fiscal Year ended December 31, 2002, the District's average rate per kWh for residential service was 11.14 cents. The District's average rate for commercial service was 11.27 cents per kWh. The current electric rates were established by District Ordinance No.2002-06, adopted on December 18, 2002 and took effect in January 2003. These rates represented an 9.1% average increase over prior rates. The following table presents a recent history of the District's electric rates. Truckee Donner Public Utility District History of Electric Service Charges February August January February January 1995 2001 2002 2002 2003 Domestic Electric Rates: Permanent Residents Customer Charge: per month $4.00 $4.00 $4.00 $4.00 $4.50 Energy Charge per kilowatt-hour $0.06811 $0.08037 $0.09263 $0.09963 $0.10869 Domestic Electric Rates: Non-Permanent Resident Customer Charge: per month $4.00 $4.00 $4.00 $4.00 $4.50 Energy Charge per kilowatt-hour $0.08196 $0.09422 $0.10648 $0.11348 $0.12381 Small Commercial Rates: Commercial Customers with monthly demand less than 50 kilowatts Customer Charge: per month $8.00 $8.00 $8.00 $8.00 $8.73 Energy Charge per kilowatt-hour $0.08821 $0.10047 $0.11273 $.0.11973 $0.13062 Medium Commercial Rates: Commercial Customers with monthly demand greater than 50kW and less than 200kW Customer Charge: per month $80.00 $80.00 $80.00 $80.00 $87.25 Energy Charge per kilowatt-hour $0.03990 $0.05216 $0.06476 $0.07176 $0.07729 Demand Charge per kilowatt of demand $9.77 $9.77 $9.77 $9.77 $10.58 Large Commercial Rates: - Commercial Customers with monthly demand greater than 200 kilowatts Customer Charge: per month $350.00 $350.00 $350.00 $350.00 $382.00 Energy Charge per kilowatt-hour $0.04139 $0.05365 $0.06591 $0.07291 $0.07954 Demand Charge per kilowatt of demand $9.27 $9.27 $9.27 $9.27 $10.11 The Board of Directors reviews electric system rates periodically and makes adjustments as necessary. There are no special contracts with customers. 20 SF1 1329861v8 Power Supply Resources General The District does not independently own any generation facilities. The District purchases all of its energy through bilateral contracts with entities outside the District's service area. Effective July 1, 1997, the District entered into the Original Agreement with Idaho Power to provide for its power requirements. See "THE TRANSACTION" herein. In 1997 and 1998, due to transmission constraints, the District's power requirements were supplied by Sierra Pacific(which had provided the District's full requirements prior to such time)and by Idaho Power. Since 1999, the District has purchased all of its power requirements from Idaho Power or its affiliates, including IDACORP Energy L.P. The District has a transmission service agreement with Sierra Pacific pursuant to which power purchased by the District is transmitted to the District's Electric System for distribution to the District's electric customers. See "Transmission Service and Dispatch/Scheduling Arrangements" below. The District is a member of the Northern California Power Agency("NCPA"),a joint exercise of powers agency,and the Utah Associated Municipal Power Systems ("UAMPS"), a governmental agency that provides comprehensive wholesale electric energy, on a nonprofit basis, to community-owned power systems throughout the Intermountain West. Pursuant to a letter of agreement, NCPA provides dispatch and scheduling services to the District. See "Transmission Service and Dispatch/Scheduling Arrangements" below. UAMPS has transmission access to Sierra Pacific's transmission system and can provide wholesale power to the District's Electric System when necessary. Power Supply Arrangements IDACORP Interim Power Supply.Agreement. As noted above,the District has purchased primarily all of its power requirements from Idaho Power or its affiliates since 1999 pursuant to the Prior Agreements. See "THE TRANSACTION" herein. In connection with termination of the Prior Agreements, the District and IDACORP Energy L.P. entered into an Interim Power Supply Agreement (the "IDACORP Interim Power Supply Agreement") pursuant to which IDACORP Energy L.P. will provide firm energy to meet the District's full energy requirements - not to exceed 35 MW per hour at a price of$41.62 per MWh for the period December 1, 2002 through March 31, 2003. ( Power Supply Agreement. In order to provide for its power supply resources needs following termination of the IDACORP Interim Power Supply Agreement on March 31, 2003,the District issued a Request for Proposals("RFP") in January 2003. The RFP was structured to solicit a power supply arrangement for capacity and energy that will satisfy nearly all of the District's energy requirements with little or no exposure to the spot market. The District received seven responses. After thorough evaluation and extended negotiations with the low cost alternatives,the District selected the following resource alternative: [TO BE FINALIZED AFTER SELECTION OF CONTRACT.] On the District entered into a five year fixed-rate contract with for capacity and firm energy. Monthly contract quantities are specified for high load hours, low load hours and high load hours on Sundays and Holidays. The contract quantities are set at a level to meet the District's average projected load for each month. High load quantities range from a low of 15 MW in May of 2003 to a high of 23 MW in December of 2007. Low load quantities range from a low of 11 MW in May of 2003 to a high of 18 MW in December of 2007. High load quantities for Sundays and Holidays range from a low of 2 MW in April of 2003 to a high of 5 MW in December of 2007. Deliveries are scheduled to begin on April 1, 2003 and will extend to December 31, 2007. The cost of delivered power under the agreement is$ per MWh. The District has arranged for to perform hourly shaping to meet actual load requirements. In accordance with the terms of the District's transmission service agreement with Sierra Pacific, pre-schedules must be submitted to Sierra Pacific in round MW which may require the purchase of additional energy or sale of contracted energy on an hourly basis. Net hourly purchase and sales are expected to be less than 2%of the District's annual energy requirements. 18 SFl 1329861v8 Brotherhood of Electrical Workers("IBEW"). The current Memorandum of Understanding with the IBEW expired on December 31,2002 and negotiations on a successor contract are underway. There have been no strikes or other union work stoppages at the District. Retirement benefits to the District bargaining unit employees are provided through the District's single employer pension plan. The District's contribution rate is determined by periodic actuarial calculations based on the benefit formula and the number of employees and their respective salary schedules. The District's cost for the year ended December 31,2002 was $258,071 which must be paid by September 15,2003 and which includes the amortization of the unfunded actuarial accrued liability over a remaining period of 5 years. As of December 31,2001,the District's unfunded pension benefit obligation was$479,614. During 2000, the District Board of Directors approved a 401(a) defined contribution plan for .District management and exempt staff(effective August 1, 2000) and bargaining unit employees(effective January 1,2000). Contributions are made by the District on the employees'behalf and employees are immediately vested in the 401(a) plan. The District contributed 10%of earnings on behalf of management and exempt employees in each of the years 2000, 2001, and 2002 as part of the management 401(a) plan and 3% of earnings for employees in the bargaining unit 401(a) plan in 2000, 4% of earnings in 2001 and 5% of earnings in 2002. At December 31, 2001, the 401(a) Plan assets were $131,805 and $109,032 for the management and bargaining unit, respectively. At December 31, 2002, the 401(a) Plan assets were $202,570.23 and $218,373.99 for the management and bargaining unit, respectively. The District also maintains a deferred compensation plan for certain employees. The amount deferred and held in trust was$2,137,657 and$2,390,621 at December 31,2002 and 2001,respectively. The District began providing post-employment health care on January 1, 2000 to all employees, and their qualified dependents, who retire from the District on or after attaining age 60 with service of at least 20 years. For years worked less than 20 years,the benefit is reduced 5%for each year. For retirement prior to age 60,the benefit is reduced by 2%for each year. The cost of post employment health care benefits was$19,397 and$9,717 for years 2002 and 2001,respectively. See Note 7 to the District's audited financial statements for the fiscal year ended December 31, 2001 included in APPENDIX A hereto. Insurance The District maintains commercial insurance for property damage, casualty loss.and other customary risks. A blanket fire policy covering the full current value of all buildings of the District is currently maintained. The District also maintains $9,428,641 coverage on its substations and other personal property owned by the Electric System. The District maintains umbrella liability coverage in the amount of$10,000,000 subject to a $10,000 deductible. Underlying this policy, the District maintains $2,000,000 in general liability coverage, subject to a $5,00.0 deductible per occurrence and$2,000,000 auto liability coverage with a$1001$500 deductible. Investment Policy The Revenue Fund, into which all revenues of the Electric System are initially deposited, and the Certificate Payment Fund, from which the 2003 Certificates are to be paid, are required to be invested in certain Permitted Investments. See "APPENDIX E—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" herein. All funds of the District, however, are invested by the District in accordance with the investment guidelines of the California Government Code (Sections 53601 and 53635) and the District's Investment Policy, which provides that the General Manager and District Treasurer shall invest surplus funds,both restricted and general,in either the Local Agency Investment Fund, certificates of deposit, or other major banking investments which are allowable by law and approved by the Board of Directors. The Investment Policy may be changed at any time at the discretion of the District Board of Directors (subject to the State of California law provisions relating to authorized investments). There can be no assurance, 16 SF1 1329861v8 estimated that approximately 57% of the dwelling units in the District's service area are maintained by second homes. Growth in the District's service has averaged about 300 new residential customers a year over the last six years. Much of the growth has been additional concentration in existing developed areas. For example, Tahoe Donner has 6,110 parcels, of which 1,650 are currently unimproved. In addition, there are a number of new developments in which residential construction has commenced or is scheduled to begin within the next three years. These developments include Old Greenwood-298 residential units plus commercial facilities, Gray's Crossing- 600 new residential units plus commercial facilities, Pine Forest-118 new residential home sites, River View Townhomes-60 new residential units and The Boulders-180 residential units. Some of these developments are phased over a number of years. The District presently serves over 11,600 electric customers and 10,900 water customers. The District's water system is operated and accounted for separately from the Electric System. Governance The District is governed by a Board of Directors(the "Board") composed of five persons elected at large; there are no divisions in the District, all voters within the District vote for all candidates. A General Manager, appointed by the Board, directs four departments: Administration, Electric, Water and Support Services. Each Department is supervised by a Department Manager. The Board appoints an outside legal firm to provide legal services. . All engineering, operations, maintenance and finance services are provided by the District staff supplemented by outside firms as needed. The following are the members of the District's Board and their background: JOSEPH R. AGUERA, was originally appointed to the Board in June 1987, elected to the Board in November 1987 and has served a continuous .16 years. Mr.Aguera attended the College of Mortuary Science in Los . Angeles, Ca. He moved to the Truckee area 34 years ago and established the Truckee—Tahoe Mortuary. He has been president of the Truckee Lions Cub, past master of the Truckee Masonic Lodge #200 and a member of the Truckee Rotary Club and the Truckee Donner Chamber of Commerce. He was a fire commissioner with the Truckee Fire Protection District for 10 years and a board member of the Truckee Cemetery District for 10 years. J. RON HEMIG, was originally elected to the Board in November 1994 and re-elected in 1998 and 2002. Mr.Hemig was a co-founder of a publishing company and has extensive experience in business management and organization development. He holds a Bachelor of Science Degree in Business. Mr. Hemig is a co-owner of the real estate firm of Hemig& Erle. He was past member of several Town of Truckee standing committees and presently serves on the Sierra County Economic Development Committee. Mr.Hemig is serving as the 2003 District Board President. JAMES A. MAASS, was elected to the Board in March 1977 and has served a continuous 26 years. Mr.Maass has been a high school government and economics teacher for many years and is currently a member of the management team of the Tahoe Truckee Unified School District, holding the position of Technology Coordinator. He is a member of the governing board of the Northern California Power Agency where he has served on the Executive Committee. PATRICIA S. SUTTON, was elected to the Board in November 1973, re-elected a number of times; serving a total of 26 years with the District. Ms. Sutton has been a Truckee resident for 37 years and is the co-owner of a licensed general engineering contractor business,which specializes in paving and sealing. Ms. Sutton served as a County Supervisor in 1981 and is active in professional organizations and the community. NELSON VAN GUNDY, was appointed by the Board to fill a vacancy in June 2000 and elected to the Board in November 2000. Mr.Van Gundy has an A.B. in history from Kansas State University and Masters of Divinity from San Francisco Theological Seminary. He has been Broker/Owner of the RE/MAX North Sierra (previously North Sierra Investment Properties) for over 20 years. Mr.Van Gundy has been president of both the Truckee Rotary and the Tahoe Sierra Board of Realtors. He has been an active member on the boards of Camp 14 SF1 1329861v8 No Outstanding Parity Obligations r. Upon the delivery of the 2003 Certificates, the District will have no outstanding long-term indebtedness payable from Net Revenues of the District's Electric System on a parity with the payment of the Installment Payments. See"THE ELECTRIC SYSTEM—Outstanding Electric System Obligations"herein. Additional Parity Obligations Pursuant to the Installment Purchase Agreement,the District may at any time execute any Contract or issue any Bonds,as the case may be,in accordance with the Installment Purchase Agreement;provided: (a) The Adjusted Net Revenues 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 percent(120%)of the Debt Service for such Fiscal Year plus 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 the Debt Service which would have accrued had such Contract been executed or Bonds been issued at the beginning of such Fiscal Year;or (b) The estimated Adjusted Net Revenues 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 additions,betterments,extensions or improvements to the Electric System,the acquisition and construction of which is to be paid for with the proceeds of any Contracts or Bonds(a"Parity Project")to be financed from proceeds of such Contracts or Bonds, 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 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 Electricity 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 of the District on file with the District, shall produce a sum equal to at least one hundred twenty percent(120%) 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 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. 