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Loan Feasibility Study for Raw Water Acquisition and Utilization Page 40 As detailed within the expenditure table (Table 11) and as again referenced within the retained earnings table (Table 12) footnotes, the District has various forms of current debt. Table 13 recaps the outstanding debt associated with the District's operations. As the District moves toward securing CWCB financing for its project, it has reviewed its level of cash on hand, current debt commitments, and anticipated CWCB loan requirements. Based upon that review, the following determinations have been made. Retained earnings will be utilized to the extent necessary to provide the additional cash match required within the implementation of the forthcoming project. The District also is planning to pay off its DOLA EMIA loan which as of the end of 2005 had a principal remaining balance of approximately $104,111. The associated interest rate is 5 %. In a similar manner, the District anticipates utilizing retained earnings to pay off the United States Department of Agriculture (USDA) Rural Utilities Service loan. Said loan has a remaining principal balance as of June 1, 2006 of $173,900 and a corresponding interest rate of 4.75 %. Paying off these two loans will free up $21,689 of annual debt service on average that will be available to apply toward the CWCB debt service. The mandated $11,660 RD cash reserve will also be freed up for utilization by the District as appropriate. In addition to these activities, the District will also pledge $461,334 of its retained earnings to create the CWCB mandated reserve fund that is equivalent to one full payment. Under normal conditions, the reserve fund would be established at the rate of 10% of the debt service per year for the first 10 years of the loan. By establishing the required reserve fund at the onset of the project, the District will eliminate the need to assess a higher water rate structure to its constituents as a result of the need to accumulate additional revenues with which to establish the mandated reserve. Thus with respect to long term projections, the District's current debt service scenario will change to consist of only the Series 2003 Water Revenue Bond issue and the forthcoming CWCB debt. The Fremont Bank interim financing will be eliminated upon implementation of the CWCB funded project as a result of the payoff of the note to the bank. CWCB funds will be utilized as recapped in Table 5 for the actual cost of the water rights acquisition of $1.4 million. The remaining needed proceeds to retire the bank's note will be secured through the sale of the ranch. Thus upon implementation of the project, only the Series 2003 Water Revenue Bonds will be outstanding together with the new CWCB debt. Leonard Rice Engineers, Inc. August 2006 — 1018PEN05 GMS, Inc.