Watsonville City Council
September 22, 2026

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may reasonably request so as to enable the Beneficiary to maintain such valid perfected security interest in the Security in order to secure the payment of the Note in accordance with their terms. The Beneficiary is authorized to file a copy of any such financing statement in any jurisdiction(s) as it shall deem appropriate from time to time in order to protect the security interest established pursuant to this instrument. Trustor shall pay all costs of filing such financing statements and any extensions, renewals, amendments, and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements, and releases thereof, as the Beneficiary may reasonably require. Without the prior written consent of the Beneficiary, Trustor shall not create or suffer to be created pursuant to the California Commercial Code any other security interest in the Security, including replacements and additions thereto.

Section 5.6 Operation of the Security.

The Trustor shall operate the Security (and, in case of a transfer of a portion of the Security subject to this Deed of Trust, the transferee shall operate such portion of the Security) in full compliance with the Loan Documents.

Section 5.7 Inspection of the Security.

At any and all reasonable times upon seventy-two (72) hours' notice, the Beneficiary and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right, without payment of charges or fees, to inspect the Security.

Section 5.8 Nondiscrimination.

The Trustor herein covenants by and for itself, its heirs, executors, administrators, and assigns, and all persons claiming under or through them, to comply with the nondiscrimination provisions set forth in Section 4.8 of the Loan Agreement.

ARTICLE 6

HAZARDOUS WASTE
Trustor shall keep and maintain the Property in compliance with, and shall not cause or permit the Property to be in violation of any federal, state or local laws, ordinances or regulations relating to industrial hygiene or to the environmental conditions on, under or about the Property including, but not limited to, soil and ground water conditions. Trustor shall not use, generate, manufacture, store or dispose of on, under, or about the Property or transport to or from the Property any flammable explosives, radioactive materials, hazardous wastes, toxic substances or related materials, including without limitation, any substances defined as or included in the definition of "hazardous substances," hazardous wastes," "hazardous materials," or "toxic substances" under any applicable federal or state laws or regulations (collectively referred to hereinafter as "Hazardous Materials") except such of the foregoing as are

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used in construction of the improvements on the Property or as may be customarily kept and used in and about residential property.

Trustor shall immediately advise Beneficiary in writing if at any time it receives written notice of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Trustor or the Property pursuant to any applicable federal, state or local laws, ordinances, or regulations relating to any Hazardous Materials, ("Hazardous Materials Law"); (ii) all claims made or threatened by any third party against Trustor or the Property relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (i) and (ii) above are hereinafter referred to as "Hazardous Materials Claims"); and (iii) Trustor's discovery of any occurrence or condition on the Property that could cause the Property or any part thereof to be subject to a land use restriction pursuant to California Health and Safety Code, Sections 25220 et seq. or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Property under any Hazardous Materials Law.

Beneficiary shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees in connection therewith paid by Trustor. Trustor shall indemnify and hold harmless Beneficiary and its board members, supervisors, directors, officers, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Property including without limitation: (a) all foreseeable consequential damages; (b) the costs of any required or necessary repair, cleanup or detoxification of the Property and the preparation and implementation of any closure, remedial or other required plans; and (c) all reasonable costs and expenses incurred by Beneficiary in connection with clauses (a) and (b), including but not limited to reasonable attorneys' fees.

Without Beneficiary's prior written consent, which shall not be unreasonably withheld, Trustor shall not take any remedial action in response to the presence of any Hazardous Materials on, under or about the Property, nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Material Claims, which remedial action, settlement, consent decree or compromise might, in Beneficiary's reasonable judgment, impair the value of the Beneficiary's security hereunder; provided, however, that Beneficiary's prior consent shall not be necessary in the event that the presence of Hazardous Materials on, under, or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not reasonably possible to obtain Beneficiary's consent before taking such action, provided that in such event Trustor shall notify Beneficiary as soon as practicable of any action so taken. Beneficiary agrees not to withhold its consent, where such consent is required hereunder, if either (i) a particular remedial action is ordered by a court of competent jurisdiction, (ii) Trustor will or may be subjected to civil or criminal sanctions

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or penalties if it fails to take a required action; (iii) Trustor establishes to the reasonable satisfaction of Beneficiary that there is no reasonable alternative to such remedial action which would result in less impairment of Beneficiary's security hereunder; or (iv) the action has been agreed to by Beneficiary.

The Trustor hereby acknowledges and agrees that (i) this Article is intended as the Beneficiary's written request for information (and the Trustor's response) concerning the environmental condition of the Property as required by California Code of Civil Procedure Section 726.5, and (ii) each representation and warranty in this Deed of Trust or any of the other Loan Documents (together with any indemnity applicable to a breach of any such representation and warranty) with respect to the environmental condition of the property is intended by the Beneficiary and the Trustor to be an "environmental provision" for purposes of California Code of Civil Procedure Section 736.

In the event that any portion of the Property is determined to be "environmentally impaired" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected parcel" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(1)), then, without otherwise limiting or in any way affecting the Beneficiary's or the Trustee's rights and remedies under this Deed of Trust, the Beneficiary may elect to exercise its rights under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien on such environmentally impaired or affected portion of the Property and (2) exercise (a) the rights and remedies of an unsecured creditor, including reduction of its claim against the Trustor to judgment, and (b) any other rights and remedies permitted by law. For purposes of determining the Beneficiary's right to proceed as an unsecured creditor under California Code of Civil Procedure Section 726.5(a), the Trustor shall be deemed to have willfully permitted or acquiesced in a release or threatened release of hazardous materials, within the meaning of California Code of Civil Procedure Section 726.5(d)(1), if the release or threatened release of hazardous materials was knowingly or negligently caused or contributed to by any lessee, occupant, or user of any portion of the Property and the Trustor knew or should have known of the activity by such lessee, occupant, or user which caused or contributed to the release or threatened release. All costs and expenses, including (but not limited to) attorneys' fees, incurred by the Beneficiary in connection with any action commenced under this paragraph, including any action required by California Code of Civil Procedure Section 726.5(b) to determine the degree to which the Property is environmentally impaired, plus interest thereon at the lesser of ten percent (10%) or the maximum rate permitted by law, until paid, shall be added to the indebtedness secured by this Deed of Trust and shall be due and payable to the Beneficiary upon its demand made at any time following the conclusion of such action.

The Trustor is aware that California Civil Code Section 2955.5(a) provides as follows: "No lender shall require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the improvements on the property."

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ARTICLE 7

EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default.

The following shall constitute “Events of Default” following the expiration of any applicable notice and cure periods: (1) failure to make any payment to be paid by Trustor under the Loan Documents within ten (10) days after the date due; (2) failure to observe or perform any of Trustor's other covenants, agreements or obligations under the Loan Documents (which failure has not been cured within the times and in the manner set forth in the Loan Agreement); or (3) failure to make any payment or perform any of Trustor's other covenants, agreements, or obligations under any other debt instruments or regulatory agreement secured by the Property, which default shall not be cured within the times and in the manner provided therein.

Section 7.2 Acceleration of Maturity.

If an Event of Default shall have occurred and be continuing, then at the option of the Beneficiary, the amount of any payment related to the Event of Default and the unpaid principal of the Note (including all interest thereon) shall immediately become due and payable, upon written notice by the Beneficiary to the Trustor (or automatically where so specified in the Loan Documents), and no omission on the part of the Beneficiary to exercise such option when entitled to do so shall be construed as a waiver of such right.

Section 7.3 The Beneficiary's Right to Enter and Take Possession.

If an Event of Default shall have occurred and be continuing, the Beneficiary may:
(a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon the Security and take possession thereof (or any part thereof) and of any of the Security, in its own name or in the name of Trustee, and do any acts which it deems necessary or desirable to preserve the value or marketability of the Property, or part thereof or interest therein, increase the income therefrom or protect the security thereof. The entering upon and taking possession of the Security shall not cure or waive any Event of Default or Notice of Default (as defined below) hereunder or invalidate any act done in response to such Default or pursuant to such Notice of Default and, notwithstanding the continuance in possession of the Security, Beneficiary shall be entitled to exercise every right provided for in this Deed of Trust, or by law upon occurrence of any Event of Default, including the right to exercise the power of sale; (b) Commence an action to foreclose this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof;

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(c) Deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Trustor's interest in the Security to be sold ("Notice of Default and Election to Sell"), which notice Trustee or Beneficiary shall cause to be duly filed for record in the Official Records of Santa Cruz County; or
(d) Exercise all other rights and remedies provided herein, in the instruments by which the Trustor acquires title to any Security, or in any other document or agreement now or hereafter evidencing, creating or securing all or any portion of the obligations secured hereby, or provided by law.

Section 7.4 Foreclosure By Power of Sale.

Should the Beneficiary elect to foreclose by exercise of the power of sale herein contained, the Beneficiary shall give the Trustee (Notice of Default and Election to Sell) and shall deposit with Trustee this Deed of Trust which is secured hereby (and the deposit of which shall be deemed to constitute evidence that the unpaid principal amount of the Note is immediately due and payable), and such receipts and evidence of any expenditures made that are additionally secured hereby as Trustee may require. (a) Upon receipt of such notice from the Beneficiary, Trustee shall cause to be recorded, published and delivered to Trustor such Notice of Default and Election to Sell as then required by law and by this Deed of Trust. Trustee shall, without demand on Trustor, after lapse of such time as may then be required by law and after recordation of such Notice of Default and Election to Sell having been given as required by law, sell the Security, at the time and place of sale fixed by it in said Notice of Default and Election to Sell, whether as a whole or in separate lots or parcels or items as Trustee shall deem expedient and in such order as it may determine unless specified otherwise by the Trustor according to California Civil Code Section 2924g(b), at public auction to the highest bidder, for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed or any matters of facts shall be conclusive proof of the truthfulness thereof. Any person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale, and Trustor hereby covenants to warrant and defend the title of such purchaser or purchasers. (b) After deducting all reasonable costs, fees and expenses of Trustee, including costs of evidence of title in connection with such sale, Trustee shall apply the proceeds of sale to payment of: (i) the unpaid Principal and Interest amount of the Note; (ii) all other amounts owed to Beneficiary under the Loan Documents; (iii) all other sums then secured hereby; and (iv) the remainder, if any, to Trustor. (c) Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter, and without further notice make such sale at the time fixed by the last postponement, or may, in its discretion, give a new Notice of Default and Election to Sell.

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Section 7.5 Receiver.

If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of right and without further notice to Trustor or anyone claiming under the Security, and without regard to the then value of the Security or the interest of Trustor therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Security (or a part thereof), and Trustor hereby irrevocably consents to such appointment and waives further notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases, and all the powers and duties of Beneficiary in case of entry as provided herein, and shall continue as such and exercise all such powers until the date of confirmation of sale of the Security, unless such receivership is sooner terminated.

Section 7.6 Remedies Cumulative.

No right, power or remedy conferred upon or reserved to the Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity.

Section 7.7 No Waiver.
(a) No delay or omission of the Beneficiary to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy, or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to the Beneficiary may be exercised from time to time and as often as may be deemed expeditious by the Beneficiary. Beneficiary's expressed or implied consent to a breach by Trustor, or a waiver of any obligation of Trustor hereunder shall not be deemed or construed to be a consent to any subsequent breach, or further waiver, of such obligation or of any other obligations of the Trustor hereunder. Failure on the part of the Beneficiary to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by the Beneficiary of its right hereunder or impair any rights, power or remedies consequent on any Event of Default by the Trustor.
(b) If the Beneficiary (i) grants forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security or the payment of any sums secured hereby, (iii) waives or does not exercise any right granted in the Loan Documents, (iv) releases any part of the Security from the lien of this Deed of Trust, or otherwise changes any of the terms, covenants, conditions or agreements in the Loan Documents, (v) consents to the granting of any easement or other right affecting the Security, or (vi) makes or consents to any agreement subordinating the lien hereof, any such act or omission shall not release, discharge, modify, change or affect the original liability under this Deed of Trust, or any other obligation of the Trustor or any

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subsequent purchaser of the Security or any part thereof, or any maker, co-signer, endorser, surety or guarantor (unless expressly released); nor shall any such act or omission preclude the Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in any Event of Default then made or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by the Beneficiary shall the lien of this Deed of Trust be altered thereby.