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. In addition, nothing in the Installment Purchase Agreement shall preclude the District from issuing any Bonds or executing and delivering any Contracts the payments under which are subordinate to any Bonds or Contracts of the District. Limitation on Remedies In addition to the limitations on remedies contained in the Trust Agreement and the Installment Purchase Agreement, the rights and remedies provided in the Trust Agreement and the Installment Purchase Agreement may be limited by and are subject to bankruptcy,insolvency, reorganization,moratorium and other similar laws affecting creditors' rights, to the application of equitable principles and to the exercise of judicial discretion in appropriate cases. 12 SF1 1329861v8 (3)all costs to schedule energy and (4)net payments due under any hedging contract executed by the District to reduce energy or fuel price risk. Termination payments due or received pursuant to any hedging contract or power purchase contract shall not be included in Purchased Power Costs. "Revenues" is defined to mean all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Electric System, including, without limiting the generality of the foregoing, (1)all income, rents, rates, fees, charges or other moneys derived from the sale, distribution, furnishing and supplying of electricity or other services, facilities, and commodities sold, furnished or supplied through the facilities of the Electric System including standby charges and facilities fees allocable to the Electric System,plus(2)except as set forth in(z)below,taxes or assessments, if any,the imposition of which is permitted by law, (3)the earnings on and income derived from the investment of the amounts described in clauses(1) and (2) above, the Rate Stabilization Fund and the general unrestricted funds of the District, and (4)Payment Agreement Receipts; but excluding in all cases(x)connection charges; (y)customers' deposits or any other deposits subject to refund until such deposits have become the property of the District, and (z)reserves, taxes or assessments specifically pledged to the payment of debt service with respect to notes, bonds or other obligations of the District and which reserves,taxes or assessment are not available for any other purpose of the District. Pledge of Net Revenues Pursuant to the Installment Purchase Agreement, all Net Revenues of the Electric System and all moneys on deposit in the Revenue Fund are irrevocably pledged to the payment of the Installment Payments and the Net Revenues shall not be used for any other purpose while any of the Installment Payments due remain unpaid; provided that out of the Net Revenues there may be apportioned such sums for such purposes as are expressly permitted as the Installment Purchase Agreement. The Installment Purchase Agreement provides that such pledge, together with the pledge created by all other Contracts and Bonds, constitutes.a first lien upon the Net Revenues of the Electric System and, subject to application of Net Revenues and all amounts on deposit in the Revenue Fund as permitted in the Installment Purchase Agreement,the Revenue Fund. Rate Covenant Pursuant to the Installment Purchase Agreement, the District covenants (the "Rate Covenant") that it will fix,prescribe and collect rates and charges for the Electricity Service which will be at least sufficient to yield during each Fiscal Year Adjusted Net Revenues equal to 120% of the Debt Service for such Fiscal Year. The Installment Purchase Agreement provides that 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 may not reduce the rates and charges then in effect unless the Adjusted Net Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements described in the preceding sentence. Reserve Fund Pursuant to the Trust Agreement, the Reserve Fund is to be held by the Trustee so long as any Installment Payments remain unpaid. Amounts on deposit in the Reserve Fund are pledged to the payment of the 2003 Certificates. The Reserve Fund is required to be maintained in an amount equal to, initially $ and thereafter, the lesser of such amount and the maximum annual Installment Payments in the current or any future Fiscal Year (the "Reserve Requirement"). Moneys on deposit in the Reserve Fund shall be transferred by the Trustee to the Certificate Payment Fund to pay principal of and/or interest evidenced by the 2003 Certificates on each date such principal and/or interest is due and payable in the event amounts on deposit therein are insufficient for such purposes. The Reserve Fund is not available for the payment of any other Contracts or Bonds of the District nor is any other reserve fund relating to any other Contracts or Bonds available for the payment of any insufficiency with respect to the Installment Payments. Any money in the Reserve Fund in excess of the Reserve Requirement shall be withdrawn from the Reserve Fund and be deposited in the Certificate Payment Fund semiannually on or before each Interest Payment Date so long as the District is not then in default under the Installment Purchase Agreement. In addition,the Trustee shall, on the date all or any portion of the 2003 Certificates are discharged in accordance with the Trust Agreement, value the Reserve Fund and withdraw the excess,if any,on deposit in the Reserve Fund and transfer such amount to 10 SF1 1329861v8 SECURITY AND SOURCES OF PAYMENT FOR THE 2003 CERTIFICATES Installment Payments Pursuant to the Installment Purchase Agreement, in consideration for the Corporation's assistance in financing the Settlement Obligation (see "THE TRANSACTION"herein), the District sells to the Corporation and the Corporation purchases from the District certain assets and facilities comprising the Electric System (excluding the District Administration Building) of the District(the "Property")to be purchased back by the District from the Corporation pursuant to the Installment Purchase Agreement. All right, title and interest in each component of the Property is to be vested in the District upon execution and delivery of the Installment Purchase Agreement. The District is obligated to make the Installment Payments to be paid by it under the Installment Purchase Agreement as payment of the purchase price for the Property being purchased by the District from the Corporation thereunder. The 2003A Certificates evidence the interests of the Owners thereof in the Series A Installment Payments to be made by the District pursuant to the Installment Purchase Agreement and the 2003B Certificates evidence the interests of the Owners in the Series B Installment Payments pursuant to the Installment Purchase Agreement. The Installment Purchase Agreement provides that the District's obligation to pay the Installment Payments is absolute and unconditional, and,until such time as the Installment Payments shall have been paid in full(or provision for the payment thereof shall have been made pursuant to the Installment Purchase Agreement), the District will not discontinue or suspend any Installment Payments required to be paid by the District under the Installment Purchase Agreement when due, whether or not the Electric System or any part thereof is operating or operable, or its use is suspended,interfered with,reduced or curtailed or terminated in whole or in part,and such Installment Payments are not subject to reduction, whether by offset or otherwise, and not conditional upon the performance or nonperformance by any party of any agreement or for any other cause whatsoever. Notwithstanding anything contained in the Installment Purchase Agreement, the District shall not be required to advance any moneys derived from any source of income other than the Net Revenues and the Reserve Fund for the payment of the Installment Payments or for the performance of any agreements or covenants required to be performed by it contained in the Agreement. 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 District has from time to time entered into certain power purchase agreements. .The District's obligations under power purchase agreements constitute Operation and Maintenance Costs payable prior to the Installment Payments. Generally, the District has entered into such power purchase agreements solely or primarily for use within its own Electric System. However, the District is not prohibited from entering into purchases of power in amounts which are in excess of its system requirements, which surplus power may be made available for resale(at prices above or below its costs of purchase). Pursuant to an Assignment Agreement, dated as of , 2003 (the"Assignment Agreement"),by and between the Corporation and the Trustee, the Corporation sells, assigns and transfers over to the Trustee, for the benefit of the Owners of the 2003 Certificates, all of its rights, title and interest in the Installment Purchase Agreement, including the right to receive all Installment Payments from the District under the Installment Purchase Agreement(but not including the right to be indemnified and the right to receive notices pursuant to the Installment Purchase Agreement),together with any and all of the other rights of the Corporation under the Installment Purchase Agreement as may be necessary to enforce payment of such Installment Payments when due or to otherwise protect the interests of the Owners of the 2003 Certificates. The District consents to such assignment in the Installment Purchase Agreement and agrees to make payments of the Installment Payments directly to the Trustee. The Trust Agreement provides that the Installment Payments collected or received by the Corporation shall be deposited by the Corporation within one business day after the receipt thereof. The Trustee also shall, subject to the provisions of the Trust Agreement, record, register, file, renew,refile and re-record all documents, including financing statements, as to maintain a security interest in the Trust Agreement and to preserve,protect and perfect the security of the Owners of the 2003 Certificates and the rights and security interests of the Trustee. The Trust Agreement provides that all of the Installment Payments received by the Trustee shall be deposited 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 of the 2003 Certificates but shall be disbursed,allocated and applied solely for the uses and purposes provided in the Trust Agreement. 8 SF1 1329861v8 ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the 2003 Certificates are as follows: Sources: Principal Amount of 2003 Certificates...................................................... $ Original Issue Premium(Discount)........................................................... Total................ ............................. ............................................... $ Uses: Payment of Settlement Obligation............................................................. $ Deposit to Reserve Fund') ....................................................................... Underwriter's Discount............................................................................. Costsof Issuance(2).................................................................................... Total................................................................................................... $ Represents Reserve Requirement for the 2003 Certificates. See"SECURITY AND SOURCES OF PAYMENT FOR THE 2003 CERTIFICATES—Reserve Fund"herein. (2) Includes legal, financing and consulting fees, Trustee's fees, printing costs, rating agency fees, bond insurance premium and other costs incurred in connection with the delivery of the 2003 Certificates. THE 2003 CERTIFICATES General The 2003 Certificates will be executed and delivered in the aggregate principal amount of$ comprised of $ aggregate principal amount of 2003A Certificates and $ aggregate principal amount of 2003B Certificates. The 2003 Certificates will be prepared as one fully registered securities certificate for each maturity of each Series of the 2003 Certificates and will be registered in the name of Cede& Co., as nominee for The Depository Trust Company,New York,New York("DTC"). DTC will act as securities depository for the 2003 Certificates. Principal and interest evidenced by the 2003 Certificates are payable by the Trustee to DTC, which is obligated in turn to remit such principal and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the 2003 Certificates. See "APPENDIX D—BOOK-ENTRY ONLY SYSTEM"herein. The 2003 Certificates will be delivered in authorized denominations of$5,000 or any integral multiple thereof. Interest represented by the 2003 Certificates is payable on July 1, 2003 and semiannually thereafter, on each January 1 and July 1 (each, an "Interest Payment Date" for the 2003 Certificates), computed on the basis of a 360-day year comprised of twelve 30-day months. The 2003 Certificates will be dated the date of delivery thereof, will mature on the dates and in the principal amounts and will evidence interest at the rates, all as set forth on the front cover of this Official Statement. Prepayment Provisions The 2003 Certificates are not subject to optional or mandatory prepayment prior to their stated maturity dates. *Preliminary, subject to change. 