Loading...
Chino Basin DeSalter Authority A2002-17 \ j \ $ H %\N ( / \ \ \ \ \ ei A j , o » 2 m @ . \ ra 14 4 \ ) < ° < / F- a / \ TABLE OF CONTENTS Page Section 1. Definitions ] ? Section 2. Purpose 5 Section 3. Financing,Construction and Operation. 5 Section 4. Delivery of Water 5 Section 5. Curtailment of Delivery for Maintenance Purposes 6 Section 6. Shortage in Water Supply. 6 Section 7. Measurement of Water Delivered. 7 Section 8. Responsibility for Delivery and Distribution of Water 7 Section 9. Rates and Charges 7 Section 10. Annual Budget and Billing Statement 10 Section 11. Obligation in the Event of Default. 10 Section 12. Transfers, Sales and Assignments of Project Allotment or Purchaser Water System 11 Section 13. Covenants of the Purchaser 12 Section 14. Covenants of the Authority. 14 Section 15. Term 15 } Section 16. Assignment 15 Section 17. Amendments. 15 Section 18. Miscellaneous 16 EXHIBITS Exhibit A. Schedule of Project Allotments A-1 Exhibit B. Form of Opinion of District Counsel B-1 Exhibit C. Form of Opinion of Authority Special Counsel C-1 Exhibit D. List of notes,bonds or other obligations of the Purchaser as of the date of execution to which Purchaser Water System Revenues are pledged D-1 DOCSOC\870628v6\24429.0003 .1 i WATER.PURCHASE AGREEMENT This Agreement,dated as of January 15, 2002,by and between the Chino Basin Desalter Authority(the "Authority"),a joint exercise of powers agency duly organized and existing pursuant to Article I, Chapter 5, Division 7,Title I of the Government Code(the"Joint Powers Act"), commencing with Section 6500, and the City of Chino Hills, California (the"Purchaser"). j s WITNESSETH: WHEREAS, the Purchaser and certain other water purveyors in the Chino Basin have entered into the Integrated Chino-Arlington Desalters System Term Sheet(the"Term Sheet")pursuant to which such water purveyors have made a contractual commitment to purchase desalted water from certain desalting facilities(capitalized terms used herein and not otherwise defined shall have the meanings set forth below); WHEREAS, in order for the Purchaser to receive desalter water, certain facilities described in the Term Sheet and comprising the Project must be acquired and constructed by the Authority; WHEREAS,the Authority and the Purchaser now wish to enter into this Agreement to provide for the acquisition,construction, operation and financing of the Project, for the sale by the Authority to the Purchaser of the Purchaser's Project Allotment and certain other matters; NOW THEREFORE, the parties hereto do agree as follows: Section 1. Definitions. { The following terns shall, for all purposes of this Agreement have the following meanings: "Authority" shall have the meaning assigned thereto in the preamble hereto. "Authority Bonds"means bonds,notes or other evidences of indebtedness issued by or on behalf of the Authority to finance or refinance the Project. "Authority Fiscal Year"means the twelve month period commencing on July 1 of each calendar year and ending on the following June 30 or such other twelve month period which may be designated by the Authority as its fiscal year: "Bonds"mean all bonds,notes or similar obligations(but not including Contracts) of the Purchaser authorized and issued by the Purchaser under and pursuant to applicable laws of the State of California after the date of execution of this Agreement, the principal of and interest on which are an operation and maintenance expense of the Purchaser Water System determined in accordance with generally accepted accounting principles and which are secured by a pledge or a lien on Purchaser Net Water System Revenues and which are on a parity with the obligations of the Purchaser under this Agreement. "Bond Resolution"means the resolution or resolutions providing for the issuance of Authority Bonds and the terms thereof;and any indenture or trust agreement related thereto. l f DOCSOC\870628v6124429.0003 "Contract Payments"means: (I) the interest payable during such Purchaser Fiscal Year onatloutstanding Bonds, assuming that all outstanding term Bonds are redeemed or paid from sinking fluid payments as scheduled(except to the extent that such interest is to be paid firm the proceeds of the sale of any Bonds); (2) that portion of the principal amount of all outstanding serial Bonds maturing during such Purchaser Fiscal Year; (3) that portion of the principal amount of all outstanding term Bonds required to be redeemed or paid during such Purchaser Fiscal Year; and (4) that portion of payments under Contracts(other than under this Agreement) constituting principal and interest required to be made at the times provided in the Contracts. "Contracts"means this Agreement and all contracts of the Purchaser authorized and executed by the Purchaser under and pursuant to the applicable laws of the State of Californiaafter the date of execution of this Agreement,the payments under which are an operation and maintenance expense of the Purchaser Water System determined in accordance with generally accepted accounting principles and which are secured by a pledge of or lien on the Purchaser Net Water System Revenues and which are on a parity with the obligations of the Purchaser under this Agreement. "Debt Service"means, as of the date of calculation and with respect to Authority Bonds,an amount equal to the sum of(i)interest payable during such Authority Fiscal Year on Authority Bonds, except to the extent that such interest is to be paid from capitalized interest,(i)that portion of principal of Authority Bonds payable during such Authority Fiscal Year, (iii)amounts necessary to replenish the Reserve Fund created pursuant to the Bond Resolution,and(iv)all letters of credit and other financing costs payable on a periodic basis. Such interest,principal installments and financing costs for such series shall be calculated on the assumption that no Authority Bonds outstanding at the date of calculation will cease to be outstanding except by reason of the payment of principal on the due date thereof; t provided further that,as to any such Authority Bonds bearing or comprising interest at other than a fixed rate,the rate of interest used to calculate Debt Service shall be one hundred ten percent (110%)of the greater of(a)the daily average interest rate on such Authority Bonds during the twelve (12)calendar months preceding the date of calculation(or the portion of the then current Authority Fiscal Year that such Authority Bonds have borne interest)or(b)the most recent effective interest rate on such Authority Bonds prior to the date of calculation;and provided further that,as to any such Authority Bonds or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Authority Bonds or portions thereof,such accreted discount shall be treated as interest in the calculation ofDebt 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 Authority Bonds for which such debt service reserve fund was established and in each preceding Authority Fiscal Year until such amount is exhausted. 3 2 D00500870628v6\24429.0007 1 1 "Facilities Acquisition Agreement"means the Facilities Acquisition Agreement,dated as of January 15,2002,by and between SAWPA and the Authority, as such Facilities Acquisition Agreement may be amended or supplemented from time-to-time. "Fixed Project Costs"means capital costs, including Debt Service, and reserves for repair and replacement and improvement to the Project and for payment of Debt Service of the Project,and all other amounts paid by the Authority other than Variable O&M Costs and Fixed O&M Costs. "Fixed O&M Costs"means operation,maintenance,power,replacement and other costs, including Project Operation and Maintenance Expenses and a reasonable reserve for contingencies, in each case incurred by the Authority with respect to the Project, irrespective of the amount of water delivered to the Project Participants,including but not limited to amounts required to be deposited in the Membrane Replacement Fund, and amounts payable to Jurupa Community Services District under the Agreement By And Between The Chino Basin Desalter Authority,Jurupa Community Services District,The City Of Ontario,The City Of Norco And Santa Ana River Water Company Providing For The Transportation Of Chino II Desalter Water. "Independent Certified Public Accountant"means any firm of certified public accountants appointed by the Purchaser,or the Authority,as the case may be, and each of whom is independent pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants. "Joint Powers