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<br />Linda J. Bassi, Esq. <br />September 12, 1997 <br />Page 7 <br /> <br />assessments (i.e. the "PLEDGED REVENUES" referenced and defined in revised <br />paragraph 3b). <br /> <br />* <br /> <br />With respect to paragraph lIb, the term "Deposit Account" should be defined. We <br />assume that this means the account to which annual assessments (the "PLEDGED <br />REVENUES"), to the extent required for debt service, will be deposited. Other <br />assessment revenues, such as amounts required for on-going operations ofHCWUA <br />and the anticipated lump sum payment from Rodney Preisser need not be deposited <br />in this account, except that HCWUA would draw upon $18,000 of the Preisser <br />payment as necessary to service the loan. Please see our comments on paragraph 3b <br />above. <br /> <br />* <br /> <br />The language of paragraph 9 [which follows paragraph lIon page 5 of 10] raises a <br />question about whether HCWUA may use the interest from the accounts pledged as <br />collateral. As discussed above, we believe it was the parties' intention that HCWUA <br />would have the unencumbered use of interest from all accounts. <br /> <br />* <br /> <br />The HCWUA plan for augmentation ("HCWUA Plan") severely limits HCWUA's <br />ability to extend service (or, more appropriately, the protection ofthe HCWUA Plan) <br />to persons who are not now members ofHCWUA. Paragraph 14 should be modified <br />accordingly, perhaps by adding language at the outset making service obligations <br />subject to the HCWUA Plan, as well as rules and regulations, operational guidelines, <br />etc. <br /> <br />Section B - STATE Agreements <br /> <br />* <br /> <br />As discussed above, paragraph I should specify that the $825,000 loan will be <br />disbursed in a single payment to HCWUA as soon as possible after execution of the <br />loan documents. <br /> <br />* <br /> <br />The suggested change in paragraph I should make paragraph 2 unnecessary. In any <br />event, the use of the loan funds should not be restricted to "purchases," but should <br />encompass all purposes for which the funds may be used. <br /> <br />* <br /> <br />Paragraph 3 provides for the State to execute releases upon full payment of the loan. <br />However, we believe that it will be necessary to require partial releases prior to full <br />payment of the loan as funds are disbursed to third parties. For example, when Box <br />Springs sells the water rights to HCWUA, the State will obtain a security interest in <br />