6 SF1 1329861v8 System on a parity with the Installment Payments, subject to the terms of the Installment Purchase Agreement. See "SECURITY AND SOURCES OF PAYMENT FOR THE 2003 CERTIFICATES"herein. The obligation of the District to make the Installment Payments does not constitute a debt of the District or of the State of California or of any political subdivision thereof in contravention of any constitution or statutory debt limitation or restriction. Rate Covenant The District covenants pursuant to the Installment Purchase Agreement, that it will, at all times fix, prescribe and collect rates and charges for the electricity distribution service (the `Electricity Service") made available or provided by the Electric System which will be at least sufficient to yield Adjusted Net Revenues for such Fiscal Year equal to at least 120% of the Debt Service for such Fiscal Year. See "SECURITY AND SOURCES OF PAYMENT FOR THE 2003 CERTIFICATES—Rate Covenant"herein. Reserve Fund A Reserve Fund is established with the Trustee pursuant to the Trust Agreement in an amount equal to the Reserve Requirement(as defined in the Trust Agreement). Amounts on deposit in the Reserve Fund will be applied to pay principal of and/or interest evidenced by the 2003 Certificates in the event amounts on deposit in the Certificate Payment Fund are insufficient therefor. The District may substitute a municipal bond debt service reserve policy or a surety bond or a letter of credit(a"Reserve Insurance Policy")for money or substitute money for any Reserve Insurance Policy held by the Trustee in the Reserve Fund in accordance with the terms of the Trust Agreement. See "SECURITY AND SOURCES OF PAYMENT FOR THE 2003 CERTIFICATES—Reserve Fund"herein. Certificate Insurance Payment of the principal of and interest evidenced by the 2003 Certificates when due (not including acceleration or prepayment) will be insured by respective municipal bond insurance policies (collectively, the "Policy")to be issued by the (the "Insurer") simultaneously with the delivery of the 2003A Certificates and the 2003B Certificates. See"CERTIFICATE INSURANCE"herein. Continuing Disclosure The District has covenanted for the benefit of the Owners and beneficial owners of the 2003 Certificates to provide certain financial information and operating data relating to the District and the Electric System annually,and to provide notices of the occurrence of certain enumerated events,if material. See"CONTINUING DISCLOSURE" herein. Other Matters This Official Statement speaks only as of its date, and the information and expressions of opinions contained herein are subject to change without notice. Neither delivery of this Official Statement nor any sale made hereunder, under any circumstances, shall create any implication that there has been no change in the affairs of the District or the Electric System since the date hereof. This Official Statement, including any supplement or amendment hereto,is intended to be deposited with one or more repositories. The summaries of and references to documents, statutes,reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to each document, statute, report or instrument. The capitalization of any word not conventionally capitalized or otherwise defined herein indicates that such word is defined in a particular agreement or other document and, as used herein, has the meaning given it in such agreement or document. See "APPENDIX E—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS"herein. 4 SF1 1329861v8 OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY...........................................................28 . Proposed Federal Deregulation and Tax Legislation.........................................................................................28 OtherFactors.....................................................................................................................................................28 RATEREGULATION................................................................................................................................................29 CONTINUINGDISCLOSURE..................................................................................................................................29 THECORPORATION................................................................................................................................................30 CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS.......................................................30 California Constitution Article XIIIB................................................................................................................30 ConstitutionalChanges in California................................................................................................................30 TAXMATTERS.........................................................................................................................................................30 2003ACertificates.............................................................................................................................................30 2003BCertificates.............................................................................................................................................32 ABSENCEOF LITIGATION.....................................................................................................................................32 APPROVALOF LEGALITY.....................................................................................................................................32 RATINGS....................................................................................................................................................................32 FINANCIALADVISOR.............................................................................................................................................33 UNDERWRITING......................................................................................................................................................33 EXECUTIONAND DELIVERY................................................................................................................................33 APPENDIX A - AUDITED FINANCIAL STATEMENTS OF THE DISTRICT AS OF DECEMBER 31,2001 AND 2000.............................................................................................A-1 APPENDIX B - UNAUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED DECEMBER 31,2002......................................................................................B-1 APPENDIX C - GENERAL INFORMATION:DISTRICT SERVICE AREA....................................................C-1 APPENDIX D - BOOK-ENTRY ONLY SYSTEM..............................................................................................D-1 APPENDIX E - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.............................................................E-1 APPENDIX F - PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT..................................F-1 APPENDIX G PROPOSED FORM OF OPINION OF SPECIAL COUNSEL G-1 [APPENDIX H - SPECIMEN MUNICIPAL BOND INSURANCE POLICY.....................................................H-1] ii SF1 1329861v8 No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to W give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy,nor shall there be any sale of the 2003 Certificates by a person in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Statements contained in this Official Statement that include forecasts, estimates or matters of opinion, whether or not expressly stated as such, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been furnished by the District and by other sources that are believed to be reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed as representations by the Underwriter. The information and expressions of opinions herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall create, under any circumstances, any implication that there has been no change in affairs of the District since the date hereof. This Official Statement, including any supplement or amendment hereto,is intended to be deposited with one or more repositories. 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 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. IN CONNECTION WITH THE OFFERING OF THE 2003 CERTIFICATES, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT MAY STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH 2O03 CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED,MAY BE DISCONTINUED AT ANY TIME. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute "forward- looking statements." Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate,""budget"or other similar words. Such forward-looking statements include,but are not limited to,certain statements contained in the information under the captions "THE DISTRICT'S ELECTRIC SYSTEM—Power Supply Resources—Future Power Supply Resources" and "—Summary of Historical Net Revenues and Balance Sheet Information—Management's Discussion of Operating Results," "DEVELOPMENTS IN THE CALIFORNIA AND RELATED ENERGY MARKETS"and"RATE REGULATION"in this Official Statement. Forward looking statements in this Official Statement are subject to risks and uncertainties, including particularly those relating to competition and electric industry restructuring,and to the economy of the District's service area. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results,performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. SF1 1329861v8 MATURITY SCHEDULES* $ *2003A Certificates (Base CUSIP Number___) Maturity Principal Interest CUSIP Maturity Principal Interest CUSIP (January 1) Amount Rate Yield Number (January 1) Amount Rate Yield Number $ *2003B Certificates (Base CUSIP Number .. Maturity Principal Interest CUSIP Maturity Principal Interest CUSIP (January 1) Amount Rate Price Number (January 1) Amount Rate Price Number SF1 132986lv8 Stradling Yocca Carlson& Rauth Draft of 02/18/03 TRUST AGREEMENT by and among BNY WESTERN TRUST COMPANY, as Trustee and TRUCKEE-DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION, as Corporation and TRUCKEE-DONNER PUBLIC UTILITY DISTRICT, as District Dated as of March 1,2003 Relating to TRUCKEE-DONNER PUBLIC UTILITY DISTRICT REVENUE CERTIFICATES OF PARTICIPATION, SERIES 2003A AND TAXABLE SERIES 2003B DOCSSF\35478v4\22925.0006 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. Information Services. The term "Information Services"means national information services that disseminate securities redemption notices; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the District may specify in a Written Request to the District and the Trustee as the Trustee may select. 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 March 1, 2003, by and between the District and the Corporation, as originally executed or as it may from time to time be amended or supplemented in accordance with its terms. Interest Account. The term "Interest Account" means the account within the Certificate Payment Fund by that name established in Section 5.2 hereof. Letter of Representations. The term "Letter of Representations" means the letter of the District 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 delivered to and accepted by the Depository. Moody's. The term"Moody's"means Moody's Investors Service, or its successors. 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. 2 DOCSSF\35478v4\22925.0006 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; (7) the Local Agency Investment Fund; and (8) other forms of investments approved in writing by the Bond Insurer with notice to S&P. Prepayment Account. The term "Prepayment Account" means the account within the Certificate Payment Fund by that name established in Section 5.2 hereof. Prepayment Price. The term"Prepayment Price" means the principal amount with respect to such 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 of the Trustee in San Francisco, 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 Account. The term "Principal Account" means the account within the Certificate Payment 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. S&P. The term"S&P"means Standard&Poor's Ratings Group, or its successors. Series 2003A Certificates. The term"Series 2003A Certificates"means the Revenue Certificates of Participation, Series 2003A executed and delivered by the Trustee pursuant to this Agreement. Series 2003A Reserve Account. The term"Series 2003A Reserve Account"means the account within the Reserve Fund by that name established in Section 5.2 hereof. Series 2003B Taxable Certificates. The term"Series 2003B Taxable Certificates"means the Revenue Certificates of Participation, Taxable Series 2003B executed and delivered by the Trustee pursuant to this Agreement. Securities Depositories. The term "Securities Depositories" means The Depository Trust Company 711 Stewart Avenue, Garden City, New York 11530, Fax 516/227-4039 or 4190 or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other securities depositaries, or no such depositaries as the Corporation or the District may designate in a Written Request of the Corporation or a Written Request of the District, as the case may be, to the Trustee. 