Section 7.8 Suits to Protect the Security.

The Beneficiary shall have power to (a) institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Security and the rights of the Beneficiary as may be unlawful or any violation of this Deed of Trust, (b) preserve or protect its interest (as described in this Deed of Trust) in the Security, and (c) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement for compliance with such enactment, rule or order would impair the Security thereunder or be prejudicial to the interest of the Beneficiary.

Section 7.9 Beneficiary May File Proofs of Claim.

In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting the Trustor, its creditors or its property, the Beneficiary, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of the Beneficiary allowed in such proceedings and for any additional amount which may become due and payable by the Trustor hereunder after such date.

Section 7.10 Waiver.

The Trustor waives presentment, demand for payment, notice of dishonor, notice of protest and nonpayment, protest, notice of interest on interest and late charges, and diligence in taking any action to collect any sums owing under the Note or in proceedings against the Security, in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Deed of Trust.

ARTICLE 8

MISCELLANEOUS
Section 8.1 Amendments.

This instrument cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed by Beneficiary and Trustor.

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Section 8.2 Reconveyance by Trustee.

Upon written request of Beneficiary stating that (i) all sums secured hereby have been paid or forgiven, and (ii) that all obligations of the Trustor under the Loan Documents have been satisfied, and upon surrender of this Deed of Trust to Trustee for cancellation and retention, and upon payment by Trustor of Trustee's reasonable fees, Trustee shall reconvey the Security to Trustor, or to the person or persons legally entitled thereto.

Section 8.3 Notices.

If at any time after the execution of this Deed of Trust it shall become necessary or convenient for one of the parties hereto to serve any notice, demand or communication upon the other party, such notice, demand or communication shall be in writing and shall be served personally or by depositing the same in the registered United States mail, return receipt requested, postage prepaid and (1) if intended for Beneficiary shall be addressed to:

City Clerk
City of Watsonville
275 Main Street, 4th Floor
Watsonville, CA 95077
With a copy to:

City of Watsonville
Community Development Department
Attn: Affordable Housing Program
250 Main Street
Watsonville, CA 95076
and (2) if intended for Trustor shall be addressed to:
(For delivery by hand or commercial service)
Habitat for Humanity Monterey Bay
108 Magnolia
Santa Cruz, CA 95062
Attn: Executive Director
(For delivery by mail)
Habitat for Humanity Monterey Bay
P.O. Box 8412
Santa Cruz, CA 95061
Attn: Executive Director
Any notice, demand or communication shall be deemed given, received, made or communicated on the date personal delivery is effected or, if mailed in the manner

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herein specified, on the delivery date or date delivery is refused by the addressee, as shown on the return receipt. Either party may change its address at any time by giving written notice of such change to Beneficiary or Trustor as the case may be, in the manner provided herein, at least ten (10) days prior to the date such change is desired to be effective.

Section 8.4 Successors and Joint Trustors.

Where an obligation is created herein binding upon Trustor, the obligation shall also apply to and bind any transferee or successors in interest. Where the terms of the Deed of Trust have the effect of creating an obligation of the Trustor and a transferee, such obligation shall be deemed to be a joint and several obligation of the Trustor and such transferee. Where Trustor is more than one entity or person, all obligations of Trustor shall be deemed to be a joint and several obligation of each and every entity and person comprising Trustor.

Section 8.5 Captions.

The captions or headings at the beginning of each Section hereof are for the convenience of the parties and are not a part of this Deed of Trust.

Section 8.6 Invalidity of Certain Provisions.

Every provision of this Deed of Trust is intended to be severable. In the event any term or provision hereof is declared to be illegal or invalid for any reason whatsoever by a court or other body of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the debt, or if the lien is invalid or unenforceable as to any part of the Security, the unsecured or partially secured portion of the debt, and all payments made on the debt, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid or applied to the full payment of that portion of the debt which is not secured or partially secured by the lien of this Deed of Trust.

Section 8.7 Governing Law.

This Deed of Trust shall be governed by and construed in accordance with the laws of the State of California.

Section 8.8 Gender and Number.

In this Deed of Trust the singular shall include the plural and the masculine shall include the feminine and neuter and vice versa, if the context so requires.

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Section 8.9 Deed of Trust, Mortgage.

Any reference in this Deed of Trust to a mortgage shall also refer to a deed of trust and any reference to a deed of trust shall also refer to a mortgage.

Section 8.10 Actions.

Trustor agrees to appear in and defend any action or proceeding purporting to affect the Security.

Section 8.11 Substitution of Trustee.

Beneficiary may from time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter shall be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution shall be made by written instrument executed by Beneficiary, containing reference to this Deed of Trust and its place of record, which, when duly recorded in the proper office of the county or counties in which the Property is situated, shall be conclusive proof of proper appointment of the successor trustee.

Section 8.12 Statute of Limitations.

The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust is hereby waived to the full extent permissible by law.

Section 8.13 Acceptance by Trustee.

Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Trustee is not obligated to notify any party hereto of pending sale under this Deed of Trust or of any action of proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless brought by Trustee.

Section 8.14 Tax Credit Provisions.

Notwithstanding anything to the contrary contained herein or in any documents secured by this Deed of Trust or contained in any subordination agreement, the Beneficiary acknowledges and agrees that in the event of a foreclosure or deed-in-lieu of foreclosure (collectively, "Foreclosure") with respect to the Security encumbered by this Deed of Trust, the following rule contained in Section 42(h)(6)(E)(ii) of the Internal Revenue Code of 1986 (26 USC 42 (h)(6)(E)(ii)), as amended, shall apply:

For a period of three (3) years from the date of Foreclosure, with respect to any unit that had been regulated by the Regulatory Agreement with the California Tax Credit Allocation Committee, (i) none of the tenants occupying those units at the time of Foreclosure may be evicted or their tenancy terminated (other than for good cause),

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(ii) nor may any rent be increased except as otherwise permitted under Section 42 of the Code.

SIGNATURE ON FOLLOWING PAGE

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IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year first above written.

TRUSTOR:

HABITAT FOR HUMANITY MONTEREY BAY,
a California non-profit public benefit corporation
By:

Executive Director

794\16\1970718.4

STATE OF CALIFORNIA )
)
COUNTY OF __________________ )
On ____________________, before me, ___________________________, Notary Public, personally appeared ______________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify UNDER PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.
_________________________________
Name: __________________________
Notary Public
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

794\16\1970718.4
A-1

EXHIBIT A

LEGAL DESCRIPTION OF THE PROPERTY

Reso No. (CM)
Meeting Date: 092226 SWZ ______ TV ______ CC ______
1 RESOLUTION NO. (CM)

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WATSONVILLE

RE-ADOPTING CONFLICT OF INTEREST CODE FOR THE CITY OF

WATSONVILLE BY INCORPORATING BY REFERENCE THE FAIR
POLITICAL PRACTICES COMMISSION’S STANDARD MODEL CONFLICT

OF INTEREST CODE AND BY AMENDING THE APPENDIX IDENTIFYING

DESIGNATED EMPLOYEES WHO SHALL BE SUBJECT TO CONFLICT OF

INTEREST CODE
WHEREAS, the City of Watsonville last adopted a Conflict of Interest Code as required by the Political Reform Act1, by Resolution No. 206-24 (CM) on September 24, 2024; and
WHEREAS, the California Fair Political Practices Commission promulgated a recommended Model Conflict of Interest Code found at Title 2, Division 6, California Code of Regulations, Section 18730, which may be incorporated by reference by local government, and which will be amended from time to time after public notice and hearings conducted by the Fair Political Practices Commission pursuant to the Administrative Procedure Act, Government Code Sections 11370, et seq; and WHEREAS, the attached Designated Positions, Exhibit “A,” accurately identifies those job titles which should be designated and the categories of financial interests which should be made reportable in Watsonville. The changes in designated employees currently reflect job classifications throughout the City; and WHEREAS, the attached Watsonville Conflict of Interest Code, Exhibit “B,” is based on 2 CCR §187302in effect as of the date this Resolution is adopted.

1 California Government Code §§ 81000, et seq
2 Amendment of subsections (b)(8.1)-(b)(8.1)(A) and (b)(9)(E) filed 12-12-2018; operative 1- 11-2019 pursuant to Cal.

Code Regs., tit. 2, section 18312(e). Submitted to OAL for filing and printing pursuant to Fair Political Practices Commission v. Office of Administrative Law, 3 Civil C010924, California Court of Appeal, Third Appellate District, nonpublished decision, April 27, 1992 (FPPC regulations only subject to 1974 Administrative Procedure Act rulemaking requirements and not subject to procedural or substantive review by OAL) (Register 2018, No. 50).

Reso No. (CM)
Meeting Date: 092226
2 NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WATSONVILLE, CALIFORNIA, AS FOLLOWS:

1. That the terms of 2 California Code of Regulations Section 18730 and any amendments to it duly adopted by the Fair Political Practices Commission along with the attached Exhibit “A,” in which officials and employees are designated and disclosure categories are set forth, are hereby incorporated by reference and constitute the Conflict of Interest Code of the following boards, commissions, departments and agencies:

City Council
City Boards & Commissions
a. Building Life Safety Appeals 3
b. Library Trustees
c. Planning
d. Personnel
e. Parks and Recreation
Successor Agency
Successor Housing Agency
City Manager
Administrative Departments
a. Municipal Airport
b. Community Development
c. Finance
d. Fire
e. Innovation & Technology
f. Libraries
g. Parks and Community Services
h. Police
i. Public Works & Utilities
City Attorney
City Clerk

2. That all persons holding any of the positions designated in Exhibit “A,” attached hereto and incorporated herein, are hereby instructed to file Statements of Economic Interests (Form 700) pursuant to the Conflict of Interest Code.

3. That all designated persons are hereby directed to file their Statements with the City Clerk to whom the Council hereby designates authority to carry out the duties of Filing Officer.

4. That the Filing Officer is hereby directed to make the statements of economic interests available for public inspection and reproduction no later than the second business

3 WMC § 8-1.07

Reso No. (CM)
Meeting Date: 092226
3 day following the day the request was received, pursuant to California Government Code Section 81008.
**************************

Exhibit “A”

CITY OF WATSONVILLE

CONFLICT OF INTEREST CODE

DESIGNATED POSITIONS
Resolution No. _______ (CM)
All persons holding the hereafter named designations shall file a "Statement of Economic Interests” (FPPC Form 700) for each Disclosure Category being all of:

Schedule A-1-Investments; Stocks, Bonds and Other Interests Schedule A-2-Investments, Income, and Assets of Business Entities/Trusts Schedule B-Interests in Real Property
Schedule C-Income, Loans, and Business Positions
Schedule D-Income-Gifts
Schedule E-Income-Gifts: Travel Payments, Advances, and Reimbursements The economic interest to be disclosed for each disclosure category shall: (1) being or doing business within the geographical jurisdiction or service area of the City; and/or (2) is such a kind of economic interest which the employee foreseeably can affect in a material way through the conduct or operation of such employee's office with the City.