Agreement"means the Joint Exercise of Powers Agreement creating the Chino Basin Desalter Authority,as such agreement maybe amended or supplemented from time to time. "Project"means certain facilities necessary to deliver desalted water to the Project Participants,including the following; (i)the Chino I Desalter,(ii)the Chino 1 Expansion facilities, (iii)Chino II Desalter;and(iv)water pipelines, electric generators and associated facilities. The Authority and the Purchaser acknowledge that portions of the Project are currently being designed and that the definition of the Project may be revised from time-to-time prior to commencement of construction as provided in Section 4 hereof without amendment to this Agreement. "Project Allotment"means 4,200 acre-feet of desalted water per year. "Project Operation and Maintenance Expenses"means the actual costs spent orincurred by the Authority for maintaining and operating the Project,calculated in accordance with generally accepted accounting principles and Section 9 hereof;including(among other things)the expenses of management and repair and other expenses necessary to maintain and preserve the Project,in good repair and working order, and including administrative costs of the Authority, overhead,insurance, taxes(if any),fees of auditors,accountants,attorneys or engineers and insurance premiums,and including all other reasonable and necessary costs of the Authority,or charges required to be paid by it to comply with the terms of the Authority Bonds or of this Agreement,but excluding in all cases (i)depreciation,replacement and obsolescence charges or reserves therefor, (ii)amortization of intangibles or other bookkeeping entries of a similar nature,(iii)costs of capital additions, replacements,betterments, extensions or improvements to the Project,which under generally accepted accounting principles are chargeable to a capital account or to a reserve for depreciation and (iv)Debt Service. i 3 DOCSOC1870628v6\24429.0003 i 1 I "Project Participant"mean the Purchaser and each entity listed in Exhibit A hereto executing Water Purchase Agreements with the Authority. I t "Purchaser" shall have the meaning assigned thereto in the preamble hereto, - i "Purchaser Fiscal Year"means the twelve month period commencing on July 1 of each year and ending on the following June 30 or such other twelve month period which may be designated by the Purchaser as its fiscal year. ` "Purchaser Net Water System Revenues"means, for any Purchaser Fiscal Year, the Purchaser Water System Revenues for such Purchaser Fiscal Year less the Purchaser Operation and Maintenance Expenses for such Purchaser Fiscal Year, t "Purchaser Operation and Maintenance Expenses" means the costs spent or incurred by the Purchaser for maintaining and operating the Purchaser Water System,calculated in accordance with generally accepted accounting principles,including(among other things)the expenses of management and repair and other expenses necessary to maintain and preserve the Purchaser Water System, in good repair and working order, and including administrative costs of the Purchaser, salaries and wages of employees, payments to the Public Employees Retirement System, overhead, insurance, taxes(if any), fees of auditors,accountants,attorneys or engineers and insurance premiums, and all other reasonable and necessary costs of the Purchaser,but excluding in all cases (i)depreciation,replacement and obsolescence charges or reserves therefor, (ii)amortization of intangibles or other bookkeeping entries of a similar nature,and(iii)charges for the payment of 4 principal and interest on Bonds or Contracts, "Purchaser Share"means the Purchaser's Project Allotment divided by the sum of all Project Participants'Project Allotments, all as set forth as Exhibit A hereto. "Purchaser Water System"means properties and assets,real and personal,tangible and intangible,of the Purchaser now or hereafter existing,used or pertaining to the acquisition, treatment, reclamation,transmission,distribution and sale of water,including all additions, extensions, expansions, improvements and betterments thereto and equipment relating thereto;provided, however,that to the extent the Purchaser 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 water purposes, only the Purchaser's ownership interest in such asset or property or only the part of the asset or property so used for water i purposes shall be considered to be part of the Purchaser Water System, t "Purchaser Water System Revenues"means the income, rents,rates, fees,charges, and other moneys derived by the Purchaser from the ownership or operation of Purchaser Water System including, without limiting the generality of the foregoing, (i)all income,rents, rates,fees, charges or i other moneys derived from the sale, furnishing, and supplying of water and other services, facilities, and commodities sold, famished,or supplied through the facilities of Purchaser Water System, 1. including availability charges, fees for design,construction and reconstruction expenses and other fees allocable to the Purchaser Water System,(ii) taxes or assessments as may be imposed if the levy t thereof and payment hereunder is permitted by law, and (iii) the earnings on and income derived ; from amounts set forth in clauses(i)and(ii)above,and shall not include(y)customers' deposits or t any other deposits subject to refund until such deposits have become the property of the Purchaser and (z)proceeds of any taxes or assessments except taxes or assessments described in clause (ii) i above. 3 1 i 1 4 DOCSOCA870628v6124429.0003 1 } I i 7 "SAWPA" means the Santa Ana Watershed Project Authority,a joint exercise powers agency, including the successors and assigns thereof. F "Term Sheet"shall have the meaning assigned thereto in the preamble hereto. "Trustee"means the entity or entities designated by the Authority pursuant to any Bond Resolution to administer any funds or accounts required by such Bond Resolution or otherwise. "Variable O&M Costs"means the operation,maintenance,power, replacement and other costs, including Project Operation and Maintenance Expenses incurred by the Authority in connection with the Project in an amount which is dependent upon and varies with the amount of water delivered to the Project Participants. "Water Purchase Agreement"means this Agreement and each Water Purchase Agreement by i and between the Authority and a Project Participant,as the same may be amended or supplemented from time to time. Section 2. Purpose. j The purpose of this Agreement is for the Authority to sell Project Allotment to the Purchaser, to deliver Project Allotment to the Purchaser available from the Project,to provide the terms and conditions of such delivery and sale and to provide for the acquisition,construction and financing of t the Project. The parties hereto confirm that this Agreement constitutes a contractual right to purchase desalted water and that no water right is being transferred by the Authority to any Project Participant under this Agreement. l Section 3. Financing.Construction and Operation. The Authority will use its best efforts to cause or accomplish the acquisition,construction, operation and financing of the Project,the obtaining of all necessary authority and rights,consents and approvals,and the performance of all things necessary and convenient therefor,subject to compliance with all necessary federal and state laws,including but not limited to the California Environmental Quality Act("CEQA"), the terms and conditions of the Authority's permits and licenses and all other agreements relating thereto. Section 4. Delivery of Water. (a) Reouest by Purchaser. Pursuant to the terms of this Agreement,the Authority shall l provide to the Purchaser,and the Purchaser shalt take, or cause to be taken,in each Authority Fiscal Year an amount of water equal to the Purchaser's Project Allotment unless the Purchaser notifies the I Authority,pursuant to procedures to be developed by the Authority,that the Purchaser requires an amount of water less than the Purchaser's Project Allotment, Subject to the Project Participant's payment obligations hereunder, the Authority agrees to use its best efforts to deliver desalted water pursuant to this Agreement meeting the water quality standards set forth in Section 5.3 of the Joint Powers Agreement and all applicable local,state and federal water quality standards as such standards may be in effect from time to time, i (b) Points of Delivery:Flow Rate. The Authority will deliver or