4 DOCSSF135478v4\22925.0006 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 or the District 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 the District, or upon the statement or opinion of or representations by an officer or officers of the Corporation or the District,unless such counsel, accountant or consultant 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 opinion may be based as aforesaid are-erroneous. Section 1.4. Recitals. (a) Installment Purchase Agreement. The Corporation and the District have entered into the Installment Purchase Agreement whereby the Corporation has agreed to assist the District in financing the Project and the District has agreed to purchase the Project from the Corporation. (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. 6 DOCSSF\35478v4\22925.0006 Section 2.3. Payment of Principal and Interest with Respect to Certificates. The Series 2003A Certificates shall become payable on January 1 in the years, in the amounts and at the rates,as follows: Payment Date (January 1) Principal Amount Interest Rate 2003 2004 2005 2006 2007 2008 2009 2010 The Series 2003B Taxable Certificates shall become payable on January 1 in the years, in the amounts and at the rates, as follows: Payment Date (January 1) Principal Amount Interest Rate 2011 2012 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. 8 DOCSSF\35478v4\22925.0006 °~ 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 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 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 10 DOCSSF135478v4\22925.0006 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 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 received from the sale of the Certificates being $_ , which represents $ face amount of the Certificates, less original issue discount of'$ and less Underwriter's discount of$ , and after$ is paid by the initial purchasers of the Certificates directly to the Bond Insurer, shall be deposited with the Trustee, who shall deposit the sum of $ in the Series 2003A Reserve Account, shall deposit $ in the Taxable Series 2003B Reserve Account, shall deposit the sum of$ in the Delivery Cost 12 DOCSSF135478v4\22925.0006 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 portions 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 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 14 DOCSSF\35478v4\22925.0006 Prepayment Account 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 Account 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 and the Reserve Fund shall be invested upon the Written Request of the District, by the Trustee, in Permitted Investments which will mature on or before the dates when such moneys are 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(b)(5) of the definition thereof. 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 should 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. 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. Any transfers from the Reserve Fund made pursuant to this paragraph shall be made from the Series 2003A Reserve Account and the Taxable Series 2O03B Reserve Account on a pro-rata basis. 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 each Payment Date withdraw the amount of such excess from the Reserve Fund and shall deposit such amount in the Certificate Payment Fund, and for this determination the Trustee shall make a valuation of the Reserve Fund as often as it may 16 DOCSSF\35478v4\22925.0006 compliance by the District with the terms of the Tax Certificate, and (iii)may rely conclusively on the District's calculations and determinations and certifications relating to rebate matters, and (iv) shall have no responsibility to independently make any calculations or determinations or to review the District's calculations or determinations thereunder. (i) Annual Computation. Within 55 days of the end of each Certificate Year (as such term is defined in the Tax Certificate), 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 (C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the "11/z% 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, 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, (1) 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 (2) Not later than 60 days after the payment of all the Series 2003A 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. 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. 18 DOCSSF135478v4\22925.0006 would cause the Series 2003A Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. (b) Arbitrage. The District will make no use of the proceeds of the Series 2003A Certificates or of any other amounts or property, regardless of the source, or take or omit to take any action which would cause the Series 2003A Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Code. (c) Federal Guarantee. The District will make no use of the proceeds of the Series 2003A Certificates or take or omit to take any action that would cause.the Series 2003A Certificates to be "federally guaranteed"within the meaning of Section 149(b)of the Code. (d) Information Reporting. The District will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code. (e) Miscellaneous. The District will take no action inconsistent with its expectations stated in any Tax Certificate executed with respect to the Series 2003A 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 from causing the Trustee to execute and deliver, Series 2003A 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 contracts, rights and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. 20 DOCSSF\35478v4\22925.0006 Section 6.10. Eminent Domain. If all or any part of the Electric System shall be taken by eminent domain proceedings (or sold to a government threatening to exercise the power of eminent domain), the Net Proceeds therefrom may 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. Section 6.12. Continuing Disclosure. The District hereby covenants and agrees that it will comply with and carry out all of its obligations under the continuing disclosure certificate to be executed and delivered by the District in connection with the delivery of the Certificates. 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 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 6.12. For purposes of this Section, `Beneficial Owner" means any-person which has or shares the power, directly or indirectly,to make investment decisions concerning ownership of any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries). 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 and the Corporation. 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 all moneys received as Installment Payments and all moneys held in any fund or account hereunder to the payment of the entire principal amount of the Certificates and the accrued 22 DOCSSF135478v4\22925.0006 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 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; ( ) 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. 24 DOCSSF\35478v4\22925.0006 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. Section 8.3. Trustee: Duties, Removal and Resi ng ation. 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 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. 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 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 26 DOCSSF135478v4\22925.0006 reasonable grounds for believing that repayment of such.funds or.adequate.indemnity against such risk or liability is not assured to it. 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 11.11 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 or 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. 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 parry 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. 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, with the Trustee.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 28 DOCSSF135478v4\22925.0006 ARTICLE X DEFEASANCE Section 10.1. Discharge of Trust Aueement. 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), 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 M'6neys 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 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. 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 30 DOCSSF\35478v4\22925.0006 deeds to be recorded in the state or territory in which he or she purports to act that the person signing such declaration, request or other instrument or writing acknowledged to him or her 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. The Trustee may adopt appropriate regulations to require each Owner of Certificates, before his or her 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. 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 11.8. 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 32 DOCSSF\35478v4\22925.0006 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. BNY WESTERN TRUST COMPANY,as Trustee By: Authorized Officer TRUCKEE-DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION By: President By: Secretary TRUCKEE-DONNER PUBLIC UTILITY DISTRICT By: President By: Clerk 34 DOCSSF\35478v4\22925.0006 .,. Interest with respect to this Certificate shall be paid on January 1 and July 1 in each year, commencing July 1, 2003 (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 Date") 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, all in accordance therewith. All Revenues and all amounts on deposit in the Revenue 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 there may be apportioned such sums for such purposes as are expressly permitted in the Installment Purchase Agreement. This pledge, together with the pledge created by all other Contracts and Bonds (as such terms are defined in the Installment Purchase Agreement) constitutes a first 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. 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) on a parity with certain outstanding Contracts as described in the 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 incur Contracts or issue Bonds, the payments of which are on a parity with the ii DOCSSF135478v4\22925.0006 amount of the Certificates then outstanding, but 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 registered owners of any Certificates, 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 (3) to make such other amendments or modifications as may be in the best interests of the registered owners of the Certificates. 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. 0. 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. iv DOCSSF135478v4\22925.0006 [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. vi DOCSSF135478v4\22925.0006 Table of Contents (continued) Page ARTICLE V INSTALLMENT PAYMENTS Section 5.1. Pledge and Deposit of Installment Payments..............................................................14 Section 5.2. Certificate Payment Fund........................................................................................... 15 Section5.3. Investment of Moneys in Special Funds....................................... .............................16 Section5.4. Reserve Fund..............................................................................................................16 Section 5.5. Pledge of Moneys in Funds.............................................................................. ........17 Section5.6. Rebate Fund................................................................................................................17 Section 5.7. Payments under the Bond Insurance Policy............... ..............................................19 ARTICLE VI COVENANTS Section 6.1. Corporation and District to Perform Under Installment Purchase Agreement...........19 Section6.2. Budgets.......................................................................................................................19 Section6.3. Tax Covenants............................................................................................................19 Section 6.4. Accounting Records and Reports......................................................................... ....20 Section 6.5. Compliance with Trust Agreement.......................................................... ................20 Section 6.6. Observance of Laws and Regulations.........................................................................20 Section 6.7. Compliance with Contracts.........................................................................................21 Section 6.8. Prosecution and Defense of Suits ...............................................................................21 Section 6.9. Recordation and Filing......................... ....................................................................21 Section6.10. Eminent Domain.........................................................................................................22 Section 6.11. Further Assurances .....................................................................................................22 Section 6.12. Continuing Disclosure.............................................. ............. ...............................22 ARTICLE VII DEFAULT AND LIMITATION OF LIABILITY Section 7.1. Notice of Non-Payment..............................................................................................22 Section 7.2. Action on Default or Termination...............................................................................22 Section 7.3. Other Remedies of the Trustee ...................................................................................23 Section7.4. Non-Waiver................................................................................................................23 Section 7.5. Remedies Not Exclusive.............................................................................................23 Section 7.6. No Obligation by the District to Owners....................................................................23 Section 7.7. Trustee Appointed Agent for Certificate-owners: Direction of Proceedings ............23 Section 7.8. Power of Trustee to Control Proceedings...................................................................24 Section 7.9. Limitation on Certificate-owners' Right to