DESIGNATED EMPLOYEES DISCLOSURE CATEGORY
Council, Boards, Commissions, and Committees
Building Life Safety Appeals Members A
1BCDE
City Council Members ABCDE
Successor Agency Members ABCDE
Successor Housing Agency Members ABCDE
Planning Commissioners ABCDE
Library Commissioners A (Investment in business entities which do or conduct business in
any way with the Library)
Parks and Recreation Commissioners BE
Personnel Commissioners E
City Attorney ABCDE
Deputy City Attorney ABCDE
Consultants
City Clerk ABCDE
Administrative Analyst ABCDE
Assistant City Clerk ABCDE
Consultants ABCDE

1 All persons required to file disclosure category A are required to file both Schedules A-1 and A-2.

Exhibit “A”

DESIGNATED EMPLOYEES DISCLOSURE CATEGORY
Deputy City Clerk BCDE
City Manager* ABCDE
Assistant to the City Manager ABCDE
Consultants ABCDE
Deputy City Manager ABCDE
Human Resources Analyst ABCDE
Human Resources Administrative Analyst ABCDE
Human Resources Manager ABCDE
Human Resources Senior Administrative Analyst ABCDE
Multimedia & Communications Analyst ABCDE
Personnel Officer ABCDE
Principal Human Resources Analyst ABCDE
Principal Management Analyst ACBDE
Project Manager ABCDE
Public Information Officer ABCDE
Administrative Services Director (Finance) ABCDE
Accountant II ABCDE
Administrative Analyst ABCDE
Assistant Finance Director ABCDE
Assistant Finance Manager ABCDE
Assistant Finance Officer ABCDE
Consultants ABCDE
Finance Director ABCDE
Financial Analyst ABCDE
Payroll Analyst ABCDE
Senior Administrative Analyst ABCDE
Senior Financial Analyst ABCDE
Airport Director ABCDE
Airport Operations Manager ABCDE
Airport Operations Supervisor ABCDE
Consultants ABCDE
Information Technology Director (Innovation &
Technology)
ABCDE
Consultants ABCDE
Enterprise Architect ABCDE
GIS Analyst ABCDE
GIS Coordinator ABCDE
Information Technology Analyst II ABCDE
Information Technology Manager ABCDE
Network Administrator ABCDE

Exhibit “A”

DESIGNATED EMPLOYEES DISCLOSURE CATEGORY
Senior Information Technology Analyst ABCDE
Senior Information Technology Specialist ABCDE
Senior Programmer Analyst ABCDE
Community Development Director ABCDE
Administrative Analyst ABCDE
Assistant Community Development Director ABCDE
Associate Planner ABCE
Building Fire Safety Officer ABCDE
Building Inspector ABCDE
Building Official ABCDE
Code Enforcement Officer I ABCDE
Code Enforcement Officer II ABCDE
Construction Inspector ABCDE
Consultants ABCDE
Housing Manager ABCDE
Life Safety Officer ABCDE
Permit Services Supervisor ABCDE
Principal Engineer ABCDE
Principal Planner ABCDE
Redevelopment Manager ABCDE
Senior Administrative Analyst ABCDE
Senior Building Inspector ABCDE
Senior Code Enforcement Officer ABCDE
Senior Planner ABCE
Special Projects Inspector ABCDE
Supervising Plans Examiner ABCDE
Fire Chief ABCDE
Battalion Fire Chief ABCDE
Consultants ABCDE
Division Fire Chief ABCDE
Fire Captain ABCDE
Library Director BCE
Assistant Library Director ABCDE
Consultants ABCDE
Principal Librarian BCE
Senior Librarian BCE
Parks & Community Services Director ABCDE
Administrative Analyst ABCDE
Assistant Parks and Community Services Director ABCDE
Consultants ABCDE

Exhibit “A”

DESIGNATED EMPLOYEES DISCLOSURE CATEGORY
Older Adult Services Supervisor ABCDE
Parks Services Manager ABCE
Parks Superintendent ABCDE
Project Manger ABCDE
Promotions & Communications Coordinator ABCE
Recreation Superintendent ABCDE
Senior Administrative Analyst ABCDE
Police Chief ABCDE
Administrative Analyst ABCDE
Administrative Services Manager ABCDE
Assistant Chief of Police ABCDE
Consultants ABCDE
Crime Analyst ABCDE
Deputy Police Chief ABCDE
Investigative Specialist ABCDE
Network Administrator ABCDE
Police Captain ABCDE
Police Civilian Manager ABCDE
Police Fiscal Manager ABCDE
Police Lieutenant ABCDE
Police Media & Communications Specialist ABCDE
Police Sergeant ABCDE
Property & Evidence Supervisor ABCDE
Records Supervisor ABCDE
Public Works & Utilities Director ABCDE
Administrative Analyst ABCDE
Assistant Public Works & Utilities Director ABCE
Associate Civil Engineer ABE
Building and Facilities Manager ABCDE
Capital Projects Manager ABCDE
Collection Systems Supervisor ABE
Communications & Environmental Outreach Manager ABCDE
Construction Engineer ABE
Construction Manager ABCDE
Consultants ABCDE
Environmental Compliance Division Inspector ABE
Environmental Compliance Division Manager ABCDE
Environmental Compliance Division Supervisor ABCDE
Environmental Projects Analyst ABCDE
Environmental Projects Manager ABCE

Exhibit “A”

DESIGNATED EMPLOYEES DISCLOSURE CATEGORY
Facilities & Equipment Manager ABE
Facilities & Maintenance Supervisor ABCE
Field Services Supervisor ABCDE
Integrated Waste Superintendent ABCDE
Laboratory Manager ABE
Landfill Supervisor ABCDE
Municipal Services Operations Manager ABCDE
Principal Engineer ABCDE
Project Manager ABCDE
Public Works Inspector ABCDE
Public Works Operations Manager ABCDE
Public Works & Utilities Administrative Services Manager ABCDE Safety & Regulatory Compliance Officer ABCDE
Senior Administrative Analyst ABCDE
Senior Capital Projects Manager ABCDE
Senior Civil Engineer ABCDE
Senior Construction Inspector ABE
Senior Engineering Associate ABE
Senior Environmental Projects Analyst ABCDE
Senior Utilities Engineer ABCDE
Solid Waste Division Manager ABCDE
Traffic Operations Manager ABCDE
Traffic Systems Coordinator ABCDE
Utilities Maintenance Supervisor ABCDE
Utility Crew Leader ABCE
Vehicle and Equipment Manager ABCDE
Wastewater Division Manager ABCDE
Wastewater Operations Supervisor ABCDE
Wastewater Treatment Facilities Manager ABCDE
Water Division Manager ABCDE
Water Operations Supervisor ABCDE
Water Services Superintendent ABCDE
Water Services Supervisor ABCDE
* Filing shall be made with the City Clerk according to City Council Conflict of Interest Code and provisions of the Political Reform Act.

CITY OF WATSONVILLE

CONFLICT OF INTEREST CODE
Adopted September 22, 2026,
Resolution No. ________(CM)
(Source 2 CCR §18730)

Exhibit “B”

WATSONVILLE CONFLICT OF INTEREST CODE
Table of Contents
Section 1. Definitions.................................................................................................................................1 Section 2. Designated Employees. ...........................................................................................................1 Section 3. Disclosure Categories. .............................................................................................................1 Section 4. Statements of Economic Interests: Place of Filing...................................................................2 Section 5. Statements of Economic Interests: Time of Filing....................................................................2 Section 5.5. Statements for Persons Who Resign Prior to Assuming Office. ...........................................3 Section 6. Contents of and Period Covered by Statements of Economic Interests..................................3 Section 7. Manner of Reporting.................................................................................................................4 Section 8. Prohibition on Receipt of Honoraria. ........................................................................................5 Section 8.1. Prohibition on Receipt of Gifts in Excess of $500. ................................................................6 Section 8.2. Loans to Public Officials. .......................................................................................................6 Section 8.3. Loan Terms. ..........................................................................................................................7 Section 8.4. Personal Loans. ....................................................................................................................7 Section 9. Disqualification. ........................................................................................................................8 Section 9.3. Legally Required Participation. .............................................................................................9 Section 9.5. Disqualification of State Officers and Employees. ................................................................9 Section 10. Disclosure of Disqualifying Interest. .......................................................................................9 Section 11. Assistance of the Commission and Counsel..........................................................................9 Section 12. Violations................................................................................................................................9 -o0oSection 1. Definitions.

The definitions contained in the Political Reform Act of 1974, regulations of the Fair Political Practices Commission (Regulations 18110, et seq.), and any amendments to the Act or regulations, are incorporated by reference into this conflict of interest code.

Section 2. Designated Employees.

The persons holding positions listed in the Appendix are designated employees. It has been determined that these persons make or participate in the making of decisions which may foreseeably have a material effect on economic interests.

Section 3. Disclosure Categories.

This code does not establish any disclosure obligation for those designated employees who are also specified in Section 87200 if they are designated in this code in that same capacity or if the geographical jurisdiction of this agency is the same as or is wholly included within the jurisdiction in which those persons must report their economic interests pursuant to article 2 of chapter 7 of the Political Reform Act, Sections 87200, et seq.

In addition, this code does not establish any disclosure obligation for any designated employees who are designated in a conflict of interest code for another agency, if all of the following apply:
(A) The geographical jurisdiction of this agency is the same as or is wholly included within the jurisdiction of the other agency;

Exhibit “B”

(B) The disclosure assigned in the code of the other agency is the same as that required under article 2 of chapter 7 of the Political Reform Act, Section 87200; and (C) The filing officer is the same for both agencies.1
Such persons are covered by this code for disqualification purposes only. With respect to all other designated employees, the disclosure categories set forth in the Appendix specify which kinds of economic interests are reportable. Such a designated employee shall disclose in his or her statement of economic interests those economic interests he or she has which are of the kind described in the disclosure categories to which he or she is assigned in the Appendix. It has been determined that the economic interests set forth in a designated employee's disclosure categories are the kinds of economic interests which he or she foreseeably can affect materially through the conduct of his or her office.

Section 4. Statements of Economic Interests: Place of Filing.

The code reviewing body shall instruct all designated employees within its code to file statements of economic interests with the agency or with the code reviewing body, as provided by the code reviewing body in the agency's conflict of interest code.2 Section 5. Statements of Economic Interests: Time of Filing. (A) Initial Statements. All designated employees employed by the agency on the effective date of this code, as originally adopted, promulgated and approved by the code reviewing body, shall file statements within 30 days after the effective date of this code. Thereafter, each person already in a position when it is designated by an amendment to this code shall file an initial statement within 30 days after the effective date of the amendment.
(B) Assuming Office Statements. All persons assuming designated positions after the effective date of this code shall file statements within 30 days after assuming the designated positions, or if subject to State Senate confirmation, 30 days after being nominated or appointed.
(C) Annual Statements. All designated employees shall file statements no later than April 1. If a person reports for military service as defined in the Servicemember's Civil Relief Act, the deadline for the annual statement of economic interests is 30 days following his or her return to office, provided the person, or someone authorized to represent the person's interests, notifies the filing officer in writing prior to the applicable filing deadline that he or she is subject to that federal statute and is unable to meet the applicable deadline, and provides the filing officer verification of his or her military status.
(D) Leaving Office Statements. All persons who leave designated positions shall file statements within 30 days after leaving office.

1 Designated employees who are required to file statements of economic interests under any other agency's conflict of interest code, or under article 2 for a different jurisdiction, may expand their statement of economic interests to cover reportable interests in both jurisdictions, and file copies of this expanded statement with both entities in lieu of filing separate and distinct statements, provided that each copy of such expanded statement filed in place of an original is signed and verified by the designated employee as if it were an original. See Section 81004.
2 See Section 81010 and Regulation 18115 for the duties of filing officers and persons in agencies who make and retain copies of statements and forward the originals to the filing officer.

Exhibit “B”

Section 5.5. Statements for Persons Who Resign Prior to Assuming Office.

Any person who resigns within 12 months of initial appointment, or within 30 days of the date of notice provided by the filing officer to file an assuming office statement, is not deemed to have assumed office or left office, provided he or she did not make or participate in the making of, or use his or her position to influence any decision and did not receive or become entitled to receive any form of payment as a result of his or her appointment. Such persons shall not file either an assuming or leaving office statement.
(A) Any person who resigns a position within 30 days of the date of a notice from the filing officer shall do both of the following:
(1) File a written resignation with the appointing power; and (2) File a written statement with the filing officer declaring under penalty of perjury that during the period between appointment and resignation he or she did not make, participate in the making, or use the position to influence any decision of the agency or receive, or become entitled to receive, any form of payment by virtue of being appointed to the position.

Section 6. Contents of and Period Covered by Statements of Economic Interests. (A) Contents of Initial Statements.

Initial statements shall disclose any reportable investments, interests in real property and business positions held on the effective date of the code and income received during the 12 months prior to the effective date of the code.
(B) Contents of Assuming Office Statements.

Assuming office statements shall disclose any reportable investments, interests in real property and business positions held on the date of assuming office or, if subject to State Senate confirmation or appointment, on the date of nomination, and income received during the 12 months prior to the date of assuming office or the date of being appointed or nominated, respectively.
(C) Contents of Annual Statements.