cause to be delivered to or for the account of the Purchaser the amount of water specified in each request at a flow rate and through delivery structures at a point along the Project to be agreed upon by the Authority and the 5 DO CSOCl870628v6\24429.0003 Purchaser. The Authority will remain available to make or cause to be made all necessary and possible arrangements for transmission and delivery of such water in accordance tviftt this Agreement. (c) Delivery of Water Not Delivered in Accordance with Schedule. Ifiinany Authority Fiscal Year the Authority,as a result of causes beyond its control,is unable to deliver any portion of the Purchaser's Project Allotment for such Authority Fiscal Year as provided for in tile delivery schedule established for that Authority Fiscal Year, the Purchaser may elect to receixe the amount of water which othenvise would have been delivered to it during such period at other titres during theit Authority Fiscal Year or subsequent to such Authority Fiscal Year,to the extent thalsuch water is then available and such election is consistent with the Authority's overall delivery at lity, i considering the then current delivery schedules of all Project Participants and the Autority, (d) SARWC Request. Pursuant to the Joint Powers Agreement,if Santa Ana River Water Company cannot receive the full 1,200 acre feet of water allocated thereto aspovided in the Term Sheet, then Jurupa Community Services District and the City of Ontario will a'tnte their deliveries of water from the Project on a pro-rata basis to ensure that Santa Ana Rivet Water Company can receive the MI 1,200 acre feet of water from the Authority for such year. Notwithstanding the foregoing,Jurupa Community Services District and the City ofihttario shall only have such obligation if Santa Ana River Water Company's demand for water isconstant or at a "steady-rate"of 744 gpm. Section 5, Curtailment of Delivery for Maintenance Purposes. (a) Authority May Curtail Deliveries. The Authority may temporarily dicontinue or reduce the delivery of water to the Purchaser hereunder for the purposes of necessaryinvestigation, inspection,maintenance,repair, or replacement of any of the Project facilities necessary for the delivery of water to the Purchaser. The Authority shall notify the Purchaser as far inadvance as possible of any such discontinuance or reduction,except in cases of emergency,in which case notice shall be given as soon thereafter as possible. (b) Purchaser May Receive Later Delivery of Water Not Delivered. In the event of any discontinuance or reduction of delivery of water pursuant to subsection(a)of this Secfion, the Purchaser may elect to receive the amount of water which otherwise would have been delivered to it during such period under the water delivery schedule for that Authority Fiscal Year at other times during the Authority Fiscal Year or subsequent to such Authority Fiscal Year to the extent that such water is then available and such election is consistent with the Authority's overall delivery ability, considering the then current delivery schedules of all Project Participants and the Authority. Section 6. Shortaee in Water Supply. In any Authority Fiscal Year in which there may occur a shortage or interruption in the supply of water available for delivery to the Project Participants,including but not limited to shortages or interruptions caused by changes in laws,regulations or rulings relating to or affecting the Authority's permits and licenses,with the result that such supply is Iess than the total of the annual Project Allotments of all Project Participants for that Authority Fiscal Year,the Authority shall reduce the delivery of water to the Purchaser in accordance with the Joint Powers Agreement. ( 6 oocs00870628v6124429.0003 3 3 Section 7. Measurement of Water Delivered. The Authority shall measure, or cause to be measured, all water delivered to the Purchaser and shall keep and maintain accurate and complete records thereof. For this propose and in accordance with Section 4 hereof, the Authority shall install,operate,and maintain,or cause to be installed, operated and maintained,at all delivery structures for delivery of water to the Purchaser at the point of delivery determined in accordance with Section 4(b) such measuring devices and equipment as are satisfactory and acceptable to both parties. Said devices and equipment shall be examined,tested,and serviced by the Authority regularly to insure their accuracy. At any time or times,the Purchaser may inspect such measuring devices and equipment,and the measurements and records taken therefrom. Section 8. Responsibility for Delivery and Distribution of Water. (a) Neither the Authority nor any of its officers or agents shall be liable for the control, carriage,handling,use,disposal,or distribution of water supplied to the Purchaser after such water has passed the points of delivery established in accordance with Section 4(b)hereof;nor for claim of damage of any nature whatsoever, including but not limited to property damage,personal injury or death,arising out of or connected with the control,carriage,handling,use,disposal or distribution of such water beyond said points of delivery and including attorneys fees and other costs of defense in connection therewith; the Purchaser shall indemnify and hold harmless the Authority and its officers, agents,and employees from any such damages or claims of damages. (b) Neither the Purchaser nor any of its officers,agents,or employees shall be liable for the control,carriage,handling,use,disposal,or distribution of water supplied to the Purchaser until such water has passed the points of delivery established in accordance with Section 4(b)hereof;nor for claim of damage of any nature whatsoever,including but not limited to property damage, personal injury or death,arising out of or connected with the control, carriage,handling,use,disposal or distribution of such water prior to such water passing said points of delivery and including attorneys fees and other costs of defense in connection therewith; the Authority shall indemnify and hold harmless the Purchaser and its officers,agents,and employees from any such damages or claims of damages. I Section 9. Rates and Charges. (a) Establishment of Rates and Charges. The Authority shall fix charges to the Purchaser under this Agreement to produce revenues to the Authority from the Project equal to the amounts anticipated to be needed by the Authority to pay the actual cost of producing the Purchaser's Project Allotment,which shall include the following costs of the Authority to deliver the Purchaser's Project Allotment through the Project: (i)Fixed Project Costs,(ii)Fixed O&M Costs and (iii)Variable O&M Costs. (b) Insufficiency of Funds. If Fixed Project Costs,Fixed O&M Costs and Variable O&M Costs collected by the Authority are insufficient to operate and maintain the Project as contemplated under the Joint Powers Agreement,the Authority shall notify the Purchaser of such _ insufficiency and the Purchaser shall pay to the Authority an amount of such insufficiency equal to such insufficiency multiplied by the Purchaser Share. The obligation of the Purchaser to pay Fixed i Project Costs and Fixed O&M Costs shall commence and continue to exist and be honored by the Purchaser whether or not water is furnished to it from the Project at all times or at all(which 7 D00500870628v6\24429.0003 1 1 provision may be characterized as an obligation to pay all costs on a take-or-pay basis whether or not water is delivered or provided and whether or not the Project is completed or is operable). (c) Source of Payments. The obligation of the Purchaser to make payments under this Agreement is a limited obligation of the Purchaser and not a general obligation thereof. The Purchaser shall make payments under this Agreement solely from Purchaser Water System Revenues as a Purchaser Operation and Maintenance Expense. The Purchaser shall make such payments on a parity with other Purchaser Operation and Maintenance Expenses and prior to any other payments other than Bonds or Contracts. Nothing herein shall be construed as prohibiting(i)the Purchaser from using any other funds and revenues for purposes of satisfying any provisions of this Agreement or(ii)from incurring obligations payable on a parity with the obligations under this Agreement so long as the Purchaser complies with Section 13(a)hereof. (d) Oblieation Is Not Subject To Reduction. The Purchaser shall make payments of Fixed Project Costs and Fixed