Sue..........................................................24 Section 7.10. No Obligation with Respect to Performance by Trustee............................................25 Section 7.11. No Liability to Owners for Payment...................................................0.......................25 Section 7.12. No Responsibility for Sufficiency..............................................................................25 ii DOCSSF135478v4\22925.0006 Table of Contents (continued) Paize Section 7.13. Indemnification of Trustee..........................................................................................25 ARTICLE VIII THE TRUSTEE Section 8.1. Employment of Trustee...............................................................................................25 Section 8.2. Acceptance of Employment........................................................................................26 Section 8.3. Trustee: Duties, Removal and Resignation................................................................26 Section 8.4. Compensation of the Trustee......................................................................................26 Section 8.5. Protection of the Trustee.............................................................................................26 Section 8.6. Merger or Consolidation.............................................................................................28 ARTICLE IX AMENDMENT OF TRUST AGREEMENT Section 9.1. Amendments Permitted....:..........................................................................................28 Section 9.2. Endorsement or Replacement of Certificates After Amendment or Supplement.......29 Section 9.3. •Amendment of Particular Certificates ........................................................................29 ARTICLE X DEFEASANCE Section 10.1. Discharge of Trust Agreement....................................................................................30 Section 10.2. Deposit of Money or Securities with Trustee.............................................................30 Section10.3. Unclaimed Moneys.....................................................................................................31 ARTICLE XI MISCELLANEOUS Section 11.1. Benefits of Trust Agreement Limited to Parties.........................................................31 Section 11.2. Successor Deemed Included in all References to Predecessor...................................31 Section 11:3. Execution of Documents by Owners..........................................................................31 Section 11.4. Disqualified Certificates................................. . ......................................................32 Section 11.5. Waiver of Personal Liability.......................................................................................32 Section 11.6. Acquisition of Certificates by the District; Destruction of Certificates......................32 Section11.7. Headings.....................................................................................................................32 Section 11.8. Funds and Accounts.....................................................................................................32 Section11.9. Partial Invalidity .........................................................................................................33 Section11.10. California Law............................................................................................................33 Section11.11. Notices........................................................................................................................33 Section 11.12. Execution in Counterparts...........................................................................................33 DOCSSF\35478v4\22925.0006 Table of Contents Page ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; CONTENTS OF CERTIFICATES AND OPINIONS; RECITALS Section1.1. Definitions ........... ................................................................... _ ................................ I Section 1.2. Rules of Construction...................................................................................................5 Section 1.3. Content of Statements and Opinions.............................................................................5 Section1.4. Recitals..........................................................................................................................6 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 Section2.4. Form of Certificates......................................................................................................8 Section2.5. Execution......................................................................................................................8 Section 2.6. Transfer of Certificates.................................................................................................8 Section 2.7. Exchange of Certificates...............................................................................................9 Section 2.8. Certificate Registration Books......................................................................................9 Section 2.9. Certificates Mutilated,Lost,Destroyed or Stolen ........................................................9 Section2.10. Book-Entry System............................... ... ................................................................ 10 ARTICLE III DELIVERY OF CERTIFICATES; DELIVERY COST FUND Section 3.1. Delivery of Certificates...............................................................................................12 Section 3.2. Application of Proceeds of Certificates and Certain Other Moneys........................... 12 Section 3.3. Validity of Certificates........................................ ..................................................... 13 Section3.4. Delivery Cost Fund..................................................................................................... 13 ARTICLE IV PREPAYMENT OF CERTIFICATES Section 4.1. Terms of Prepayment........:......................................................................................... 13 Section 4.2. Selection of Certificates for Prepayment.................................................................... 13 Section4.3. Notice of Prepayment................................................................................................. 13 Section 4.4. Partial Prepayment of Certificate................................................................................ 14 Section4.5. Effect of Prepayment.................................................................................................. 14 i DOCSSF135478v4\22925.0006 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: BNY WESTERN TRUST COMPANY, as Trustee By: Authorized Signatory [FORM OF STATEMENT OF INSURANCE] v DOCSSF\35478v4\22925.0006 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 integrals 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. 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 w h amended with the written consents of the registered owners of a majority in aggregate principal DOCSSF\35478v4\22925.0006 EXHIBIT A [FORM OF CERTIFICATE OF PARTICIPATION] TRUCKEE-DONNER PUBLIC UTILITY DISTRICT REVENUE CERTIFICATE OF PARTICIPATION, SERIES 2003A [TAXABLE SERIES 2003B] Evidencing an Interest of the Owner Hereof in Installment Payments to be Made by the TRUCKEE-DONNER PUBLIC UTILITY DISTRICT CERTIFICATE INTEREST RATE PAYMENT DATE DATED CUSIP % , 2003 REGISTERED OWNER: PRINCIPAL AMOUNT: AND NO1100 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 March 1, 2003, 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 BNY Western Trust Company, 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 March 1, 2003,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 , 2003; provided, however, that if, as shown by the records of the Trustee, interest represented by this Certificate is in default, Certificates executed in 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 , 2003. DOCSSF135478v4122925.0006 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 11.9. 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; sentences, clauses or phrases hereof or the application thereof to any person or circumstances may be held to be unconstitutional,unenforceable or invalid. Section 11.10. California Law. THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE. Section 11.11. 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: Truckee-Donner Public Utility District 11570 Donner Pass Road Truckee,CA 96160 Attention: General Manager If to the Corporation: Truckee-Donner Public Utility District Financing Corporation c/o Truckee-Donner Public Utility District 11570 Donner Pass Road Truckee,CA 96160 Attention: President If to the Trustee: BNY Western Trust Company 700 South Flower Street, Suite 200 Los Angeles, CA 90017-4104 Attention: Corporate Trust If to the Bond Insurer: Section 11.12. 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. 33 DOCSSF\35478v4\22925.0006 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 Mones. 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 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 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 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 31 DOCSSF\35478v4\22925.0006 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 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 upon the Corporation or the District, and which shall not adversely affect the interests of the Owners of the Certificates; (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 Trustee shall promptly upon execution and delivery of any-amendment pursuant to clause (b) above send by first class mail a copy of such amendment to the Bond Insurer. 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 or her, provided that due notation thereof is made on such Certificates. 29 DOCSSF\35478v4122925.0006 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 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 this Agreement upon the faith thereof, but in its discretion the Trustee may (but shall have no duty), in lieu thereof, 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 this Agreement or in the performance of its duties hereunder or for anything whatever in connection with the funds and accounts established hereunder, except only for 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 27 DOCSSF135478v4\22925.0006 wAtn.tine.erouw,:mvw.caac..:.a«m:w,..a.e... ...... ...,__.._....._...............:_.....a..:,. ..,...A..�. _,.. .. ,.. 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. 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. 25 DOCSSF\35478v4122925.0006 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. Section 7.3. Other Remedies of the Trustee. The Trustee 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, -- (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 determined adversely to the Trustee, 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 Certificateowners; 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 23 DOCSSF135478v4\22925.0006 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 Electric 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), the Corporation or any Certificate Owner upon any claim arising out of the receipt, application or disbursement of any of the Installment Payments or involving the rights of the Trustee,the Corporation or any Certificate Owner under this Agreement; provided that the Trustee, the Corporation or any Certificate Owner 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,the Corporation and the Certificate Owners 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 Certificate Owners against any attorneys' fees or other expenses which any of them may incur in connection with any litigation(including pre- litigation activities)to which any of them may become a party by reason of ownership of Certificates. The District shall promptly reimburse the Corporation or any Certificate Owner in the full amount of any attorneys' fees or other expenses which the Corporation or such Owner may incur in litigation or otherwise in order to enforce such partying rights under this Agreement or the Certificates, provided that such litigation shall be concluded favorably to such parry'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 hereof)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 parry 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 District, from time to time with respect to the above described actions so long as the District shall supply said recording or filing instruments. 