Annual statements shall disclose any reportable investments, interests in real property, income and business positions held or received during the previous calendar year provided, however, that the period covered by an employee's first annual statement shall begin on the effective date of the code or the date of assuming office whichever is later, or for a board or commission member subject to Section 87302.6, the day after the closing date of the most recent statement filed by the member pursuant to Regulation 18754. (D) Contents of Leaving Office Statements.

Leaving office statements shall disclose reportable investments, interests in real property, income and business positions held or received during the period between the closing date of the last statement filed and the date of leaving office.

Exhibit “B”

Section 7. Manner of Reporting.

Statements of economic interests shall be made on forms prescribed by the Fair Political Practices Commission and supplied by the agency, and shall contain the following information:
(A) Investment and Real Property Disclosure.

When an investment or an interest in real property3is required to be reported,4the statement shall contain the following:
(1) A statement of the nature of the investment or interest; (2) The name of the business entity in which each investment is held, and a general description of the business activity in which the business entity is engaged;
(3) The address or other precise location of the real property; (4) A statement whether the fair market value of the investment or interest in real property equals or exceeds $2,000, exceeds $10,000, exceeds $100,000, or exceeds $1,000,000.
(B) Personal Income Disclosure.

When personal income is required to be reported,5the statement shall contain:
(1) The name and address of each source of income aggregating $500 or more in value, or $50 or more in value if the income was a gift, and a general description of the business activity, if any, of each source; (2) A statement whether the aggregate value of income from each source, or in the case of a loan, the highest amount owed to each source, was $1,000 or less, greater than $1,000, greater than $10,000, or greater than $100,000;
(3) A description of the consideration, if any, for which the income was received;
(4) In the case of a gift, the name, address and business activity of the donor and any intermediary through which the gift was made; a description of

3 For the purpose of disclosure only (not disqualification), an interest in real property does not include the principal residence of the filer.
4 Investments and interests in real property which have a fair market value of less than $2,000 are not investments and interests in real property within the meaning of the Political Reform Act. However, investments or interests in real property of an individual include those held by the individual's spouse and dependent children as well as a pro rata share of any investment or interest in real property of any business entity or trust in which the individual, spouse and dependent children own, in the aggregate, a direct, indirect or beneficial interest of 10 percent or greater. 5 A designated employee's income includes his or her community property interest in the income of his or her spouse but does not include salary or reimbursement for expenses received from a state, local or federal government agency.

Exhibit “B”

the gift; the amount or value of the gift; and the date on which the gift was received;
(5) In the case of a loan, the annual interest rate and the security, if any, given for the loan and the term of the loan.
(C) Business Entity Income Disclosure.

When income of a business entity, including income of a sole proprietorship, is required to be reported,6the statement shall contain:
(1) The name, address, and a general description of the business activity of the business entity;
(2) The name of every person from whom the business entity received payments if the filer's pro rata share of gross receipts from such person was equal to or greater than $10,000.
(D) Business Position Disclosure.

When business positions are required to be reported, a designated employee shall list the name and address of each business entity in which he or she is a director, officer, partner, trustee, employee, or in which he or she holds any position of management, a description of the business activity in which the business entity is engaged, and the designated employee's position with the business entity.
(E) Acquisition or Disposal During Reporting Period.

In the case of an annual or leaving office statement, if an investment or an interest in real property was partially or wholly acquired or disposed of during the period covered by the statement, the statement shall contain the date of acquisition or disposal.

Section 8. Prohibition on Receipt of Honoraria.
(A) No member of a state board or commission, and no designated employee of a state or local government agency, shall accept any honorarium from any source, if the member or employee would be required to report the receipt of income or gifts from that source on his or her statement of economic interests. (B) This section shall not apply to any part-time member of the governing board of any public institution of higher education, unless the member is also an elected official.
(C) Subdivisions (a), (b), and (c) of Section 89501 shall apply to the prohibitions in this section.
(D) This section shall not limit or prohibit payments, advances, or reimbursements for travel and related lodging and subsistence authorized by Section 89506.

6 Income of a business entity is reportable if the direct, indirect or beneficial interest of the filer and the filer's spouse in the business entity aggregates a 10 percent or greater interest. In addition, the disclosure of persons who are clients or customers of a business entity is required only if the clients or customers are within one of the disclosure categories of the filer.

Exhibit “B”

Section 8.1. Prohibition on Receipt of Gifts in Excess of $500. (A) No member of a state board or commission, and no designated employee of a state or local government agency, shall accept gifts with a total value of more than $500 in a calendar year from any single source, if the member or employee would be required to report the receipt of income or gifts from that source on his or her statement of economic interests.
(B) This section shall not apply to any part-time member of the governing board of any public institution of higher education, unless the member is also an elected official.
(C) Subdivisions (e), (f), and (g) of Section 89503 shall apply to the prohibitions in this section.

Section 8.2. Loans to Public Officials.
(A) No elected officer of a state or local government agency shall, from the date of his or her election to office through the date that he or she vacates office, receive a personal loan from any officer, employee, member, or consultant of the state or local government agency in which the elected officer holds office or over which the elected officer's agency has direction and control.
(B) No public official who is exempt from the state civil service system pursuant to subdivisions (c), (d), (e), (f), and (g) of Section 4 of Article VII of the Constitution shall, while he or she holds office, receive a personal loan from any officer, employee, member, or consultant of the state or local government agency in which the public official holds office or over which the public official's agency has direction and control. This subdivision shall not apply to loans made to a public official whose duties are solely secretarial, clerical, or manual.
(C) No elected officer of a state or local government agency shall, from the date of his or her election to office through the date that he or she vacates office, receive a personal loan from any person who has a contract with the state or local government agency to which that elected officer has been elected or over which that elected officer's agency has direction and control. This subdivision shall not apply to loans made by banks or other financial institutions or to any indebtedness created as part of a retail installment or credit card transaction, if the loan is made or the indebtedness created in the lender's regular course of business on terms available to members of the public without regard to the elected officer's official status. (D) No public official who is exempt from the state civil service system pursuant to subdivisions (c), (d), (e), (f), and (g) of Section 4 of Article VII of the Constitution shall, while he or she holds office, receive a personal loan from any person who has a contract with the state or local government agency to which that elected officer has been elected or over which that elected officer's agency has direction and control. This subdivision shall not apply to loans made by banks or other financial institutions or to any indebtedness created as part of a retail installment or credit card transaction, if the loan is made or the indebtedness created in the lender's regular course of business on terms available to members of the public without regard to the elected officer's official status. This subdivision shall not apply to loans made to a public official whose duties are solely secretarial, clerical, or manual. (E) This section shall not apply to the following:

Exhibit “B”

(1) Loans made to the campaign committee of an elected officer or candidate for elective office.
(2) Loans made by a public official's spouse, child, parent, grandparent, grandchild, brother, sister, parent-in-law, brother-in-law, sister-inlaw, nephew, niece, aunt, uncle, or first cousin, or the spouse of any such persons, provided that the person making the loan is not acting as an agent or intermediary for any person not otherwise exempted under this section. (3) Loans from a person which, in the aggregate, do not exceed $500 at any given time.
(4) Loans made, or offered in writing, before January 1, 1998.

Section 8.3. Loan Terms.
(A) Except as set forth in subdivision (B), no elected officer of a state or local government agency shall, from the date of his or her election to office through the date he or she vacates office, receive a personal loan of $500 or more, except when the loan is in writing and clearly states the terms of the loan, including the parties to the loan agreement, date of the loan, amount of the loan, term of the loan, date or dates when payments shall be due on the loan and the amount of the payments, and the rate of interest paid on the loan.
(B) This section shall not apply to the following types of loans:
(1) Loans made to the campaign committee of the elected officer. (2) Loans made to the elected officer by his or her spouse, child, parent, grandparent, grandchild, brother, sister, parent-in-law, brother-in-law, sister-in-law, nephew, niece, aunt, uncle, or first cousin, or the spouse of any such person, provided that the person making the loan is not acting as an agent or intermediary for any person not otherwise exempted under this section. (3) Loans made, or offered in writing, before January 1, 1998. (C) Nothing in this section shall exempt any person from any other provision of Title 9 of the Government Code.

Section 8.4. Personal Loans.
(A) Except as set forth in subdivision (B), a personal loan received by any designated employee shall become a gift to the designated employee for the purposes of this section in the following circumstances:
(1) If the loan has a defined date or dates for repayment, when the statute of limitations for filing an action for default has expired. (2) If the loan has no defined date or dates for repayment, when one year has elapsed from the later of the following:
a. The date the loan was made.

Exhibit “B”

b. The date the last payment of $100 or more was made on the loan.
c. The date upon which the debtor has made payments on
the loan aggregating to less than $250 during the previous 12 months. (B) This section shall not apply to the following types of loans:
(1) A loan made to the campaign committee of an elected officer or a candidate for elective office.
(2) A loan that would otherwise not be a gift as defined in this title. (3) A loan that would otherwise be a gift as set forth under subdivision (A), but on which the creditor has taken reasonable action to collect the balance due.
(4) A loan that would otherwise be a gift as set forth under subdivision (A), but on which the creditor, based on reasonable business considerations, has not undertaken collection action. Except in a criminal action, a creditor who claims that a loan is not a gift on the basis of this paragraph has the burden of proving that the decision for not taking collection action was based on reasonable business considerations.
(5) A loan made to a debtor who has filed for bankruptcy and the loan is ultimately discharged in bankruptcy.
(C) Nothing in this section shall exempt any person from any other provisions of Title 9 of the Government Code.

Section 9. Disqualification.

No designated employee shall make, participate in making, or in any way attempt to use his or her official position to influence the making of any governmental decision which he or she knows or has reason to know will have a reasonably foreseeable material financial effect, distinguishable from its effect on the public generally, on the official or a member of his or her immediate family or on:
(A) Any business entity in which the designated employee has a direct or indirect investment worth $2,000 or more;
(B) Any real property in which the designated employee has a direct or indirect interest worth $2,000 or more;
(C) Any source of income, other than gifts and other than loans by a commercial lending institution in the regular course of business on terms available to the public without regard to official status, aggregating $500 or more in value provided to, received by or promised to the designated employee within 12 months prior to the time when the decision is made;
(D) Any business entity in which the designated employee is a director, officer, partner, trustee, employee, or holds any position of management; or

Exhibit “B”

(E) Any donor of, or any intermediary or agent for a donor of, a gift or gifts aggregating $500 or more provided to, received by, or promised to the designated employee within 12 months prior to the time when the decision is made.

Section 9.3. Legally Required Participation.

No designated employee shall be prevented from making or participating in the making of any decision to the extent his or her participation is legally required for the decision to be made. The fact that the vote of a designated employee who is on a voting body is needed to break a tie does not make his or her participation legally required for purposes of this section.

Section 9.5. Disqualification of State Officers and Employees.

In addition to the general disqualification provisions of section 9, no state administrative official shall make, participate in making, or use his or her official position to influence any governmental decision directly relating to any contract where the state administrative official knows or has reason to know that any party to the contract is a person with whom the state administrative official, or any member of his or her immediate family has, within 12 months prior to the time when the official action is to be taken:
(A) Engaged in a business transaction or transactions on terms not available to members of the public, regarding any investment or interest in real property; or (B) Engaged in a business transaction or transactions on terms not available to members of the public regarding the rendering of goods or services totaling in value $1,000 or more.

Section 10. Disclosure of Disqualifying Interest.

When a designated employee determines that he or she should not make a governmental decision because he or she has a disqualifying interest in it, the determination not to act may be accompanied by disclosure of the disqualifying interest.

Section 11. Assistance of the Commission and Counsel.

Any designated employee who is unsure of his or her duties under this code may request assistance from the Fair Political Practices Commission pursuant to Section 83114 and Regulations 18329 and 18329.5 or from the attorney for his or her agency, provided that nothing in this section requires the attorney for the agency to issue any formal or informal opinion.

Section 12. Violations.

This code has the force and effect of law. Designated employees violating any provision of this code are subject to the administrative, criminal and civil sanctions provided in the Political Reform Act, Sections 81000-91014. In addition, a decision in relation to which a violation of the disqualification provisions of this code or of Section 87100 or 87450 has occurred may be set aside as void pursuant to Section 91003.