O&M Costs under this Agreement whether or not the Project is completed,operable,operated or retired and notwithstanding the suspension, interruption, interference,reduction or curtailment of operation of the Project or of water contracted for in whole or in part for any reason whatsoever. Such payments are not subject to any reduction,whether offset or otherwise,and are not conditioned upon performance by the Authority or any other Project Participant under this Agreement or any other agreement. (e) Several Oblieation. The Purchaser shall not be liable under this Agreement for the obligations of any other Project Participant. The Purchaser shall be solely responsible and liable for performance of its obligations under this Agreement. The obligation of the Purchaser to make payments under this Agreement is a several obligation and not a joint obligation with those of the other Project Participants. (t) Allocation of Costs and Expenses, The Authority shall not allocate costs and expenses in any way which discriminates among Project Participants. (i) Method of Comnutation of Fixed Project Costs and Fixed O&M Costs. The Fixed Project Costs shall be sufficient to return to the Authority those capital costs of the Authority necessary to deliver water to the Purchaser. The Fixed O&M Costs shall be sufficient to return to the Authority Project Operation and Maintenance Expenses and a reasonable reserve for contingencies,in each case incurred by the Authority with respect to the Project,irrespective of the amount of water delivered to the Project Participants. The total amount of Fixed Project Costs shall be allocated to the Purchaser by multiplying the Purchaser Share times all Fixed Project Costs. The total amount of Fixed O&M Costs shall 3 be allocated to the Purchaser by multiplying the Purchaser Share times all Fixed O&M Costs. (ii) Method of Computation of Variable O&M Costs. The Variable O&M Costs shall return to the Authority those costs of the Project which constitute Variable O&M Costs. There shall be computed for the Project a charge per acre-foot of water which will return to the Authority the total projected Variable O&M Costs of the Project for each Authority Fiscal Year. The parties confirm that if the Purchaser complies with the notice requirement of Section 4(a), no Variable O&M Costs will be allocated to the Purchaser for the portion of Project Allotment not produced by the Authority for the Purchaser. 8 OOCSOC\870628v6\24429.0003 f (iii) Adjustments. The Authority shall update the values and amounts of Fixed Project Costs,Fixed O&M Costs and Variable O&M Costs on a quarterly basis, including year-to-date comparisons to the approved Project budget in order that the costs and expenses to the Purchaser may accurately reflect increases or decreases from Authority Fiscal Year to Authority Fiscal Year in Fixed Project Costs,Fixed O&M Costs and Variable O&M Costs. In addition,each such determination shall include an adjustment to be paid or received by the Purchaser for succeeding Authority Fiscal Years which shall account for the differences,if any, between projections of Fixed Project Costs,Fixed O&M Costs and Variable O&M Costs used by the Authority in determining the amounts of said Fixed Project Costs, Fixed O&M Costs and Variable O&M Costs for all preceding Authority Fiscal Years and actual Fixed Project Costs,Fixed O&M Costs and Variable O&M Costs incurred by the Authority for water delivered to the Purchaser during such Authority Fiscal Years. (iv) Interest Earnings. Interest earnings on all amounts paid by the Purchaser to the Authority shall be credited to the Purchaser through the budgeting process. (g) Time and Method of Payment. (i) Fixed Project Costs and Fixed O&M Costs. For the Authority Fiscal Year ending June 30,2002,the Purchaser shall pay to the Authority Fixed Project Costs and Fixed O&M Costs as provided in the initial budget described in Section 10 hereof Thereafter,the Purchaser shall pay to the Authority,on or before July 15 of each Authority Fiscal Year, 100%of the charge to the Purchaser for such Authority Fiscal Year of the Fixed Project Costs and Fixed O&M Costs. (ii) Variable O&M Costs. The Purchaser shall pay to the Authority the charges to the Purchaser for the Variable O&M Costs on the date the Chino 1 Desalter is acquired by the Authority and thereafter for the three-month period commencing on the next succeeding January 1,April 1,July 1 or October 1 so that the Authority receives quarterly payments of Variable O&M Costs three months in advance of the time when such Variable O&M Costs will begin to be incurred by the Authority. (iii) Statement of Charges. The Authority shall famish the Purchaser with a written statement of the estimated Fixed Project Costs for the next succeeding Authority Fiscal Year, taking into account applicable credits received by the Authority and estimated investment earnings on moneys related to the Project held by the Authority. The Authority shall,on or before March 15,June 15, September 15 and December 15 of each Authority Fiscal Year,commencing on the date the Chino I Desalter is acquired by the Authority, furnish the Purchaser with a statement of the charges to the Purchaser for the Variable O&M Costs for the three-month period commencing on the July 1,October 1,January 1 or April 1, commencing three and one-half months subsequent to such date. (iv) Contest of Accuracy of Charges. If the Purchaser questions or disputes the correctness of any billing statement by the Authority, it shall pay the Authority the amount claimed when due and shall,within thirty(30)days of the completion and delivery of the Authority's annual audit,request an explanation from the Authority. If the bill is determined to be incorrect,the Authority will adjust the bill to the Purchaser in the next Authority Fiscal Year, including an adjustment equal to the interest actually earned by the Authority on its general reserves during such period. If the Authority and the Purchaser fail to agree on the 9 DOCSOC1870628v6\24424.0003 . I . correctness of a bill within thirty(30)days after the Purchaser has requested an explanation, the parties shall promptly submit the dispute to arbitration under Section 1280 et seq. of the Code of Civil Procedure. 1 Section 10. Annual Budget and Billing Statement. 1 The Authority will prepare and approve a budget for the period from the date of acquisition of the Chino I Desalter through June 30,2002 on or prior to acquisition of the Chino I Desalter. i Such initial budget shall include all Variable O&M Costs, Fixed O&M Costs and Fixed Project i Costs. Thereafter, the Authority will prepare a preliminary annual budget for each applicable Authority Fiscal Year for credits,costs and expenses relating to the Project,including Variable O&M t Costs and Fixed Project Costs. The Authority shall submit a draft of such budget to the Purchaser on or prior to each April 1 for review and comment. Authority staff shall use its best efforts to resolve any questions or concerns caused by a Project Participant during such review, The Board of } Directors of the Authority will adopt a final annual budget for the applicable Authority Fiscal Year on or before June 1 of each Authority Fiscal Year after at least one public hearing on the budget and shall allow any Project Participant which may object to any provision of the budget to present such objection during such hearing. The Authority shall supply a copy of said final annual budget to the Purchaser on or before June 15 of each Authority Fiscal Year. Any amendment to the budget shall 2 75 be submitted to the Purchaser for review and comment at least 30 days prior to action thereon by the Authority Board of Directors. Any such amendment shall be subject to the same hearing , requirements applicable to the budget set forth above. Section 11. Obligation in the Event of Default. (a) Written Demand. Upon failure of the Purchaser to(i)make any payment in full when due under this Agreement or(ii)to perform any other obligation hereunder,the Authority shall make written demand upon the Purchaser. If a failure described in clause(i)above is not remedied within thirty(30) days from the date of such demand or, if Authority Bonds are outstanding,for such additional time as is reasonably required,in the sole discretion of the Trustee,to correct the same, such failure shall constitute a default at the expiration of such period. If a failure described in clause(ii)cannot be remedied within thirty(30)days from the date of such demand but the