21 DOCSSF135478v4\22925.0006 (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after prepayment and payment of the Series 2003A Certificates and the payments described in u Subsection(a) above being made may be withdrawn by the District and utilized in any manner by the District. (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 Series 2003A Certificates. Section 5.7. Payments under the Bond Insurance Policy. [TO COME] 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 fifteenth day 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 Series 2003A Certificates will not be adversely affected for federal income tax purposes, the District 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 will not take or omit to take any action or make any use of the proceeds of the Series 2003A Certificates or of any other moneys or property which 19 DOCSSF135478v4\22925.0006 deem appropriate, and in any event on or before 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 market value. The District may substitute a municipal bond debt service reserve fund policy or a surety bond or a letter of credit (a "Reserve Insurance Policy") for any Reserve Insurance Policy or money held by the Trustee in the Reserve Fund; provided, that (i) in the case of a municipal bond debt service reserve fund policy or a surety bond, bonds which are insured by the issuer thereof are rated in the highest rating category by S&P and Moody's, or, in the case of a letter of credit,the unsecured debt obligations of the issuing bank thereof are rated in the highest short-term rating category by S&P and Moody's; (ii) the sum of the money and face amount of any Reserve Insurance Policy in effect after such substitution will be equal to the Reserve Requirement; and (iii) in the case of the substitution of a new Reserve Insurance Policy for money or an existing Reserve Insurance Policy, the Trustee receives an opinion of Special Counsel to the effect that such substitution will not adversely affect the exclusion from gross income for federal income tax purposes of interest with . respect to the Certificates. Section 5.5. Pledge of Moneys in Funds. All amounts on deposit in the Delivery Cost Fund, the Certificate Payment 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 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 fund for the Series 2003A 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 Series 2003A 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 Series 2003A Certificates shall be governed by this Section and the Tax Certificate for the Series 2003A 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 Series 2003A Certificates will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained herein or in the Tax Certificate,the Trustee (i) shall be deemed conclusively to have complied with the provisions'thereof if it follows all Written Requests of the District, and (ii) shall have no liability or responsibility to enforce 17 DOCSSF135478v4\22925.0006 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 Certificate Payment Fund (with a Principal Account, an Interest Account and a Prepayment Account therein) and the Reserve Fund (with a Series 2003A Reserve Account and a Taxable Series 2003B Reserve Account therein) 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 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 Account. The Trustee, on the last business day before each Interest Payment Date (commencing on the last business day of June 2003), shall deposit in the Interest Account an amount representing the portion of the Installment Payments designated as interest coming due on the next succeeding January 1 or July 1, as the case may be. No deposit need be made into the Interest Account 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 January 1 or July 1, as the case may be. Except as hereinafter provided, moneys in the Interest Account 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 Account. The Trustee, on the last business day before each January 1 (commencing on the last business day of December 2003), shall deposit in the Principal Account an amount equal to the principal coming due with respect to the Certificates on the next succeeding January 1. No deposit need be made into the Principal Account 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 January 1. Except as hereinafter provided, moneys in the Principal Account 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 Account. 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 15 DOCSSF135478v4\22925.0006 Fund and shall transfer the remaining proceeds,being $26,000,000,to the District for payment of the Settlement Obligation. 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 September 1, 2003, or upon the earlier Written Request of the District, all amounts remaining in the Delivery Cost Fund shall be transferred by the Trustee to the District for deposit in the Certificate Payment Fund. ARTICLE IV PREPAYMENT OF CERTIFICATES Section 4.1. Terms of Prepayment. 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 60 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. Section 4.2. Selection of Certificates for Prepayment. 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, fast 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 13 DOCSSF135478v4122925.0006 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. (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: (1) 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; (2) 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 (3) 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, 11 DOCSSF\35478v4\22925.0006 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 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, at the office of the Trustee in San Francisco, California, 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. 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 series, 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 series, 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 9 DOCSSF\35478v4\22925.0006 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 "Revenue Certificates of Participation, Series 2003A" in an aggregate principal amount of$ and"Revenue Certificates of Participation, Taxable Series 200313" 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, 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 such 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 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. The Certificates shall be dated their date of delivery. 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 from , 2003, 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, from 2003. Interest represented by the Certificates shall be calculated on the basis of a 360=day year of twelve 30-day months. 7 DOCSSF135478v4122925.0006 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 Secretary 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. 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 March 2003, 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. Taxable Series 2003B Reserve Account. The term"Taxable Series 2003B Reserve Account" means the account within the Reserve Fund by that name established in Section 5.2 hereof. Trustee. The term "Trustee" means BNY Western Trust Company, a state banking corporation duly organized and existing under and by virtue of the laws of the State of California having a principal corporate trust office in San Francisco, 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 Corporation 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 President or a Vice President or (h) the District by the President or General Manager or by the Secretary 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 or the District, 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 5 DOCSSF\35478v4\22925.0006 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. 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 January 1 and July 1 in each year commencing July 1, 2003 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. 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; 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 the applicable Rating Agency 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 in the single highest classification, "A-1+" by S&P and "P-l" 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; (6) pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United 3 DOCSSF135478v4\22925.0006 w TRUST AGREEMENT THIS TRUST AGREEMENT, made and entered into as of March 1, 2003 (the "Agreement"), by and among BNY Western Trust Company, as trustee (the "Trustee"), a state banking corporation duly organized and existing under the laws of the State of California, and TRUCKEE-DONNER PUBLIC UTILITY DISTRICT FINANCING CORPORATION, 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, a public utility district duly organized and existing under the laws of the State of California(the"District"); WI TNESSE TH.• 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 March 1, 2003 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 insurance policy issued by the Bond Insurer insuring payment when due of the principal of and interest with respect to the Certificates as provided therein. Bond Insurer. The term"Bond Insurer"means 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 Series 2003A Certificates and the Taxable Series 2003B Certificates. Code. The term "Code" means the Internal Revenue Code of 1986, as amended, and the United States Treasury Regulations in effect with respect thereto. DOCSSF135478v4122925.0006 SAB&W LLP Draft of 2/26/03 REVENUE CERTIFICATES OF PARTICIPATION, SERIES 2003 Evidencing the Interests of the Owners Thereof in Installment Payments to be Made by the TRUCKEE-DONNER PUBLIC UTILITY DISTRICT Series 2003A Taxable Series 2003B PURCHASE CONTRACT 92003 Board of Directors Truckee-Donner Public Utility District Truckee, California Ladies and Gentlemen: The undersigned, Bear, Stearns & Co. Inc. (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 2003 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$ aggregate principal amount of Truckee-Donner Public Utility District Revenue Certificates of Participation, Series 2003A (the "2003A Certificates") and $ aggregate principal LA 1 480126v2 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 2003 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 2003 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 Agreement, 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 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 , 2003 relating to the 2003 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 under the Securities Exchange Act of 1934 ("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 on the internet at the [Thomson Prospectus] website. 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 2003 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 3 LA 1 480126v2 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 2003 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 2003 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 2003 Certificates; provided, however, that in no event shall the District be 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 2003 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 2003 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; 5 LAI 480126v2 Closing Date. Accordingly, the Underwriter's obligations under this Purchase Contract to purchase, to accept delivery of and to pay for the 2003 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; (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 Legal Documents 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 market- ability of the 2003 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 2003 Certificates),by reason of any of the following: (1) an amendment to the Constitution of the United States or the State of California shall have been passed or legislation shall have been introduced in or enacted by the Congress of the United States or the legislature of the State of California or legislation pending in the Congress of the United States shall have been amended or legislation shall have been recommended to the Congress of the United States 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, or legislation shall have been proposed for consideration by either such Committee by any member thereof or presented as an option for 7 LA1 480126v2 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 jurisdic- tion, 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 2003 Certificates, or the issuance, offering or sale of the 2003 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 withdrawal or downgrading of any rating of the 2003 Certificates by any rating agency then rating the 2003 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; (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 on the [Thomson Prospectus] website, 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 Legal Documents, 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 G 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; 9 LA 1 480126v2 relating to the Insurer and its Policy, DTC and the book-entry system and the financial statements and the statistical data included in the Official Statement and the appendices thereto, as to which no opinion need be expressed), as of the date thereof and the Closing Date, contained any 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; (9) 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 2003 Certificates, (b)in any way contesting or affecting the validity of the 2003 Certificates or the Legal Documents or (c) in 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 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, 2001, except as referred to in or as contemplated by the Official Statement, with respect to its Electric 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 Electric System, in any case that would materially and adversely affect the ability of the District to meet its obligations under the Installment Purchase Agreement; (10) 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 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 reorganization, insolvency, liquidity, readjustment 11 LA 1 480126v2 (17) A copy of any Preliminary Blue Sky Survey and Legal Investment Survey with respect to the 2003 Certificates,prepared by Underwriter's Counsel; (18) A copy of the audited financial statements of the District included as Appendix A to the Official Statement; (19) Arbitrage certifications by the District with respect to the 2003 Certificates in form satisfactory to Special Counsel; and (20) Such additional legal opinions, certificates, proceedings, instru- ments, 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 2003 Certificates at the Closing, the amount of one percent (1%) of the principal amount of the 2003 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. Expenses. All expenses and costs incident to the authorization, execution, delivery and sale of the 2003 Certificates to the Underwriter, including the costs of preparing and printing of the 2003 Certificates, the Preliminary Official Statement and the Official Statement (in reasonable quantities), any bond insurance premiums, the fees of accountants, financial advisors and consultants, the initial fees of the Trustee and its counsel, the initial fees and expenses of the Corporation and its counsel in connection with the, execution and delivery of the 2003 Certificates and the fees and expenses of Special Counsel shall be paid from the proceeds of the 2003 Certificates. In the event that the 2003 Certificates for any reason are not executed and delivered, or to the extent proceeds of the 2003 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 2003 Certificates, shall be paid by the District. All out-of-pocket expenses of the Underwriter, including traveling and other expenses, the California 13 LA 1 480126v2 11. Governing Law. This Purchase Contract shall be construed in accordance with the laws of the State of California. Very truly yours, BEAR, STEARNS & CO. INC., as Underwriter By: Title: Senior Managing Director ACCEPTED: TRUCKEE-DONNER PUBLIC UTILITY DISTRICT By: Title: General Manager 15 LA 1 480126v2 EXHIBIT B FORM OF OPINION OF STRADLING YOCCA CARLSON & RAUTH Bear, Stearns & Co. Inc. 1999 Avenue of the Stars, 32nd Floor Los Angeles, California 90067-6100 Re: REVENUE CERTIFICATES OF PARTICIPATION, SERIES 2003 Evidencing the Interests of the Owners Thereof in Installment Payments to be Made by the TRUCKEE-DONNER PUBLIC UTILITY DISTRICT 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 , 2003 (the "Purchase Contract"), between you and the Truckee-Donner Public Utility District (the "District") providing for the purchase of$ principal amount of Revenue Certificates of Participation, Series 2003A (the "2003A Certificates") and $ principal amount of Revenue Certificates of Participation, Taxable Series 2003 B (the "2003 B Certificates" and together with the 2003A Certificates, the 2003 Certificates") evidencing interests of the Owners thereof in Installment Payments to be made by the District). The 2003 Certificates are being executed and delivered pursuant to a Trust Agreement (the "Trust Agreement") dated as of , 2003, by and among the District, the Truckee-Donner Public Utility District Financing Corporation (the "Corporation") and BNY Western Trust Company, as trustee. 