1 CITY COUNCIL AGENDA REPORT
MEETING DATE: Tuesday, September 22, 2026
TO: CITY COUNCIL
RECOMMENDED BY: ADMINISTRATIVE SERVICES DIRECTOR DURAN
APPROVED BY: TAMARA VIDES, CITY MANAGER
SUBJECT: APPROVE/AUTHORIZE ISSUANCE OF WASTEWATER REVENUE BONDS, SERIES 2026, IN AN AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $22,500,000, TO FINANCE THE ENERGY INFRASTRUCTURE

MODERNIZATION PROGRAM AT THE WATSONVILLE WASTEWATER

TREATMENT FACILITY
RECOMMENDATION:

Staff recommends that City Council Adopt a Resolution authorizing and approving the issuance of Wastewater Revenue Bonds, Series 2026, in an aggregate principal amount of not to exceed $22,500,000, authorizing the execution and delivery of an Indenture of Trust, Continuing Disclosure Certificate and Bond Purchase Agreement in connection with such bonds, authorizing the distribution of an Official Statement in connection with the offering and sale of such bonds, and authorizing the execution of necessary documents and certificates and related actions.

BACKGROUND:

On September 9, 2026, City Council received a presentation from Climatec, conducted a public hearing, and adopted a resolution authorizing implementation of an Energy Infrastructure Modernization Program at the City’s Wastewater Treatment Facility (the “Project”). The cost of the Project totals $20,849,967, $20 million of which is planned to be financed through the issuance of bonds, and the remainder of which is planned to be funded with available reserves of the City’s Wastewater Enterprise Fund.

The City can generate $20 million in proceeds required to complete the Project through the issuance of Wastewater Revenue Bonds, Series 2026 (the “2026 Bonds”), which would be secured by Net Revenues of the City’s Wastewater System. The City’s issuance of the 2026 Bonds in and of itself is not anticipated to require increases to the Wastewater System’s rates that were previously adopted by the City Council in May 2026.

2 DISCUSSION:

The Resolution approves and authorizes the issuance of the 2026 Bonds, appoints and retains the financing team, including Urban Futures, Inc. as Municipal Advisor; Anzel Galvan LLP as Bond and Disclosure Counsel; Samuel A. Ramirez & Co. (“Ramirez”) Inc. as Underwriter; and U.S. Bank Trust Company National Association (“US Bank”) as Trustee; and approves all documents and actions needed to authorize the issuance and sale of the 2026 Bonds, including the form of financing documents attached hereto, together with any changes or additions deemed advisable and approved by any Authorized Officer, upon consultation with Bond Counsel. Because certain numbers and information related to the financing are unknown until the 2026 Bonds are sold, after the sale of the 2026 Bonds, such final numbers and information will be populated into the documents and approved by an Authorized Officer before execution of the financing documents and closing of the transaction. The following documents and information related to the transaction are attached hereto:
 Indenture of Trust: The Indenture defines the terms and conditions of the 2026 Bonds, including the pledge of revenues, redemption provisions, investment and management of funds and accounts, repayment mechanisms, and the rights and obligations of the City, the municipal bond insurer, if any, the Trustee, and the bondholders.

Bond Purchase Agreement: The Bond Purchase Agreement between the City and Ramirez defines the terms and conditions under which the 2026 Bonds will be purchased by Ramirez.  Preliminary Official Statement (“POS”): The POS will be distributed to prospective purchasers of the 2026 Bonds. The POS must contain all facts material to potential purchasers of the 2026 Bonds, including information regarding the security for the bonds, the City, and the City’s Wastewater System (with certain permitted exceptions to be completed in the final Official Statement) and must not omit any material facts. The POS is required to satisfy the City’s obligation under federal securities laws to provide material information to potential purchasers of the 2026 Bonds and must be accurate and complete in all material respects.

The City Council, as the governing body of the City, has an obligation to ensure that the POS includes all information that would be material to a prospective investor’s decision whether to purchase the 2026 Bonds. While the City’s Disclosure Counsel, Municipal Advisor, and the Underwriter have participated in preparing the documents, the City is ultimately responsible for ensuring that the POS is accurate, contains no misleading information, and does not omit any information necessary to make the POS not misleading to investors.  Continuing Disclosure Certificate: The Continuing Disclosure Certificate will be delivered by the City for the benefit of owners of the 2026 Bonds and in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission. This document describes various annual and certain event reporting and disclosure obligations of the City, as required by federal securities laws.

The Resolution also sets forth certain not-to-exceed parameters for the 2026 Bonds, including a principal amount not exceeding $20.6 million, a true interest cost not exceeding 5.25%, and an underwriter’s

3 discount not exceeding 0.75% of the principal amount of the 2026 Bonds. These not-to-exceed parameters are meant to provide some flexibility and cushion in case market conditions change.

If the City Council adopts the Resolution approving/authorizing the issuance of the 2026 Bonds, the financing team will proceed with seeking bond insurance bids and will distribute the Preliminary Official Statement to potential purchasers of the 2026 Bonds. The 2026 Bonds are expected to be sold the week of October 5th and delivered the week of October 19th, at which time the City would receive the bond proceeds.

CALIFORNIA ENVIRONMENTAL QUALITY ACT (CEQA) DETERMINATION:

The proposed action to authorize the issuance of debt and related financing documents is not a project subject to CEQA.

STRATEGIC PLAN:

The issuance of the 2026 Bonds is consistent with Strategic Plan Priority:
2-Infrastructure & Environment
FINANCIAL IMPACT:

Pursuant to Government Code Section 5852.1, good faith estimates (obtained from the underwriter or the municipal advisor) must be disclosed at a public meeting before the authorization of the 2026 Bonds.

Required good faith estimates are provided in the Resolution; the table below summarizes those estimates and includes additional information.
2026 Bonds
Principal Amount:

Final Maturity:

True interest cost:
$19,445,000
May 1, 2046

4.41%
Finance charge: $577,321
Amount of project proceeds received: $20,000,000
Average annual debt service:

Total debt service payment amount:
$1,575,186
$30,759,882

4 ALTERNATIVE ACTION:

The City Council could not approve the Resolution in which case the funding of the Project would be delayed.

ATTACHMENTS AND/OR REFERENCES (IF ANY):

None.

RESOLUTION NO. ________ (CM)

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF

WATSONVILLE AUTHORIZING AND APPROVING THE ISSUANCE OF
WASTEWATER REVENUE BONDS, SERIES 2026, IN AN AGGREGATE
PRINCIPAL AMOUNT OF NOT TO EXCEED $22,500,000, AUTHORIZING

THE EXECUTION AND DELIVERY OF AN INDENTURE OF TRUST,

CONTINUING DISCLOSURE CERTIFICATE AND BOND PURCHASE

AGREEMENT IN CONNECTION WITH SUCH BONDS, AUTHORIZING

THE DISTRIBUTION OF AN OFFICIAL STATEMENT IN CONNECTION

WITH THE OFFERING AND SALE OF SUCH BONDS, AND AUTHORIZING

THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES

AND RELATED ACTIONS
WHEREAS, the City of Watsonville, California (the “City”) is a municipal corporation and charter city duly organized and existing under and pursuant to the Constitution and laws of the State of California;
WHEREAS, the City is authorized pursuant to Section 200 of the City’s Charter and Chapter 9 of Title 3 of the City’s Municipal Code to issue bonds, notes and other obligations payable from the Net Revenues of the Wastewater System (capitalized terms that are used herein and not otherwise defined shall have the meanings that are given such terms in the Indenture mentioned below) to finance the costs of any land, buildings, structures, improvements, equipment, facilities, and other property whatsoever appurtenant or relating to the Wastewater System; WHEREAS, the City desires to provide for the issuance of its Wastewater Revenue Bonds, Series 2026, in one or more series, on a taxable or tax-exempt basis (the “Bonds”), payable from the Net Revenues of the Wastewater System for the purposes of financing certain capital improvements (the “Project”) to its Wastewater System, paying costs of issuance of the Bonds and, if necessary, funding a deposit to provide for the funding of a reserve fund for the Bonds; WHEREAS, the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), desire to enter into an Indenture of Trust (the “Indenture”), to provide for the issuance and security of the Bonds and to provide for the financing of the Project; WHEREAS, the Bonds are to be secured by revenues of the Wastewater System to the extent set forth in the Indenture;
WHEREAS, the City desires to provide for the negotiated sale of the Bonds and has selected Samuel A. Ramirez & Co., Inc., to act as underwriter (in such capacity, the “Underwriter”) and to purchase the Bonds from the City pursuant to a Bond Purchase Agreement (the “Bond Purchase Agreement”), between the City and the Underwriter;
WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (“Rule 15c2-12”) requires that, in order to be able to purchase or sell the Bonds, the underwriter thereof must have reasonably determined that the City has undertaken in a written agreement or contract for the benefit of the holders of the Bonds to provide disclosure of certain financial information and certain events on an ongoing basis;

2 WHEREAS, to cause such requirement to be satisfied, the City desires to execute and deliver a Continuing Disclosure Certificate (the “Continuing Disclosure Certificate”); WHEREAS, a form of the Preliminary Official Statement (the “Preliminary Official Statement”) has been prepared;
WHEREAS, good faith estimates of certain information relating to the Bonds are disclosed and set forth in Exhibit A attached to this Resolution as required by California Government Code Section 5852.1; such estimates were provided by Urban Futures, Inc., the City’s Municipal Advisor, based on preliminary bond pricing information provided by the Underwriter; WHEREAS, the City Council has been presented with the form of each document referred to herein, and the City Council has examined and approved each document and desires to authorize and direct the execution of such documents and the consummation of such financing; and WHEREAS, all acts, conditions and things required by the laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of such financing authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the City is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such financing for the purpose, in the manner and upon the terms herein provided;

NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WATSONVILLE AS FOLLOWS:

Section 1. Each of the above recitals is true and correct.

Section 2. The form of Indenture, on file with the City Clerk, is hereby approved, and the Mayor, the Mayor Pro Tempore, the City Manager, the Administrative Services Director, and the City Clerk, and each of their authorized designees (collectively, the “Authorized Officers”) are each hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Indenture in substantially said form, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution and delivery thereof. In the event that it is determined by the Administrative Services Director, or her designee, that the funding or financing of capitalized interest on the Bonds would be in the best interests of the City, the Indenture may be modified to provide for capitalized interest on such basis as is determined by the Administrative Services Director or her designee, such determination to be conclusively evidenced by the execution and delivery of the Indenture by an Authorized Officer.

Section 3. Subject to the limitations specified in this Resolution, the issuance of the Bonds on the terms and conditions set forth in the Indenture is hereby authorized and approved. The aggregate principal amount of the Bonds shall not exceed $22,500,000. The Bonds will be dated as provided in, will bear interest at the rates provided in, will mature on the date or dates provided in, will be issued in the form provided in, will have the sinking fund Installments specified in, will be subject to redemption as provided in, and will have such other terms as shall be provided in, the Indenture as the same is completed as provided in this Resolution.

3 Section 4. The Authorized Officer executing the Indenture is hereby authorized, subject to the limitations set forth in Section 3 hereof and in this Section 4, to determine the following: (i) the maturity date or dates of the Bonds; (ii) the principal amount of the Bonds maturing on each maturity date; (iii) the interest rate or rates for the Bonds maturing on each maturity date; (iv) the maturity or maturities, if any, of the Bonds to be redeemed or paid at maturity from sinking fund installments (the “Term Bonds”); (v) the sinking fund installments for the Term Bonds; and (vi) the redemption provisions for the Bonds.

Section 5. The net proceeds received from the sale of the Bonds shall be applied to such purposes as are set forth in the recitals to this Resolution in the manner provided in the Indenture.

Section 6. The form of Bond Purchase Agreement, on file with the City Clerk, is hereby approved and the Authorized Officers are each hereby authorized and directed, for and in the name of the City, to execute and deliver the Bond Purchase Agreement in substantially said form, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Bond Purchase Agreement by such Authorized Officer; provided, however, that in no event shall the aggregate principal amount of the Bonds exceed $$22,500,000, nor shall the underwriting discount for the Bonds (excluding any net original issue discount) exceed 0.75% of the aggregate principal amount of the Bonds, nor shall the true interest cost of the Bonds exceed 5.25%.