Purchaser commences remedial action within such thirty(30)day period, such failure shall not constitute a I default hereunder. Notice of any such demand shall be provided to each other Project Participant by the Authority. Upon failure of the Authority to perform any obligation of the Authority hereunder, the Purchaser shall make written demand upon the Authority,and if said failure is not remedied i within thirty(30)days from the date of such demand or,if Authority Bonds are outstanding, for such i additional time as is reasonably required, in the sole discretion of the Trustee,to correct the same, t such failure shall constitute a default at the expiration of such period. Notice of such demand shall be provided to each Project Participant by the Purchaser making such written demand. , In addition to any default resulting from breach by the Authority or the Purchaser of any agreement, condition, covenant or term hereof, if the Authority or the Purchaser shall file any petition or institute any proceedings under any act or acts,state or federal,dealing with or relating to t the subject of bankruptcy or insolvency or under any amendment of such act or acts,either as a bankrupt or as an insolvent or as a debtor or in any similar capacity,wherein or whereby the Authority or the Purchaser asks or seeks or prays to be adjudicated a bankrupt,or is to be discharged from any or all of its debts or obligations,or offers to its creditors to effect a composition or extension of time to pay its debts,or asks,seeks or prays for a reorganization or to effect a plan of i 10 D005OC1870628v6124429.0003 I i i reorganization or for a readjustment of its debts or for any other similar relief,or lithe Authority or I the Purchaser shall make a general or any assignment for the benefit of its creditors,then in each and every such case the Authority or the Purchaser,as the case may be,shall be deemed to be in default hereunder. (b) Transfer for Defaulting Purchaser's Account. Upon the failure of the Purchaser to make any payment which failure constitutes a default under this Agreement, the Authority shall use its best efforts to transfer for the Purchaser's account all or a portion of the Purchaser's Project Allotment for all ora portion of the remainder of the term of this Agreement. Notwithstanding that i all or any portion of the Purchaser's Project Allotment is so transferred,the Purchaser shall remain 15. liable to the Authority to pay the full amount of its share of costs hereunder as if such sale or transfer has not been made,except that such liability shall be discharged to the extent that the Authority shall receive payment from the transferee thereof. I (c) Termination of Entitlement to Proiect Allotment:Continuing Obligations. Upon the failure of the Purchaser to make any payment which failure constitutes a default under this g Agreement and causes the Authority to be in default under any Bond Resolution,the Authority may (in addition to the remedy provided by subsection(b)of this Section) give notice of termination of E the provisions of this Agreement insofar as the same entitle the Purchaser to its Project Allotment which notice shall be effective within 30 days thereof unless such termination shalt be enjoined, 7. stayed or otherwise delayed by judicial action. Irrespective of such termination,the Purchaser shall remain liable to the Authority to pay the full amount of costs hereunder. (d) Enforcement of Remedies. In addition to the remedies set forth in this Section,upon the occurrence of an Event of Default as defined herein,the Authority or the Purchaser,as the case may be, shall be entitled to proceed to protect and enforce the rights vested in such party by this Agreement by such appropriate judicial proceeding as such party shall deem most effectual,either by t suit in equity or by action at law,whether for the specific performance of any covenant or agreement ; contained herein or to enforce any other Iegal or equitable right vested in such party by this Agreement or by law. The provisions of this Agreement and the duties of each party hereof;their respective boards,officers or employees shall be enforceable by the other party hereto by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction,with the losing 4 party paying all costs and attorney fees. 5. (e) Trustee is Third Party Beneficiary. Any Trustee for Authority Bonds shall have the f. right,as a third party beneficiary,to initiate and maintain suit to enforce this Agreement to the extent provided in any Bond Resolution. 1 l Section 12. Transfers,Sales and Assignments of Project Allotment or Purchaser Water 1 System. (a) Transfer of Project Allotment. The Purchaser has rights to make transfers,sales, assignments and exchanges(collectively"transfers")of its Project Allotment or its rights or obligations with respect thereto only as expressly provided in this Section. In no event shall any sale or other disposition of all or any portion of the Purchaser's Project Allotment relieve the Purchaser of any of its obligations hereunder. The Purchaser shall give notice to the Authority in accordance with rules and regulations approved by the Authority from time to time. i i 11 DOCSOC1870628v6\24429.0003 i 3 i (h) Sale or Other Disposition of Proiect Allotment. If in any Fiscal Year the Purchaser , determines in accordance with 4(a)not to receive all of the Project Allotment,the Authority shall offer such portion of the Project Allotment to the State of California at a price to be determined by , the Authority. if the State of California declines to purchase such Project Allotment,the Purchaser i shall have the right to sell such portion of the Project Allotment to another Project Participant or an ( entity which is not a Project Participant. No such sale of the Project Allotment shall relieve the Purchaser of any of its obligations hereunder. g. Section 13. Covenants of the Purchaser. 1 I The Authority and the Purchaser agree that the covenants contained in this Section shall only be enforced by the Authority to the extent necessary to enforce the payment provisions contained herein. i 3 (a) Amount of Rates and Charges. The Purchaser will fix,prescribe and collect rates and charges for the Purchaser Water System which will be at least sufficient to yield during each I Purchaser Fiscal year Purchaser Net Water System Revenues(excluding Contract Payments,Fixed Project Costs,Fixed O&M Costs and Variable O&M Costs)equal to one hundred twenty-five percent(125%) of the Contract Payments, Fixed Project Costs,Fixed O&M Costs and Variable t. O&M Costs for such Purchaser Fiscal Year. The Purchaser 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 Purchaser Net Water System Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this section. 1. (b) Against Sale or Other Disposition of Property. Subject to Section 130),the Purchaser will not sell,lease or otherwise dispose of the Purchaser Water System or any part thereof I unless the governing board of the Purchaser determines in writing that such sale,lease or other disposition will not materially adversely affect the Purchaser's ability to comply with subsection(a) of this Section and, in the case of a sale or other disposition, the entity acquiring the Purchaser Water System or such part thereof shall assume all obligations of the Purchaser under this Agreement. The Purchaser will not enter into any agreement or lease which impairs the operation of the Purchaserss Water System or any part thereof necessary to secure adequate Purchaser Net Water System Revenues for the payment of the obligations imposed under this Agreement or which would otherwise impair the rights of the Authority with respect to the Purchaser Water System Revenues or the operation of the Purchaser Water System. (c) Against Competitive Facilities. To the extent permitted by existing law and within ` the scope of its powers but only to the extent necessary to protect the rights of the owners of Authority Bonds,the Purchaser will not acquire,construct,maintain or operate and will use its best efforts not to permit any other public or private agency,corporation,district or political subdivision I or any person whomsoever to acquire,construct,maintain or operate within the boundaries of the Purchaser any water system competitive with the Purchaser Water System which might have the effect of materially adversely affecting the Purchaser's ability to pay Fixed Project Costs,Fixed O&M Costs and Variable O&M Costs. I (d) Maintenance and Operation of the Purchaser Water