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<br />Linda J. Bassi, Esq. <br />September 12, 1997 <br />Page 10 <br /> <br />* <br /> <br />As noted above, HCWUA will not know how much of the Box Springs Water Right <br />it ultimately will own when the CWCB loan funds are disbursed and, because the <br />ultimate amount is affected by whether or not grant funds are awarded, and to what <br />extent, by the end of the 1998 legislative session, may not know when it closes on <br />the purchase ofthe water rights with Box Springs. Accordingly, we propose that the <br />deed of trust speak initially of the minimum portion of the water right that HCWUA <br />may acquire, and commit HCWUA to execute a deed of trust with respect to any <br />additional amounts acquired, or that it include language regarding after-acquired <br />interests in the water rights. <br /> <br />* <br /> <br />The last paragraph on page 1, second line, uses the term "unsealing," which is not a <br />familiar term to us. The document should provide that the deed of trust will be <br />placed into escrow when CWCB distributes funds to HCWUA and delivered to the <br />State when HCWUA receives deeds out of escrow to the Box Springs Water Rights. <br />Accordingly, the language in this paragraph might speak of delivery of the deed of <br />trust out of escrow. Obviously, HCWUA cannot warrant good title to the water <br />rights until it receives the deeds. <br /> <br />* <br /> <br />The first full paragraph on the second page ofthe deed of trust provides that the State <br />may procure insurance and add on a ten percent charge to become part of the secured <br />indebtedness. As discussed above, HCWUA does not believe that the documents <br />should require it to have insurance. In any event, however, there should not be an <br />add-on if the State' were to acquire such insurance. <br /> <br />* <br /> <br />The second full paragraph on page 2 should provide an opportunity for cure before <br />a default occurs. <br /> <br />Security Agreement - Appendix 7 <br /> <br />* <br /> <br />So long as the principal held in escrow can be disbursed by the Escrow Agent only <br />for specified purposes, this instrument seems unnecessary. Does it not accomplish <br />the purpose of protecting the State to direct the Escrow Agent to deliver the escrowed <br />funds directly to the State if the purchase of the Box Springs Water Rights does not <br />close? <br /> <br />* <br /> <br />If, however, the State will require this Security Agreement, there should be <br />provisions for partial releases each time money is disbursed out of escrow. The <br />document also should provide that the State consents in advance to the disbursement <br />of escrowed funds to Box Springs, both for the purchase price for the water rights, <br />