As an alternative to the sale of the Bonds through a public offering authorized in the immediately preceding paragraph of this Section 3, the Bonds may be sold on a private placement basis through Samuel A. Ramirez & Co., Inc., acting as private placement agent (in such capacity, the “Private Placement Agent”), if a private placement of the Bonds will produce lower interest rates than are available through a public offering of the Bonds, or if a private placement is otherwise preferable and/or more appropriate than a public offering of the Bonds, in the opinion of, and upon recommendation of, the City’s Municipal Advisor, which recommendation is agreed to by the City Manager or the Administrative Services Director; provided, however, that the compensation paid to the Private Placement Agent shall not exceed the amount approved by the City Manager or the Administrative Services Director. The Authorized Officers are each hereby authorized to negotiate and execute a private placement agreement with the Private Placement Agent in consultation with the City’s Bond Counsel and Municipal Advisor.

Section 7. The sale and issuance of the Bonds and execution and delivery of the Indenture are hereby determined to be consistent with the City’s Debt Management Policy and to the extent the sale and issuance of the Bonds is not in compliance with the City’s Debt Management Policy, such noncompliance is waived in accordance with the terms of the City’s Debt Management Policy. The City further instructs Anzel Galvan LLP, as Bond Counsel, on behalf of the City, with respect to the Bonds, (a) to cause notices of the proposed sale and final sale of the Bonds to be filed in a timely manner with the California Debt and Investment Advisory Commission (“CDIAC”) pursuant to Government Code Section 8855, and (b) to certify to CDIAC, on behalf of the City, that the City’s Debt Management Policy complies with Government Code Section 8855(i) in the notice of proposed sale filed pursuant to Government Code Section 8855.

Section 8. The form of Preliminary Official Statement, on file with the City Clerk, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Bonds is hereby authorized and approved. The Authorized Officers are each hereby authorized to

4 certify on behalf of the City that the Preliminary Official Statement is deemed final as of its date, within the meaning of Rule 15c2-12 (except for the omission of certain final pricing, rating and related information as permitted by Rule 15c2-12). The Authorized Officers are each hereby further authorized and directed to furnish, or cause to be furnished, to prospective investors in the Bonds a reasonable number of copies of the Preliminary Official Statement.

Section 9. The preparation and delivery of an Official Statement, and its use in connection with the offering and sale of the Bonds, is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are each hereby authorized and directed, for and in the name of and on behalf of the City, to execute the final Official Statement and any amendment or supplement thereto for and in the name and on behalf of the City.

Section 10. The form of Continuing Disclosure Certificate, on file with the City Clerk, is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Continuing Disclosure Certificate in substantially said form, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution and delivery thereof.

Section 11. Anzel Galvan LLP is hereby approved and appointed as Bond Counsel and Disclosure Counsel, Urban Futures, Inc., is hereby approved and appointed as Municipal Advisor, and U.S. Bank Trust Company, National Association is hereby appointed as Trustee, each to provide such services to the City and any other related services as may be required to issue the Bonds.

Section 12. The officers, employees and agents of the City are hereby authorized and directed, jointly and severally, to do any and all things which they may deem necessary or advisable to consummate the transactions herein authorized and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution. Notwithstanding anything to the contrary herein, in the event the Administrative Services Director determines in consultation with the Municipal Advisor that the cost-efficient marketing of the Bonds requires creation of a funded reserve under the Indenture, each of the Indenture and other documents approved herein may be revised to reflect the funding of such a reserve. Specifically and without limiting the foregoing, the Administrative Services Director is authorized and directed to solicit and accept bids for bond insurance and, if applicable, a reserve account insurance policy, for the Bonds, provided that she determines that acceptance of the best bid will result in lower overall debt service or lower interest cost, and appropriate changes to each of the documents referenced herein to evidence such bond insurance, and, if applicable, a reserve account insurance policy, and the terms thereof, are hereby authorized and approved. All actions heretofore taken by the officers, employees and agents of the City with respect to the transactions set forth above are hereby approved, confirmed and ratified.

Section 13. This Resolution shall take effect from and after its date of adoption.

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EXHIBIT A

GOOD FAITH ESTIMATES
The good faith estimates set forth herein are provided with respect to the Bonds in accordance with California Government Code Section 5852.1. Such good faith estimates have been provided to the City by the City’s Municipal Advisor, Urban Futures, Inc., in consultation with Samuel A. Ramirez, Inc., the Underwriter of the Bonds.

Principal Amount. The Municipal Advisor has informed the City that, based on the City’s financing plan and current market conditions, its good faith estimate of the aggregate principal amount of the Bonds to be issued and sold is $19,445,000 (the “Estimated Principal Amount”).

True Interest Cost of the Bonds. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is issued and sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the true interest cost of the Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Bonds, is 4.41%.

Finance Charge of the Bonds. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is issued and sold and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the finance charge for the Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the Bonds), is $577,321.

Amount of Proceeds to be Received. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is issued and sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the amount of proceeds expected to be received by the City for sale of the Bonds, less the finance charge of the Bonds, as estimated above, and any reserves or capitalized interest paid or funded with proceeds of the Bonds, is $20,000,000.

Total Payment Amount. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is issued and sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the total payment amount, which means the sum total of all payments the City will make to pay debt service on the Bonds, plus the finance charge for the Bonds, as described above, not paid with the proceeds of the Bonds, calculated to the final maturity of the Bonds, is $30,759,882, which excludes any reserves or capitalized interest paid or funded with proceeds of the Bonds (which may offset such total payment amount).

The foregoing estimates constitute good faith estimates only and are based on market conditions prevailing at the time of preparation of such estimates. The actual principal amount of the Bonds issued and sold, the true interest cost thereof, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to (a) the actual date of the sale of the Bonds being different than the date assumed for purposes of such estimates, (b) the actual principal amount of Bonds issued and sold being different from the Estimated Principal Amount, (c) the actual amortization of the Bonds being different than the amortization assumed for purposes of such estimates, (d) the actual market interest rates at the time of

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sale of the Bonds being different than those estimated for purposes of such estimates, (e) other market conditions, (f) alterations to the City’s financing plan, or a combination of such factors.

Agenda Draft

INDENTURE OF TRUST
Dated as of October 1, 2026
By and between
U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION,
as Trustee
and the

CITY OF WATSONVILLE
Relating to
$[PAR]

CITY OF WATSONVILLE
WASTEWATER REVENUE BONDS, SERIES 2026

TABLE OF CONTENTS
Page
i
ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS 2 Section 1.01. Definitions .............................................................................................................. 2 Section 1.02. Content of Certificates and Opinions.................................................................... 14 Section 1.03. Interpretation......................................................................................................... 14 ARTICLE II THE 2026 BONDS 15
Section 2.01. Authorization of 2026 Bonds................................................................................ 15 Section 2.02. Terms of the 2026 Bonds...................................................................................... 15 Section 2.03. Transfer of 2026 Bonds ........................................................................................ 16 Section 2.04. Exchange of 2026 Bonds...................................................................................... 16 Section 2.05. Registration Books................................................................................................ 17 Section 2.06. Form and Execution of 2026 Bonds..................................................................... 17 Section 2.07. 2026 Bonds Mutilated, Lost, Destroyed or Stolen................................................ 17 Section 2.08. Book Entry System............................................................................................... 18 ARTICLE III ISSUANCE OF 2026 BONDS; APPLICATION OF PROCEEDS 21 Section 3.01. Issuance of the 2026 Bonds.................................................................................. 21 Section 3.02. Application of Proceeds of the 2026 Bonds ......................................................... 21 Section 3.03. Establishment and Application of Costs of Issuance Fund................................... 21 Section 3.04. Validity of 2026 Bonds......................................................................................... 21 Section 3.05. Acquisition Fund................................................................................................... 21 Section 3.06. Changes to the 2026 Project ................................................................................. 22 ARTICLE IV REDEMPTION OF 2026 BONDS 22
Section 4.01. Terms of Redemption ........................................................................................... 22 Section 4.02. Selection of 2026 Bonds for Redemption............................................................. 23 Section 4.03. Notice of Redemption........................................................................................... 23 Section 4.04. Partial Redemption of 2026 Bonds....................................................................... 24 Section 4.05. Effect of Redemption............................................................................................ 24 ARTICLE V REVENUES, FUNDS AND ACCOUNTS;
PAYMENT OF PRINCIPAL AND INTEREST 24
Section 5.01. Pledge and Assignment; Revenue Fund ............................................................... 24 Section 5.02. Allocation of Revenues......................................................................................... 26 Section 5.03. Application of Interest Account............................................................................ 26 Section 5.04. Application of Principal Account ......................................................................... 26 Section 5.05. Application of Redemption Fund ......................................................................... 27 Section 5.06. Investments........................................................................................................... 27 Section 5.07. Reserve Fund ........................................................................................................ 28 Section 5.08. Rebate Fund .......................................................................................................... 28 Section 5.09. Application of Rate Stabilization Fund ................................................................ 29 Section 5.10. Application of Funds and Accounts When No 2026 Bonds are Outstanding ...... 30

TABLE OF CONTENTS
(continued)
Page
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ARTICLE VI PARTICULAR COVENANTS 30
Section 6.01. Punctual Payment ................................................................................................. 30 Section 6.02. Extension of Payment of 2026 Bonds................................................................... 30 Section 6.03. Against Encumbrances ......................................................................................... 30 Section 6.04. Power to Issue 2026 Bonds and Make Pledge and Assignment........................... 30 Section 6.05. Accounting Records and Financial Statements .................................................... 31 Section 6.06. Tax Covenants ...................................................................................................... 31 Section 6.07. Waiver of Laws..................................................................................................... 32 Section 6.08. Further Assurances ............................................................................................... 32 Section 6.09. Budgets ................................................................................................................. 32 Section 6.10. Observance of Laws and Regulations................................................................... 32 Section 6.11. Compliance with Contracts................................................................................... 33 Section 6.12. Prosecution and Defense of Suits ......................................................................... 33 Section 6.13. Continuing Disclosure .......................................................................................... 33 Section 6.14. Additional Contracts and Bonds........................................................................... 33 Section 6.15. Against Sale or Other Disposition of Property ..................................................... 34 Section 6.16. Against Competitive Facilities.............................................................................. 34 Section 6.17. Maintenance and Operation of the Wastewater System ....................................... 35 Section 6.18. Payment of Claims................................................................................................ 35 Section 6.19. Insurance............................................................................................................... 35 Section 6.20. Payment of Taxes and Compliance with Governmental Regulations .................. 36 Section 6.21. Amount of Rates and Charges.............................................................................. 36 Section 6.22. Collection of Rates and Charges........................................................................... 37 Section 6.23. Eminent Domain Proceeds.................................................................................... 37 Section 6.24. Enforcement of Contracts..................................................................................... 37 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF 2026 BOND OWNERS 38 Section 7.01. Events of Default .................................................................................................. 38 Section 7.02. Remedies Upon Event of Default ......................................................................... 38 Section 7.03. Application of Revenues and Other Funds After Default..................................... 39 Section 7.04. Trustee to Represent 2026 Bond Owners............................................................. 40 Section 7.05. 2026 Bond Owners’ Direction of Proceedings..................................................... 41 Section 7.06. Suit by Owners...................................................................................................... 41 Section 7.07. Absolute Obligation of the City............................................................................ 41 Section 7.08. Remedies Not Exclusive....................................................................................... 41 Section 7.09. Control by the Insurer Upon Default .................................................................... 42 Section 7.10. No Waiver of Default ........................................................................................... 42 ARTICLE VIII THE TRUSTEE 42
Section 8.01. Duties, Immunities and Liabilities of Trustee ...................................................... 42 Section 8.02. Merger or Consolidation....................................................................................... 43 Section 8.03. Liability of Trustee ............................................................................................... 43 Section 8.04. Right to Rely on Documents................................................................................. 46 Section 8.05. Preservation and Inspection of Documents .......................................................... 46 Section 8.06. Compensation and Indemnification...................................................................... 47