System;Budgets, The Purchaser will maintain and preserve the Purchaser Water System in good repair and working order at all times ' and will operate the Purchaser Water System in an efficient and economical manner and will pay all Purchaser Operation and Maintenance Expenses as they become due and payable. On or before the I t 12 DOCSOC1870628v6124429,0003 I i i i first day of each Purchaser Fiscal Year thereafter,the Purchaser will adopt and file with the Authority a budget approved by the legislative body of the Purchaser,including therein in the estimated Variable O&M Costs and Fixed Project Costs payable to the Authority. Any budget may be amended at any time during any Purchaser Fiscal Year and such amended budget shall be filed by the Purchaser with the Authority. i (e) Insurance. The Purchaser shall procure and maintain or cause to be procured and I maintained insurance on the Purchaser Water System with responsible insurers so long as such insurance is available from reputable insurance companies,or,alternatively,shall establish a program of self-insurance, or participate in a joint powers agency providing insurance or other pooled 1 insurance program,in such amounts and against such risks(including accident to or destruction of i the Purchaser Water System)as are usually covered in connection with water systems similar to the i Purchaser Water System. 3 CO Accounting Records and Financial Statements. t 1 (i) The Purchaser will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the Purchaser Water System, which records shall be available for inspection by the Authority and the Trustee at reasonable hours and under reasonable conditions. i (ii) The Purchaser will prepare and file with the Authority annually within two t hundred ten(210)days after the close of each Purchaser Fiscal Year(commencing with the _ Purchaser Fiscal Year ending June 30,2002)financial statements of the Purchaser for the preceding Purchaser Fiscal Year prepared in accordance with generally accepted accounting 11 principles,together with a report of an Independent Certified Public Accountant thereon. The Purchaser will promptly furnish a copy of such report to the Authority and to the Trustee. (g) Protection of Security and Rights of the Authority. The Purchaser will preserve and protect the rights of the Authority and the Trustee to the obligations of the Purchaser hereunder and 1 will warrant and defend such rights against all claims and demands of all persons. i 1 i (h) Payment of Taxes and Compliance with Governmental Regulations. The Purchaser will pay and discharge all taxes,assessments and other governmental charges which may hereafter be lawfully imposed upon the Purchaser Water System or any part thereof or upon the Purchaser Water 1 System Revenues when the same shall become due. The Purchaser will duly observe and conform I with all valid regulations and requirements of any governmental authority relative to the operation of the Purchaser Water System or any part thereof,but the Purchaser shall not be required to comply 3 with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. (i) Further Assurances. The Purchaser will adopt,deliver, execute and make any and all further assurances,instruments and resolutions as may be reasonably necessary or proper to effect the financing and refinancing of the Project and to allow the Authority to comply with reporting ) obligations,to assure the Authority of the Purchaser's intention to perform hereunder and for the better assuring and confirming unto the Authority and the Trustee of the rights and benefits provided to them herein. 13 DOCSOC1670628v6124429.0003 3 1 € I (j) Maintenance of Tax-Exempt Status of Authority Bonds. Notwithstanding any other provision of this Agreement, the Purchaser shall not take any action or omit to take any action, directly or indirectly, in any manner, which would result in any of the Authority Bonds being treated as an obligation not described in Section 103(a)of the Internal Revenue Code of 1986,as amended, by reason of classification of such Authority Bond as a"private activity bond"within the meaning of Section 141 of said Code or for any other reason. Section I4. Covenants of the Authority. (a) Insurance. The Authority shall procure and maintain or cause to be procured and maintained insurance on the Project with responsible insurers so long as such insurance is available from reputable insurance companies, or,alternatively,shall establish a program of self-insurance,or participate in a joint powers agency providing insurance or other pooled insurance program,covering such risks,in such amounts and with such deductibles as shall be determined by the Authority and as t may be required under the Authority Bonds. The Authority shall indemnify and hold harmless the Purchaser from any liability for personal injury or property damage resulting from any accident or occurrence arising out of or in any way related to the construction or operation of the Project. 1 (b) Accounting Records and Financial Statements. (i) The Authority wilt keep appropriate accounting records in which complete and correct entries shall be made of all Authority transactions relating to the Project,which records shall be available for inspection,copying and audit by the Purchaser and its accountants,attorneys and agents at reasonable hours and under reasonable conditions. (ii) The Authority will prepare annually within two hundred ten(210)days after the close of each Authority Fiscal Year(commencing with the Authority Fiscal Year ending June 30,2002)financial statements of the Authority for the preceding Authority Fiscal Year prepared in accordance with generally accepted accounting principles,together with a report of an Independent Certified Public Accountant thereof. The Authority will promptly furnish a copy of such report to the Purchaser and to the Trustee. (c) Compliance with Law. The Authority shall comply with all local,state and federal laws applicable to the Project. (d) Against Sale or Other Disposition of Proiect. The Authority will not sell,lease or otherwise dispose of the Project or any part thereof unless the Board of Directors of the Authority determines that such sale, lease or other disposition will not materially adversely affect the Authority's ability to comply with its obligations hereunder and under the Authority Bonds. (e) Maintenance and Oneration of the Project. Subject to the payment obligations of the a Project Participants hereunder,the Authority will maintain and preserve the Project in good repair and working order at all times and will operate the Project in an efficient and economical manner consistent with the Joint Powers Agreement. Notwithstanding the foregoing,no material portion of the Project shall be abandoned by the Authority without the consent of all Project Participants. 14 nocsoC\870628v624429.0001 Section 15. Term. (a) No provision of this Agreement shall take effect until (i)it and Water Purchase Agreements with all Project Participants have been duly executed and delivered to the Authority together with an opinion for each Project Participant of an attorney or firm of attorneys in substantially the form attached hereto as Exhibit B and an opinion for the Authority of Stradling Yocca Carlson&Rauth, a Professional Corporation, Special Counsel,in substantially the form attached hereto as Exhibit C,and(ii)the Authority delivers a written certificate to the Purchaser stating that the Authority has acquired the portion of the Project known as the Chino I Desalter. (b) Notwithstanding the delay in effective date of this Agreement until all Project Participants have complied with subsection(a)of this Section,it is agreed by the Purchaser that in consideration for the Authority's signature hereto,and for its commitment to use its best efforts to obtain the commitment of all Project Participants,the Purchaser upon its execution and delivery of this Agreement to the Authority along with the required opinion and any required evidence of compliance as required by subsection(a)of this Section shall be immediately bound not to withdraw its respective offer herein made to enter into this Agreement as executed and/or supplemented or to decrease or terminate its Project Allotment before March 31, 2002. (c) The term of this Agreement shall continue until the later of January 15,2031 or the final maturity of Authority Bonds. The parties hereto agree to negotiate in good faith to amend this Agreement on or prior to such date to extend the term hereof and to include terms