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 2003 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: 1. The 2003 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 , 2003, with respect to the 2003 Certificates (the"Official Statement") and the execution and delivery thereof have been duly approved by the District. B-1 LA 1 480126v2 EXHIBIT C FORM OF OPINION OF DISTRICT COUNSEL Bear, Stearns & Co. Inc. 1999 Avenue of the Stars, 32nd Floor Los Angeles, California 90067-6100 Re: REVENUE CERTIFICATES OF PARTICIPATION, SERIES 2003 Evidencing the Interests of the Owners Thereof in Installment Payments to be Made by the TRUCKEE-DONNER PUBLIC UTILITY DISTRICT 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 Revenue Certificates of Participation, Series 2003A (the "2003A Certificates") and $ principal amount of Revenue Certificates of. Participation, Taxable Series 2003B (the "2003B Certificates" and together with the 2003A Certificates, the "2003 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 , 2003 (the "Trust Agreement"),by and among the District, the Truckee-Donner Public Utility District Financing Corporation (the "Corporation") and BNY Western Trust Company, as trustee (the "Trustee"); (ii)the Installment Purchase Agreement dated as of , 2003 (the "Installment Purchase Agreement"), by and between the District and the Corporation; (iii) the Purchase Contract dated 2003 (the "Purchase Contract"), by and between the District and you, the Underwriter; (iv)the Continuing Disclosure Agreement dated as of , 2003 (the "Continuing Disclosure Agreement"), by and between the District and the Trustee; and (v)the Official Statement dated , 2003 (the "Official Statement"), relating to the 2003 Certificates. 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. 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 approving and authorizing the execution and delivery of the Trust Agreement, the Installment Purchase Agreement, the C-1 LAI 480126v2 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, DTC and the 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 electric 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 sct forth in the Official Statement. 9. . The Net Revenues of the Electric 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 2003 Certificates or by virtue of this letter. This letter is delivered to you as Underwriter of the 2003 Certificates and 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. Respectfully submitted, C-3 LA 1480126v2 EXHIBIT D FORM OF LETTER TO UNDERWRITER 52003 Bear Stearns & Co. Inc. Los Angeles, California Ladies and Gentlemen: With respect to the proposed sale to you of its Revenue Certificates of Participation, Series 2003A and Taxable Series 2003B (collectively, the "2003 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 5. 2003, relating to the 2003 Certificates (the "Preliminary. Official Statement"). The District, for purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, deems the Preliminary Official Statement to be final as of its date, 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, and any other terms of the 2003 Certificates relating to such matters. 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 through the [Thomson Prospectus] website. Sincerely, TRUCKEE-DONNER PUBLIC UTILITY DISTRICT By: Name: Title: D-1 LA 1 480126v2 Purchase Contract and the Continuing Disclosure Agreement by the District (the "District Resolutions") 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 2003 Certificates, the Trust Agreement, the Installment Purchase Agreement, the Continuing Disclosure 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 Agreement, the Purchase Contract 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 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 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. 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 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 C-2 LA 1 480126v2 3. The Purchase Contract and the Continuing Disclosure Agreement 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 and the Continuing Disclosure Agreement 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 or the Continuing Disclosure Agreement. 4. The statements contained in the Official Statement under the captions "THE 2003 CERTIFICATES", "SECURITY AND SOURCES OF PAYMENT FOR THE 2003 CERTIFICATES", "TAX MATTERS", "APPENDIX E - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS", and "APPENDIX F — PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT" and "APPENDIX G — PROPOSED FORM OF OPINION OF SPECIAL COUNSEL," insofar as such statements expressly summarize certain provisions of the Trust Agreement, the Installment Purchase Agreement and the Continuing Disclosure Agreement, 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 2003 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 2003 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 2003 Certificates or by any other party to whom it is not specifically addressed. Very truly yours, B-2 LA 1480126v2 EXHIBIT A 2003 Certificates Payment Schedules $ 2003A Certificates Payment Date Principal Interest Price or (July 1) Amount Rate Yield $ 2003B Certificates Payment Date Principal Interest Price or (July 1) Amount Rate Yield A-1 LA1 480126v2 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: Bear, Stearns & Co. Inc. 1999 Avenue of the Stars, 32nd Floor Los Angeles, California 90067-6100 Attention: Public Finance, Senior Managing Director 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 2003 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. 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. 14 LA1 480126v2 of debt or other laws affecting the enforcement of the rights of creditors of the Corporation and by general- principles of equity; (iii)the Corporation has y , complied with all the terms of the Trust 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; (11) 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 banking corporation duly organized and existing under and by virtue of the laws of the State of California, having the full power and being qualified to enter into and perform its duties under the Trust Agreement and the Continuing Disclosure Agreement; (ii)to the best of such officer's knowledge, the execution and delivery of the Trust Agreement and the Continuing Disclosure Agreement and compliance with the provisions on the Trustee'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 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, as such but not in its individual capacity, 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 and the Continuing Disclosure Agreement against the Trustee, or contesting the powers of the Trustee 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 Trust Agreement and the Continuing Disclosure Agreement against the Trustee; (12) A specimen of the Policy issued by the Insurer; (13) The opinion of counsel to the Insurer, dated the Closing Date, addressed to the Corporation and the Underwriter, in the form previously submitted to the Underwriter; (14) Certified copies of the resolutions of the District authorizing the execution and delivery of the Legal Documents and the Official Statement; (15) Certified copies of the resolutions of the Corporation authorizing the execution and delivery of the Trust Agreement and the Installment Purchase Agreement; (16) Evidence that any ratings on the 2003 Certificates described in the Official Statement are.in full force and effect as of the Closing Date; 12 LA 1 480126v2 (5) The opinion of General Counsel of the District, dated the Closing Date and addressed to the Underwriter, in substantially the form attached hereto as Exhibit C; (6) The opinion of counsel to the Corporation, dated the Closing Date and addressed to 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 and the Installment Purchase 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 and the District, the execution and delivery of the Trust Agreement by the Corporation is effective and sufficient to transfer all right, title and interest of the Corporation in the Installment Purchase Agreement as are purported to be transferred thereby (including the Installment Payments) to the Trustee; (7) The opinion of counsel to the Trustee, dated the Closing Date and addressed to the District and the Underwriter, to the effect that (i)the Trustee is a banking corporation duly organized, validly existing and in good standing under the laws of the State of California and has full power and authority to execute and deliver the Trust Agreement and the Continuing Disclosure Agreement and to perform its obligations thereunder; (ii)the Trust Agreement and the Continuing Disclosure 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 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; (8) The opinion of Sidley Austin Brown & Wood.LLP, Los Angeles, California, Underwriter's Counsel, dated the Closing Date and addressed to the Underwriter, to the effect that (i)the 2003 Certificates are exempt from registration under the Securities Act of 1933, as amended, and the Trust Agreement is exempt from qualification under the Trust Indenture Act of 1939, as amended; and (ii)based upon their participation in the preparation of the Official Statement as Underwriter's Counsel and without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement, nothing has come to their attention which would cause them to believe that the Official Statement (excluding therefrom the information 10 LA 1480126v2 consideration by either such Committee by the staff of such Committee or by the staff of the Joint Committee on Taxation of the Congress of the United States, or legislation shall have been favorably reported for passage to either House.of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or a decision shall have been rendered by a court of the United States or of the State of California or the Tax Court of the United States, or a ruling shall have been made or a regulation or temporary regulation shall have been proposed or made or any other release or announcement shall have been made by the Treasury Department of the United States, the Internal Revenue Service or other federal or State of California authority, with respect to federal or State of California taxation upon Revenues of the District's Electric System or other income of the general character to be derived by the District or upon interest received with respect to obligations of the general character of the 2003A Certificates which, in the reasonable judgment of the Underwriter, may have the purpose or effect, directly or indirectly, of affecting the tax status of the District, its property or income, its securities (including the 2003 Certificates) or the interest thereon, or any tax exemption granted or authorized by State of California legislation or, in the reasonable judgment of the Underwriter, materially and adversely affecting the market for the 2003 Certificates or the market price generally of obligations of the general character of the 2003 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 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 2003 Certificates, or the 2003 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 engagement in major military hostilities by the United States or the occurrence of any other national emergency or calamity 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; (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 2003 Certificates or obligations of the general character of the 2003 Certificates or securities generally, or the material increase 8 LA 1 480126v2 (j) 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; (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 Revenues of its Electric 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 2003 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 2003 Certificates has occurred under Rule 15c2-12; provided, however, that the District may treat as the End of the Underwriting Period for the 2003 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 A to the Official Statement and the unaudited 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; (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 2003 Certificates, shall be deemed a representation and warranty by the District to the Underwriter as to the statements made therein. 