TABLE OF CONTENTS
(continued)
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ARTICLE IX MODIFICATION OR AMENDMENT OF THE INDENTURE 47 Section 9.01. Amendments Permitted......................................................................................... 47 Section 9.02. Effect of Supplemental Indenture ......................................................................... 48 Section 9.03. Endorsement of 2026 Bonds; Preparation of New 2026 Bonds........................... 49 Section 9.04. Amendment of Particular 2026 Bonds.................................................................. 49 ARTICLE X DEFEASANCE 49
Section 10.01. Discharge of Indenture.......................................................................................... 49 Section 10.02. Discharge of Liability on 2026 Bonds.................................................................. 50 Section 10.03. Deposit of Money or Securities with Trustee ....................................................... 50 Section 10.04. Payment of 2026 Bonds After Discharge of Indenture......................................... 50 ARTICLE XI MISCELLANEOUS 51
Section 11.01. Liability of City Limited to Net Revenues ........................................................... 51 Section 11.02. Successor Is Deemed Included in All References to Predecessor........................ 51 Section 11.03. Limitation of Rights to Parties and 2026 Bond Owners....................................... 51 Section 11.04. Waiver of Notice; Requirement of Mailed Notice................................................ 51 Section 11.05. Destruction of 2026 Bonds................................................................................... 52 Section 11.06. Severability of Invalid Provisions......................................................................... 52 Section 11.07. Notices.................................................................................................................. 52 Section 11.08. Evidence of Rights of 2026 Bond Owners ........................................................... 52 Section 11.09. Disqualified 2026 Bonds ...................................................................................... 53 Section 11.10. Money Held for Particular 2026 Bonds................................................................ 53 Section 11.11. Funds and Accounts.............................................................................................. 53 Section 11.12. Waiver of Personal Liability................................................................................. 53 Section 11.13. Execution in Several Counterparts ....................................................................... 53 Section 11.14. CUSIP Numbers ................................................................................................... 54 Section 11.15. Choice of Law....................................................................................................... 54 Section 11.16. Paired Obligation Provider Guidelines................................................................. 54 Signatures .............................................................................................................................S-1 Exhibit A Form of 2026 Bond.............................................................................................A-1 Exhibit B Description of 2026 Project ................................................................................B-1 Exhibit C Form of Requisition from Acquisition Fund ......................................................C-1 Exhibit D Form of Substitution Statement ..........................................................................D-1

1 INDENTURE OF TRUST
THIS INDENTURE OF TRUST is made and entered into and dated as of October 1, 2026 (the “Indenture”), by and between the CITY OF WATSONVILLE, a municipal corporation that is duly organized and existing under its charter and the Constitution of the State of California (the “City”), and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association that is duly organized and existing under the laws of the United States of America, as trustee hereunder (the “Trustee”).

RECITALS
A. The City desires to finance certain capital improvements to its municipal wastewater system.

B. The City is authorized pursuant to Section 200 of the City’s charter and Chapter 9 of Title 3 of the City’s Municipal Code to issue revenue bonds for the purpose of financing capital improvements to its municipal wastewater system.

C. In order to provide for the authentication and delivery of wastewater revenue bonds (the “2026 Bonds”), to establish and declare the terms and conditions upon which such 2026 Bonds are to be issued and secured and to secure the payment of the principal thereof and interest and premium, if any, thereon, the City has authorized the execution and delivery of this Indenture.

D. The City has determined that all acts and proceedings which are required by law and necessary to make the 2026 Bonds, when executed by the City, authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal special obligations of the City, and to constitute the Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of the Indenture have been in all respects duly authorized;

GRANTING CLAUSES
The City, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the mutual covenants herein contained and of the purchase and acceptance of the 2026 Bonds by the owners thereof, and for other valuable considerations, the receipt whereof is hereby acknowledged, in order to secure the payment of the principal of and the interest and premium (if any) on all 2026 Bonds at any time issued and Outstanding under the Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, does hereby assign and pledge unto, and grant a security interest in, the following (the “Trust Estate”) to the Trustee, and its successors in trust and assigns forever, for the securing of the performance of the obligations of the City to the 2026 Bond Owners hereinafter set forth:

FIRST
All right, title and interest of the City in and to the Net Revenues (as such term is defined herein), including, but without limiting the generality of the foregoing, the present and continuing right to make claim for, collect, receive and receipt for any Net Revenues payable to or receivable by the City under the Constitution of the State, the Government Code of the State, the Indenture, the

2 charter of the City and any other applicable laws of the State or otherwise, to bring actions and proceedings thereunder for the enforcement thereof, and to do any and all things which the City is or may become entitled to do thereunder, subject to the terms hereof.

SECOND
All moneys and securities held in funds and accounts of this Indenture, except amounts which are held in the Rebate Fund and the Costs of Issuance Fund, and all other rights of every name and nature from time to time herein or hereafter by delivery or by writing of any kind pledged, assigned or transferred as and for additional security hereunder to the Trustee by the City or by anyone on its behalf, or with its written consent, and to hold and apply the same, subject to the terms hereof.

TO HAVE AND TO HOLD all and singular the Trust Estate, whether now owned or hereafter acquired, unto the Trustee and its respective successors in trust and assigns forever for the benefit of the Owners, and such pledge shall constitute a lien on and security interest in such Trust Estate;
IN TRUST, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all present and future owners of the 2026 Bonds issued under and secured by the Indenture without privilege, priority or distinction as to the lien or otherwise of any of the 2026 Bonds over any of the other 2026 Bonds;
PROVIDED, HOWEVER, that if the City, its successors or assigns shall well and truly pay, or cause to be paid, the principal of and interest and any redemption premium on the 2026 Bonds due or to become due thereon, at the times and in the manner provided in the 2026 Bonds according to the true intent and meaning thereof, and shall well and truly keep, perform and observe all of the covenants and conditions pursuant to the terms of the Indenture to be kept, performed and observed by it, and shall pay or cause to be paid to the Trustee all sums of money due or to become due in accordance with the terms and provisions hereof, then upon such final payments or deposits as herein provided, the Indenture and the rights hereby granted shall cease, terminate and be void; otherwise the Indenture shall remain in full force and effect.

It is expressly declared that all 2026 Bonds which are issued and secured hereunder are to be issued, authenticated and delivered, and all sold property, rights and interests, including, without limitation, the Net Revenues, which are hereby assigned and pledged, are to be dealt with and disposed of, under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes hereinafter expressed, and the City has agreed and covenanted and does hereby covenant and agree with the Trustee, for the benefit of the respective Owners from time to time of the 2026 Bonds, as follows:

ARTICLE I
DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS
Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section 1.01 shall, for all purposes of the Indenture and of any indenture supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined.

3 Accountant’s Report. The term “Accountant’s Report” means a report signed by an Independent Certified Public Accountant.

Acquisition Fund. The term “Acquisition Fund” means the fund by that name created pursuant to Section 3.05 of the Indenture.

Annual Debt Service. The term “Annual Debt Service” means, for any Fiscal Year or any designated twelve (12) month period in question, the Debt Service in such Fiscal Year or designated twelve (12) month period, calculated as if the 2026 Bonds were the only Bonds Outstanding and no Contracts were in effect.

Authorized Officer. The term “Authorized Officer” means, with respect to the City, the Mayor, the City Manager, the Public Works Director, the Administrative Services Director and any other person designated as an Authorized Officer of the City by a Certificate of the City signed by the Mayor, the City Manager, the Public Works Director, or the Administrative Services Director and filed with the Trustee.

Bond Counsel. The term “Bond Counsel” means Anzel Galvan LLP, or another firm of nationally recognized attorneys experienced in the issuance of obligations the interest on which is excludable from gross income under Section 103 of the Code.

Bonds. The term “Bonds” means the 2026 Bonds and all other revenue bonds or notes of the City authorized, executed, issued and delivered by the City, the payments of which are payable from Net Revenues on a parity with the 2026 Bonds and which are secured by a pledge of and lien on Net Revenues as described in Section 5.01 hereof.

Bond Year. The term “Bond Year” has the meaning that is set forth in the Tax Certificate.

Business Day. The term “Business Day” means: (1) a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State, or in any other state in which the Office of the Trustee is located, are closed; or (2) a day on which the New York Stock Exchange is not closed.

Certificate; Direction; Request; Requisition. The terms “Certificate,” “Direction,” “Request” and “Requisition” of the City mean a written certificate, direction, request or requisition signed in the name of the City by its Authorized Officer. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. If and to the extent required by Section 1.02, each such instrument shall include the statements provided for in Section 1.02.

City. The term “City” means the City of Watsonville, a municipal corporation that is duly organized and existing under its charter and the Constitution of the State of California.

Closing Date. The term “Closing Date” means the date on which the 2026 Bonds are delivered to the original purchaser thereof.

Code. The term “Code” means the Internal Revenue Code of 1986, as amended.

Continuing Disclosure Certificate. The term “Continuing Disclosure Certificate” means the Continuing Disclosure Certificate dated the Closing Date, of the City, relating to the 2026 Bonds, as

4 originally executed or as it may be from time to time amended or supplemented in accordance with its terms.

Contracts. The term “Contracts” means the SWRCB Agreements and all other contracts of the City previously or hereafter authorized and executed by the City, the payments under which are payable from Net Revenues on a parity with the 2026 Bonds and which are secured by a pledge and lien on Net Revenues as described in Section 5.01 hereof; but excluding contracts entered into for operation and maintenance of the Wastewater System.

Costs of Issuance. The term “Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the City and related to the authorization, issuance, sale and delivery of the 2026 Bonds, including but not limited to costs of preparation and reproduction of documents, printing expenses, filing and recording fees, initial fees and charges of the Trustee and counsel to the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, rating agency fees, title insurance premiums, letter of credit fees and bond insurance premiums (if any), fees and charges for preparation, execution and safekeeping of the 2026 Bonds and any other cost, charge or fee in connection with the original issuance of the 2026 Bonds.

Costs of Issuance Fund. The term “Costs of Issuance Fund” means the fund by that name established pursuant to Section 3.03.

Debt Service. The term “Debt Service” means, for any period of calculation, the sum of:
(1) the interest accruing during such period on all outstanding Bonds, assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are prepaid or paid from sinking fund payments as scheduled (except to the extent that such interest is capitalized or is reasonably anticipated to be reimbursed to the City by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5, 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program);
(2) that portion of the principal amount of all outstanding serial Bonds maturing in such period or maturing in the next succeeding period accruing during such period, in each case computed as if such principal amounts were deemed to accrue daily during such period in equal amounts; (3) that portion of the principal amount of all outstanding term Bonds required to be prepaid or paid in such period or during the next succeeding period in each case computed as if such principal amounts were deemed to accrue daily during such period in equal amounts; and (4) that portion of the Contracts required to be made during such period or during the next succeeding period, in each case computed as if such payments on such Contracts were deemed to accrue daily during such period in equal amounts (except to the extent that the interest portion of such Contracts is capitalized);
less the earnings derived from investment of moneys on deposit in any debt service reserve fund and any construction fund created with respect to any Contracts or Bonds to the extent that such earnings are deposited in a debt service fund, including the Payment Fund;

5 provided that, as to any such Bonds or Contracts 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 Bonds or Contracts during the twelve (12) calendar months preceding the date of calculation (or the portion of the then current period that such Bonds or the principal amount of such Contracts have borne interest) or, if such Bonds or Contracts were not outstanding during such twelve (12) calendar month period, the daily average interest rate on bonds or installment payments with a similar basis for calculating interest; or (b) the most recent effective interest rate on such Bonds or Contracts prior to the date of calculation or, if such Bonds or Contracts were not then outstanding, the most recent effective interest rate on bonds or installment payments with a similar basis for calculating interest; and provided further that if any series or issue of such Bonds or Contracts have twenty-five percent (25%) or more of the aggregate principal amount of such series or issue due in any one year, Debt Service shall be determined for the Fiscal Year of determination as if the principal of and interest on such series or issue of such Bonds or Contracts were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of twenty-five (25) years from the date of calculation; and
provided further that, as to any such Bonds or Contracts or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds or Contracts or portions thereof, such accreted discount shall be treated as interest in the calculation of Debt 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 Bonds and Contracts for which such debt service reserve fund was established and in each preceding year until such amount is exhausted; and
provided further that if the Bonds or Contracts constitute Paired Obligations, the interest rate on such Bonds or Contracts shall be the resulting linked rate or the effective fixed interest rate to be paid by the City with respect to such Paired Obligations, but only if the applicable Paired Obligations satisfies the requirement set forth in Section 11.16 hereof.