and conditions as are mutually agreeable to the parties,provided that the price to be paid with respect to the Project Allotment in such amendment shall reflect the payment of capital costs to such date., Section 16. Assignment. The Authority may pledge and assign to any Trustee for Authority Bonds,all or any portion of the payments received under this Agreement from the Purchaser and the Authority's other rights and interests under this Agreement. Such pledge and assignment by the Authority shall be made effective for such time as the Authority shall determine and provide that the Trustee shall have the power to enforce this Agreement in the event of a default by the Authority under a Bond Resolution. The Purchaser may assign its rights or obligations under this Agreement only in accordance with Section 15 hereof. Section 17. Amendments. Except as otherwise provided in this Agreement, on and after the date Authority Bonds are issued and so long as any Authority Bonds are outstanding in accordance with the applicable Bond Resolution,Section 9, 11, 12, 13, 14 and 16 and this Section of this Agreement shall not be amended, modified or otherwise changed or rescinded by agreement of the parties without the consent of each Trustee for Authority Bonds whose consent is required under the applicable Bond Resolution. This Agreement may only be otherwise amended,modified,changed or rescinded in writing by each of the parties hereto. The Authority agrees not to grant to the owners of Authority Bonds as individuals any rights relating to the amendment,modification or change of this Agreement. 15 D005OC4870628v024429.0003 Notwithstanding the foregoing,the sections of this Agreement set forth in the prior paragraph of this Section may be amended without the consent of each Trustee for AuthorityBonds for any of the following purposes: (a) to add to the agreements,conditions,covenants and terms contained herein required to be observed or performed by the Authority or the Purchaser other agreements,conditions, covenants and terms hereafter to be observed or performed by the Authority or the Purchaser, or to surrender any right reserved herein to or conferred herein on the Authority or the Purchaser, and which in either case shall not adversely affect the interests of the owners of any Authority Bonds; (b) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein or in regard to questions arising hereunder which the Authority or the Purchaser may deem desirable or necessary and not inconsistent herewith,and which shall not materially adversely affect the interests of the owners of any Authority Bonds; (c) to make any modifications or changes necessary or appropriate in the opinion of a firm of nationally recognized standing in the field of law relating to municipal bonds to preserve or protect the exclusion from gross income of interest on the Authority Bonds for federal income tax purposes; (d) to make any modifications or changes to this Agreement in order to amble the execution and delivery of Authority Bonds on a parity with any Authority Bonds previously issued and to make any modifications or changes necessary or appropriate in connection with the execution and delivery of Authority Bonds; (e) to make any other modification or change to the provisions of this Agreement which does not materially adversely affect the interests of the owners of any Authority Bonds; (f) to make changes to the definition of"Project." Section 18. Miscellaneous. (a) Readings. The headings of the sections hereof are inserted for convenience only and shall not be deemed a part of this Agreement. (b) Partial Invalidity. If any one or more of the covenants or agreements provided in this Agreement to be performed should be determined to be invalid or contrary to law,such covenant or agreement shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. : (c) Countemarts. This Agreement maybe executed in several counterparts,all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. (d) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. 16 DOCSOC'I8706280\24429.0003 3 (e) Notices. Any notices required or permitted to be given hereundersll be given in writing and shall be delivered (a) in person, (b)by certified mail,postage prepaid,return receipt requested, (c)by Federal Express or another reputable commercial overnight courier that guarantees next day delivery and provides a receipt, or(d)by telefacsimile or telecopy, and such notices shall be addressed as follows: If to Purchaser: City of Chino Hills 2001 Grand Avenue Chino Hills, CA 91709-4869 Attn: City Clerk With a copy to: Burke Williams&Sorenson 3403 Tenth Street, Suite 300 Riverside, CA 92501 Attn: Geralyn Skapik Tf to Authority: Chino Basin Desalter Authority c%Jurupa Community Services District 8621 Jurupa Road Riverside,California 92509 With a copy to: Stradling Yucca.Carlson&Rauth 660 Newport Center Drive Newport Beach,CA 92660 Attention: Douglas Brown or to such other address as either party may from time to time specify in writing to Elie other party. Any notice shall be deemed delivered when actually delivered,if such delivery is inperson,upon deposit with the U.S.Postal Service, if such delivery is by certified mail, upon deposit with the overnight courier service, if such delivery is by art overnight courier service,and upon transmission, if such delivery is by telefacsimile or telecopy. (f) Merger of Prior Agreements. This Agreement and the exhibits hereto constitute the entire agreement between the parties and supersede all prior agreements and understandings between the parties relating to the subject matter hereof. This Agreement is intended to implement,and should be interpreted consistent with,the Joint Powers Agreement. (g) Time of the Essence. Time is of the essence in the performance of this Agreement. (h) Transportation Agreement. This Agreement constitutes the transportation agreement required to be entered into by the Authority and the Purchaser pursuant to Section 12.1 of the Joint Powers Agreement. (i) Termination. The Purchaser hereby acknowledges that Agreement Number AEB 96001 for Desalter Water Sale and Purchase by and between the City of Chino Hills and Chino Basin Municipal Water District dated March 12, 1996(the `Existing Water Purchase Agreement")has been terminated. 17 00CSOC1870628v6124429.0003 3 IN WITNESS WHEREOF the Purchaser has executed this Agreement with the approval of its governing body, and caused its official seal to he affixed and the Authority has executed this Agreement in accordance with the authorization of its Board of Directors. CHINO BA i' PESALTER AUTHORITY rea By: C lairperson ( t tttt Attest: jy , � By: itta't/l.� Secretary it / f CITY OF CHINO HILLS By: /.. A S-' / Mayor Pro 4 em [SEAL) • Attest: p t /� By: C ,Let, -JrSC;t e.t-C.d/ City Clerk t 18 DOCSOCC970628v6M24429.0007 1 EXHIBIT A Project Allotment Protect Participant (acre-feet) City of Chino 5,000 City of Chino Hills 4,200 City of Norco 1,000 City of Ontario 5,000 Jurupa Community Services District 8,200 Santa Ana River Water Company 1200 24,600 * Eliminates 400 acre feet of other per Exhibit A to the Term Sheet. A-1 D0CS00870628v6k24429.0003 EXHIBIT B (This opinion shall be delivered upon execution of the Water Purchase Agreement) January 2002 Chino Basin Desalter Authority City of Chino Hills 2001 Grand Avenue Chino Hills, CA 91709-4869 Ladies and Gentlemen: We are acting as general counsel to the City of Chino Hills(the"Purchaser")under the Water Purchase Agreement, dated as of January 15, 2002(the"Agreement"),between the Chino Basin Desalter Authority(the"Authority") and.the Purchaser, and have acted as general counsel to the Purchaser in connection with the matters referred to herein. As such counsel we have examined and are familiar with(i) documents relating to the existence, organization and operation of the Purchaser provided to us by the Purchaser, (ii)certifications by officers of the Purchaser, (iii)all necessary documentation of the Purchaser relating to the authorization, execution and delivery of the Agreement, and(iv)an executed counterpart of the Agreement. Terms used herein and not otherwise defined have the respective meanings set forth in the Agreement. Based upon the foregoing and such examination of law and such other information,papers and documents as we deem necessary or advisable to enable us to render this opinion,including the Constitution and laws of the State of California, together with the resolutions,ordinances and public proceedings of the Purchaser,we are of the opinion that: 1. The Purchaser is a general law city,duly created,organized and existing under the laws of the State of California and duly qualified to furnish water service within its boundaries, s 2. The Purchaser has legal right,power and authority to enter into the Agreement and to carry out and consummate all transactions reasonably contemplated thereby, and the Purchaser has complied with the provisions of applicable law relating to such transactions. 