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<br />Linda J. Bassi, Esq. <br />September 12, 1997 <br />Page 5 <br /> <br />by some sort of casualty. Therefore, we ask that you consider deleting the <br />requirement of liability insurance. <br /> <br />* <br /> <br />Paragraph 3's lead-in paragraph and paragraph 3b should be re-worded to reflect the <br />fact that it is HCWUA's Board of Directors, rather than its President and Secretary, <br />that sets the amount of and levies the subject assessments. <br /> <br />* <br /> <br />Paragraph 3b also may be an appropriate point to address the payment that HCWUA <br />could receive from Rodney Preisser, as discussed above. We would propose to treat <br />$30,000 ofthat payment as a prepayment of assessments by Preisser. $18,0000fthis <br />is the estimated net present value of payments Preisser would make for debt service <br />and $12,000 is the estimated net present value of assessments for other future <br />HCWUA expenses. HCWUA proposes to add monies from the $18,000 component <br />to the funds collected from assessments as necessary to service the CWCB loan. <br /> <br />* <br /> <br />Paragraph 3b might introduce and define a term, "PLEDGED REVENUES" to be <br />used throughout the documents. Those water charges and assessments described in <br />paragraph 3b should collectively be defined as "PLEDGED REVENUES." <br />Paragraph 3c should then contain the first reference to the "PLEDGED <br />REVENUES." <br /> <br />* <br /> <br />Paragraph 3e contains the first reference to a "debt service reserve fund." This is a <br />proposed item of collateral that was not mentioned in the loan negotiations and was <br />not included in the list of collateral adopted by the CWCB. Imposing such a <br />requirement would increase HCWUA's financial obligations over the first five years <br />of the loan and should be unnecessary. Therefore, we request that this requirement <br />be deleted. <br /> <br />* <br /> <br />We will comment on the suggested security arrangements with respect to the escrow <br />account later in this letter. We do believe that the Escrow Agreement needs to be <br />expanded to give further instructions to the Escrow Agent concerning distribution of <br />any principal remaining in escrow, if any, after all other escrow instructions have <br />been satisfied. <br /> <br />* <br /> <br />The second sentence in paragraph 5b seems to be missing some language. The <br />concept, however, as we understand it, is that the CWCB will disburse $825,000 in <br />a single disbursement following execution of the loan documents. Interest only <br />would be assessed on this amount until "PROJECT completion," which is the event <br />that triggers the obligation to begin paying principal as well as interest. The term of <br />