4. Conditions to the Oblijzations 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 6 LA 1 480126v2 Continuing Disclosure 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 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 2003 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 2003 Certificates, and, except 4 LA 1480126v2 amount of Revenue Certificates of Participation, Taxable Series 2003B (the "2003B Certificates" and collectively with the 2003A Certificates, the "2003 Certificates"). The 2003 Certificates are being delivered to provide funds (i)to pay a termination payment to be made by the District in connection with the termination of a power purchase agreement (the "Settlement Obligation"), (ii) to fund a reserve fund for the 2003 Certificates, and (iii)to pay costs of delivery of the .2003 Certificates, as further described in the Official Statement. Pursuant to an Installment Purchase Agreement, dated as of 11 2003 (the "Installment Purchase Agreement"), by and between the District and the Truckee-Donner Public Utility District Financing Corporation(the "Corporation"), in consideration for the Corporation's assistance in financing the Settlement Obligation, the District sells to the Corporation and the Corporation purchases from the District certain assets and facilities comprising a portion of the Electric System (the "Property") to be purchased back by the District from the Corporation pursuant to the Installment Purchase Agreement. The 2003 Certificates evidence the interests of the owners thereof in installment payments (the "Installment Payments") to be made by the District. The 2003 Certificates shall be delivered pursuant to a Trust Agreement, dated as of , 2003 (the "Trust Agreement"), by and among the District, the Corporation and BNY Western Trust Company, as trustee (the "Trustee"). The Corporation will assign certain of its interests in the Installment Purchase Agreement to the Trustee pursuant to the [Trust Agreement.] The 2003 Certificates shall be dated the date of delivery thereof. The 2003 Certificates shall mature in the amounts and on the dates and will accrue interest at the rates set forth in Exhibit A hereto. The 2003 Certificates shall be substantially in the form described in, and shall be issued and secured under, the provisions of the Trust Agreement. Payment of principal and interest with respect to the 2003 Certificates when due (not including acceleration or prepayment) will be insured under separate municipal bond insurance policies (collectively, the "Policy") to be issued simultaneously with the delivery of the 2003 Certificates by (the "Insurer"). (b) The purchase price for the 2003A Certificates shall be $ (representing the $ aggregate principal amount of the 2003A Certificates less $ of Underwriter's discount and [plus $ original issue premium]) and the purchase price for the 2003B Certificates shall be $ - (representing the $ aggregate principal amount of the 2003B Certificates less $ of underwriter's discount and [plus $ original issue premium]). (c) At 8:00 o'clock A.M., California time, on , 2003, 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 in New York, New York, the 2003 Certificates (delivered through the book-entry system of The Depository Trust Company), duly executed, and the parties will deliver or cause to be delivered, at the offices of Stradling Yocca Carlson & Rauth, 2 LA 1480126v2 Stradling Yocca Carlson & Rauth Draft of 02/18/03 CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by the Truckee-Donner Public Utility District (the "District") and BNY Western Trust Company in its capacities as Trustee and Dissemination Agent (the "Trustee" and "Dissemination Agent") in connection with the execution of delivery of$ aggregate principal amount of Truckee-Donner Public Utility District Revenue Certificates of Participation, Series 2003A and Taxable Series 2003B (the "Certificates"). The Certificates are being executed and delivered pursuant to a Trust Agreement dated as of March 1, 2003, among the District, the Truckee-Donner Public Utility District Financing Corporation and the Trustee (the "Trust Agreement"). The District, the Dissemination Agent and the Trustee covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District,the Dissemination Agent and the Trustee for the benefit of the Holders and Beneficial Owners of the Certificates and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Agreement 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 Agreement. ., "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. "Disclosure Representative" shall mean the General Manager of the District or his or her designee, or such other officer or employee as the District shall designate in writing to the Trustee and the Dissemination Agent from time to time. "Dissemination Agent" shall mean the Trustee, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the District and which has filed with the Trustee a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Participating Underwriter" shall mean Bear, Stearns & Co. Inc., the underwriter of the Certificates. "Repository" shall mean each National Repository and each State Repository. DOCSSF\36128v2\22925.0006 F V "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of California. "State Repository" shall mean any public or private repository or entity designated by the State as the state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The District shall, or shall by written direction cause the Dissemination Agent to, not later than 180 days after the end of the District's fiscal year (which presently ends on December 31), commencing with the report for the fiscal year ending December 31, 2003,provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement;provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f). (b) Not later than fifteen (15) business days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the District shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date, the Trustee has not received a copy of the Annual Report, the Trustee (if the Trustee is not the Dissemination Agent) shall have the right but not the duty to contact the District and the Dissemination Agent to inquire if the District is in compliance with the first sentence of this subsection(b). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Trustee to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and the Trustee may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report. (c) If the Dissemination Agent is unable to confirm that an Annual Report has been provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository and the Municipal Securities Rulemaking Board in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and State Repository,if any; and (ii) to the extent adequate information is available to it, file a report with the District and (if the Dissemination Agent is not the Trustee)the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. 2 DOCSSF\36128v2\22925.0006 SECTION 4. Content of Annual Reports. The District's Annual Report shall contain or include by reference the following: 1. The audited financial statements of the District for the prior fiscal year, prepared in accordance with generally accepted accounting principles for governmental enterprises as prescribed from time to time by any regulatory body with jurisdiction over the District and by the Governmental Accounting Standards Board. If such audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial 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 become available. 2. An update (as of the most recently ended fiscal or calendar year of the District, as applicable) for the tables entitled "History of Elective Service Charges", "Customers, Sales, Revenues and Demand", "Largest Electric Customers", and "Summary of Historical Net Revenues and Balance Sheet Information" set forth in the Official Statement under the caption"THE DISTRICT'S ELECTRIC SYSTEM." 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 or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference. SECTION 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; 2. non-payment related defaults; 3. modifications to rights of Certificate Holders; 4. optional, contingent or unscheduled bond calls; 5. defeasances; 6. rating changes; 7. adverse tax opinions or events adversely affecting the tax-exempt status of the Certificates; 8. unscheduled draws on the debt service reserves reflecting financial difficulties; 3 DOCSSF\36128v2122925.0006 9. unscheduled draws on credit enhancements reflecting financial difficulties; 10. substitution of credit or liquidity providers, or their failure to perform; 11. release, substitution or sale of property securing repayment of the Certificates. (b) The Trustee shall, within one (1) business day, or as soon thereafter as practicable, after obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f). The Trustee may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual knowledge"of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Trustee with regular responsibility for the administration of matters related to the Trust Agreement. The Trustee shall have no responsibility to determine the materiality of any of the Listed Events or any liabilities whatsoever in connection therewith. (c) Whenever the District obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the District has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection(f). (e) If in response to a request under subsection (b), the District determines that the Listed Event would not be material under applicable federal securities laws, the District shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection(f). (f) If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) 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. SECTION 6. Termination of Reporting Obligation. The District's obligations under this Disclosure Agreement shall terminate upon the legal defeasance,prior prepayment or payment in full of all of the obligations in respect to 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(f). SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor 4 DOCSSF\36128v2\22925.0006 Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be the Trustee. The Dissemination Agent may resign by providing thirty (30) days written notice to the District and the Trustee. The Dissemination Agent and the Trustee shall not be responsible or have any liability whatsoever for the content of any report or notice prepared by the District. The Dissemination Agent shall not be responsible or have any liability whatsoever for filing any report not provided to it by the District in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District, the Dissemination Agent and the Trustee may amend this Disclosure Agreement (and the Trustee and the Dissemination Agent shall agree to any amendment so requested through a written request by the District, provided, neither the Trustee nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Certificates, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original execution and delivery of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either(i) is approved by the Holders of the Certificates in the same manner as provided in the Trust Agreement for amendments to the Trust Agreement which requires the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Certificates. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(f), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or 5 DOCS SF\36128v2\22925.0006 f including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the District, the Dissemination Agent or the Trustee to comply with any provision of this Disclosure Agreement, the Trustee, at the written request of the Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Certificates, shall, but only to the extent funds in an amount satisfactory to the Trustee have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Trustee whatsoever, including, without limitation, fees and expenses of its attorneys, or any Holder or Beneficial Owner 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 Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Trust Agreement or the Installment Purchase Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the District or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance. Nothing contained in the Disclosure Agreement shall have the effect of expanding the scope of liability of the Trustee under the Trust Agreement. SECTION 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VI of the Trust Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Trust Agreement and the Trustee and the Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Trustee thereunder. The Dissemination Agent and the Trustee shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Trustee and Dissemination Agent, their officers, directors, employees and agents,harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's or Trustee's respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the Holders of the Certificates or any other party. Neither the Trustee nor the Dissemination Agent shall have any liability to the Holders of the Certificates or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Agreement. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. 6 DOCSSF136128v2\22925.0006 SECTION 12.Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: Truckee-Donner Public Utility District P. O. Box 309 11570 Donner Pass Road Truckee, California 96161 Telephone: (530) 582-3916 Fax: (530) 587-1189 BNY Western Trust Company 700 Flower Street, Suite 200 Los Angeles, California 90017-4104 Attention: Corporate Trust Department Telephone: (213) 630-6423 Fax: (213) 630-6215 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s)to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Trustee, the Dissemination Agent, 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. SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Date: March, 2003 TRUCKEE-DONNER PUBLIC UTILITY DISTRICT By: President Dissemination Agent Appointment Accepted BNY WESTERN TRUST COMPANY, as Trustee and Dissemination Agent By: Authorized Signatory 7 DOCSSF\36128v2\22925.0006 i EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Truckee-Donner Public Utility District Name of Issue: Revenue Certificates of Participation, Series 2003A and Taxable Series 2003B Date of Issuance: March_, 2003 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Certificates of Participation as required the Trust Agreement dated as of March 1, 2003 between the District and the Trustee. The District anticipates that the Annual Report will be filed by Dated: BNY WESTERN TRUST COMPANY on behalf of District DOCSSF\36128v2\22925.0006