3. The Agreement has been duly authorized, executed mud delivered by the Purchaser, is in full force and effect as to the Purchaser in accordance with its terms and, subject to the qualifications set forth in the second to the last paragraph hereof,and assuming that the Authority has all requisite power and authority,and has taken all necessary action,to authorize, execute and deliver such Agreement, the Agreement constitutes the valid and binding obligation of the Purchaser 4. The obligations of the Purchaser to make payments under the Agreement from the Revenues of its Purchaser Water System or other lawfully available funds as provided in Section 10 of the Agreement is a valid,legal and binding obligation of the Purchaser enforceable in accordance with its terms. i B-1 y DOCS0C1870628v6124429.0003 % 5. No approval, consent or authorization of any governmental or public agency, authority or person is required for the execution and delivery by the Purchaser of the Agreement. 6. The authorization, execution and delivery of the Agreement and compliance with the provisions thereof will not conflict with or constitute a breach of,or default under, any instrument relating to the organization,existence or operation of the Purchaser, any commitment, agreement or other instrument to which the Purchaser is a party or by which it or its property is bound or affected, or any ruling,regulation,ordinance,judgment, order or decree to which the Purchaser(or any of its officers in their respective capacities as such) is subject or any provision of the laws of the State of California relating to the Purchaser and its affairs. 7. There is no action, suit. proceeding, inquiry or investigation at law or in equity, or before any court,public board or body,pending or, to our knowledge, threatened against or affecting the Purchaser or any entity affiliated with the Purchaser or any of its officers in their respective capacities as such,which questions the powers of the Purchaser referred to in paragraph 2 above or the validity of the proceedings taken by the Purchaser in connection with the authorization,execution or delivery of the Agreement, or wherein any unfavorable decision,ruling or finding would materially adversely affect the transactions contemplated by the Agreement,or which would adversely affect the validity or enforceability of the Agreement. The opinion expressed in paragraphs 3 and 4 above are qualified to the extent that the enforceability of the Agreement may be limited by any applicable bankruptcy, insolvency, reorganization, arrangement, moratorium,or other laws affecting creditors' rights, to the application of equitable principles and to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public agencies in the State of California and provided that no opinion is expressed with respect to any indemnification or contribution provisions contained therein. This opinion is rendered only with respect to the laws of the State of California and the United States of America and is addressed only to the Chino Basin Desalter Authority and the Purchaser . No other person is entitled to rely on this opinion,nor may you rely on it in connection with any transactions other than those described herein, Very truly yours, • 1 F B-2 DOCS00870628v6r24429.0003 EXHIBIT C t [This opinion shall be delivered upon execution of the Water Purchase Agreement] 1 s t January ,2002 1 Chino Basin Desalter Authority The Project Participants Listed on Exhibit A attached hereto t i Ladies and Gentlemen: We are special counsel to the Chino Basin Desalter Authority(the"Authority")and are t familiar with those certain Water Purchase Agreements, dated as of January 15,2002(each, an "Agreement"),between the Authority and each of the water contractors identified on Exhibit A attached hereto(each,a"City")in connection with the matters referred to herein. As special counsel we have examined and are familiar with (i)documents relating to the existence, organization and 1 operation of the Authority provided to us by the Authority, (ii) certifications by officers of the I Authority, (iii)all necessary documentation of the Authority relating to the authorization, execution 3 and delivery of the Agreement, and(iv)an executed counterpart of the Agreement. Terms used herein and not otherwise defined have the respective meanings set forth in the Agreement. t Based upon the foregoing and such examination of law and such other information,papers and documents as we deem necessary or advisable to enable us to render this opinion,including the Constitution and laws of the State of California,together with the resolutions,ordinances and public proceedings of the Authority,we are of the opinion that: , 1. The Authority is a joint exercise of powers agency duly created, organized and l existing under the laws of the State of California. 1 2. The Authority has legal right,power and authority to enter into the Agreement and to carry out and consummate all transactions reasonably contemplated thereby, and the Authority has 3 complied with the provisions of applicable law relating to such transactions. E 1 3. The Agreement has been duly authorized,executed and delivered by the Authority,is t in full force and effect as to the Authority in accordance with its terms and,subject to the 1. qualifications set forth in the second to the last paragraph hereof,and assuming that each City has all requisite power and authority,and has taken all necessary action,to authorize,execute and deliver such Agreement, the Agreement constitutes the valid and binding obligation of the Authority. 4. No approval,consent or authorization of any governmental or public agency, 1 authority or person is required for the execution and delivery by the Authority of the Agreement. 1 I 5. The authorization,execution and delivery of the Agreement and compliance with the 1 provisions thereof will not conflict with or constitute a breach of, or default under, any instrument relating to the organization,existence or operation of the Authority, any commitment,agreement or I i C-I D0CS0C1870628v6\24429.0003 1 other instrument to which the Authority is a party or by which it or its property is bound or affected, or, to the best of our knowledge,any ruling, regulation, ordinance,judgment, order or decree to which the Authority(or any of its officers in their respective capacities as such)is subject or any provision of the laws of the State of California relating to the Authority and its affairs. 6. There is no action,suit,proceeding, inquiry or investigation at law or in equity, or before any court, ppblic board or body, pending or, to our knowledge, threatened against or affecting the Authority or any of its officers in their respective capacities as such, which questions the powers of the Authority referred to in paragraph 2 above or the validity of the proceedings taken by the Authority in connection with the authorization, execution or delivery of the Agreement,or wherein any unfavorable decision,ruling or finding would materially adversely affect the transactions contemplated by the Agreement, or which, in any way,would adversely affect the validity or enforceability of the Agreement. The opinion expressed in paragraph 3 above is qualified to the extent that the enforceability of the Agreement may be limited by any applicable bankruptcy,insolvency,reorganization, arrangement, moratorium, or other laws affecting creditors' rights, to the application of equitable principles and to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public agencies in the State of California and provided that no opinion is expressed with respect to any indemnification or contribution provisions contained therein, This opinion is rendered only with respect to the laws of the State of California and the United States of America and is addressed only to the Authority and the Project Participants. No other person is entitled to rely on this opinion,nor may you rely on it in connection with any transactions other than those described herein. Respectfully submitted, C-2 DOCSOCW7062sv6124129.0003