Depository; DTC. The term “Depository” or “DTC” means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York, in its capacity as securities depository for the 2026 Bonds.

Event of Default. The term “Event of Default” means any of the events specified in Section

7.01. Federal Securities. The term “Federal Securities” means any direct, noncallable general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), or noncallable obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America.

Fiscal Year. The term “Fiscal Year” means the twelve month period beginning on July 1 of each year and ending on the next succeeding June 30, both dates inclusive, or any other twelve month period hereafter selected and designated as the official fiscal year period of the City.

6 Fitch. The term “Fitch” means Fitch Ratings, Inc., or any successor thereto.

Generally Accepted Accounting Principles. The term “Generally Accepted Accounting Principles” means the uniform accounting and reporting procedures set forth in publications of the American Institute of Certified Public Accountants or its successor, or by any other generally accepted authority on such procedures, and includes, as applicable, the standards set forth by the Governmental Accounting Standards Board or its successor.

Indenture. The term “Indenture” means the Indenture of Trust, dated as of October 1, 2026, by and between the City and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture.

Independent Certified Public Accountant. The term “Independent Certified Public Accountant” means any firm of certified public accountants appointed by the City, each of whom is independent of the City pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants.

Independent Financial Consultant. The term “Independent Financial Consultant” means a financial consultant or firm of such consultants appointed by the City, who, or each of whom: (1) is in fact independent and not under domination of the City; (2) does not have any substantial interest, direct or indirect, with the City; (3) is not connected with the City as an officer or employee thereof, but who may be regularly retained to make reports thereto; and (4) is registered as a “municipal advisor,” as defined in Section 15B of the Securities Exchange Act of 1934, as amended.

Information Services. The term “Information Services” means the Municipal Securities Rulemaking Board; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the City may specify in a certificate to the Trustee.

Initial Rating Requirement. The term “Initial Rating Requirement” means the rating requirement described in Section 11.16(a).

Insurance Policy. The term “Insurance Policy” means the Municipal Bond Insurance Policy issued by the Insurer that guarantees the scheduled payment of principal of and interest on the 2026 Bonds when due.

Insurer. The term “Insurer” means ______, or any successor thereto or assignee thereof.

Interest Account. The term “Interest Account” means the account by that name in the Payment Fund established pursuant to Section 5.02.

Interest Payment Date. The term “Interest Payment Date” means May 1, 2027 and each May 1 and November 1 thereafter.

Investment Agreement. The term “Investment Agreement” means any investment agreement (including guaranteed investment contracts, forward delivery agreements, repurchase agreements or similar obligations) with, or guaranteed by, an entity the long-term unsecured obligations or the claims paying ability of which are rated “A” or better by a nationally recognized rating agency (without regard to gradations or modifiers within such category) at the time of initial investment.

7 Letter of Representations. The term “Letter of Representations” means the letter of the City delivered to and accepted by the Depository on or prior to delivery of the 2026 Bonds as book entry bonds setting forth the basis on which the Depository serves as depository for such book entry bonds, as originally executed or as it may be supplemented or revised or replaced by a letter from the City delivered to and accepted by the Depository.

Late Payment Rate. The term “Late Payment Rate” means ______.

Maximum Annual Debt Service. The term “Maximum Annual Debt Service” means the greatest amount of Annual Debt Service becoming due in the then-current Fiscal Year or any future Fiscal Year with respect to the Outstanding 2026 Bonds.

Minimum Rating Requirement. The term “Minimum Rating Requirement” means the rating requirement described in Section 11.16(b).

Moody’s. The term “Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.

Net Proceeds. The term “Net Proceeds” means, when used with respect to any casualty insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys’ fees) incurred in the collection of such proceeds.

Net Revenues. The term “Net Revenues” means, for any period, the Revenues for such period less the Operation and Maintenance Costs for such period. When held by the Trustee in any funds or accounts established hereunder, Net Revenues shall include all interest or realized gain derived from the investment of amounts in any of such funds or accounts.

Nominee. The term “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.08 hereof.

Office. The term “Office” means with respect to the Trustee, the corporate trust office of the Trustee at One California Street, Suite 1000, San Francisco, California 94111, Attention: Global Corporate Trust Services, or such other or additional offices as may be specified in writing by the Trustee to the City, except that with respect to presentation of 2026 Bonds for payment or for registration of transfer and exchange, such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted.

Operation and Maintenance Costs. The term “Operation and Maintenance Costs” means: (i) costs spent or incurred for maintenance and operation of the Wastewater System calculated in accordance with generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Wastewater System in good repair and working order, and including administrative costs of the City that are charged directly or apportioned to the Wastewater System, including but not limited to 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 including all other reasonable and necessary costs of the City or charges (other than debt service payments) required to be paid by it to comply with the terms of the 2026 Bonds or any Contracts or of any resolution or indenture authorizing the issuance of any Bonds or of

8 such Bonds; and (ii) costs spent or incurred in the purchase of water for the Wastewater System; but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature and all capital charges and any amounts transferred to the Rate Stabilization Fund.

Opinion of Bond Counsel. The term “Opinion of Bond Counsel” means a written opinion of counsel (including but not limited to counsel to the City) selected by the City. If and to the extent required by the provisions of Section 1.02, each Opinion of Bond Counsel shall include the statements provided for in Section 1.02.

Outstanding. The term “Outstanding,” when used as of any particular time with reference to 2026 Bonds, means (subject to the provisions of Section 11.09) all 2026 Bonds theretofore or thereupon being authenticated and delivered by the Trustee under the Indenture except: (i) 2026 Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) 2026 Bonds with respect to which all liability of the City shall have been discharged in accordance with Section 10.02, including 2026 Bonds (or portions thereof) described in Section 11.09; and (iii) 2026 Bonds for the transfer or exchange of or in lieu of or in substitution for which other 2026 Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture.

Owner; 2026 Bond Owner. The term “Owner” or “2026 Bond Owner,” whenever used herein with respect to a 2026 Bond, means the person in whose name the ownership of such 2026 Bond is registered on the Registration Books.

Paired Obligation Provider. The term “Paired Obligation Provider” means a party to a Paired Obligation other than the City.

Paired Obligations. The term “Paired Obligations” means any Bond or Contract (or portion thereof) designated as Paired Obligations in the resolution, indenture or other document authorizing the issuance or execution and delivery thereof, which are simultaneously issued or executed and delivered: (i) the principal of which is of equal amount maturing and to be redeemed or prepaid (or cancelled after acquisition thereof) on the same dates and in the same amounts; and (ii) the interest rates which, taken together, are reasonably expected to result in a fixed interest rate obligation of the City for the term of such Bond or Contract, as certified by an Independent Financial Consultant in writing, and which comply with the provisions of Section 11.16 hereof.

Participants. The term “Participants” means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds book entry certificates as securities depository.

Payment Fund. The term “Payment Fund” means the fund by that name established pursuant to Section 5.02.

Permitted Investments. The term “Permitted Investments” means any of the following, if and to the extent permitted by law and by any policy guidelines promulgated by the City (provided that the Trustee shall be entitled to rely upon any investment directions from the City as conclusive certification to the Trustee that the investments described therein comply with any policy guidelines promulgated by the City and are so authorized under the laws of the State of California).

9 The following obligations may be used as Permitted Investments for all purposes, including defeasance investments in refunding escrow agreements:
(a) Cash (insured at all times by the Federal Deposit Insurance Corporation); and (b) Obligations of, or obligations guaranteed as to principal and interest by, the U.S. or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the U.S. including: U.S. treasury obligations; All direct or fully guaranteed obligations; Farmers Home Administration; General Services Administration; Guaranteed Title XI financing; Government National Mortgage Association (GNMA); and State and Local Government Series.

Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date).

The following obligations may be used as Permitted Investments for all purposes other than defeasance investments in refunding escrow accounts:
(c) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including: Export-Import Bank; Rural Economic Community Development Administration; Federal Farm Credit Bureau; U.S. Maritime Administration; Small Business Administration; U.S. Department of Housing & Urban Development (PHAs); and Federal Housing Administration and Federal Financing Bank; (d) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC); Obligations of the Resolution Funding Corporation (REFCORP); Senior debt obligations of the Federal Home Loan Bank System; and Senior debt obligations of other Government Sponsored Agencies;
(e) U.S. dollar denominated deposit accounts, federal funds and bankers’ acceptances with domestic commercial banks which may include the Trustee and its affiliates which have a rating on their short term certificates of deposit on the date of purchase of “P-1” by Moody’s and “A-1” by S&P and maturing not more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank); (f) Commercial paper which is rated at the time of purchase in the single highest classification, “P-1” by Moody’s or “A-1” by S&P and which matures not more than 270 calendar days after the date of purchase;
(g) Investments in a money market fund rated “AAm”, “AAAm” or “AAAm-G” or better by S&P, including such funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services or for which the Trustee or an affiliate of the Trustee serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding the fact that: (i) the Trustee or an affiliate of the Trustee receives and retains fees from funds for services provided to the fund; (ii) the Trustee collects fees for services rendered pursuant to the Indenture, which fees are separate from the fees received from such funds; and (iii)

10 services performed for such funds and pursuant to the Indenture may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee; (h) Pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice:
(1) which are rated, based on an irrevocable escrow account or fund (the “escrow”), in the highest rating category of Moody’s or S&P or any successors thereto; or (2) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (b) above, which escrow may be applied only to the payment of such principal and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate; and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate;
(i) Municipal obligations rated “Aaa/AAA” or general obligations of states with a rating of “A2/A” or higher by both Moody’s and S&P;
(j) Investment Agreements (supported by appropriate opinions of counsel); (k) the Local Agency Investment Fund of the State, created pursuant to Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name;
(l) Shares of beneficial interest issued by a joint powers authority organized pursuant to California Government Code § 6509.7. To be eligible for purchase, the pool must meet the requirements of California Government Code § 53601(p); and (m) Certificates of deposit insured by the Federal Deposit Insurance Corporation.

The value of the above investments shall be determined as follows: (a) for the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at cost; (b) as to certificates of deposit and bankers’ acceptances: the face amount thereof, plus accrued interest thereon; and (c) as to any investment not specified above: the value thereof established by prior agreement among the City and the Trustee.

Principal Account. The term “Principal Account” means the account by that name in the Payment Fund established pursuant to Section 5.02.

Rate Stabilization Fund. The term “Rate Stabilization Fund” means the fund by that name continued pursuant to Section 5.09.

11 Rating. The term “Rating” means any currently effective rating on the 2026 Bonds issued by a Rating Agency.

Rating Agencies. The term “Rating Agencies” means S&P, Moody’s or Fitch, as the context dictates.

Rebate Fund. The term “Rebate Fund” means the fund by that name established pursuant to Section 5.08.

Record Date. The term “Record Date” means, with respect to any Interest Payment Date, the fifteenth (15th) day of the calendar month preceding such Interest Payment Date, whether or not such day is a Business Day.

Redemption Date. The term “Redemption Date” means the date fixed for a redemption prior to maturity of the 2026 Bonds.

Redemption Fund. The term “Redemption Fund” means the fund by that name established pursuant to Section 5.05.

Redemption Price. The term “Redemption Price” means, with respect to any 2026 Bond (or portion thereof), the principal amount of such 2026 Bond (or portion) plus the interest accrued to the applicable Redemption Date and the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such 2026 Bond and the Indenture.

Registration Books. The term “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the 2026 Bonds pursuant to Section 2.05.

Reserve Fund. The term “Reserve Fund” means the fund by that name established and held by the Trustee pursuant to Section 5.07.

Reserve Requirement. The term “Reserve Requirement” means an amount equal to the least of: (i) ten percent (10%) of the initial principal amount of the 2026 Bonds; (ii) Maximum Annual Debt Service; or (iii) one hundred twenty-five percent (125%) of average Annual Debt Service for the then-current and each future Fiscal Year during which any 2026 Bonds will be Outstanding, in each case calculated as of the Closing Date; provided that, for purposes of this definition, Debt Service shall be calculated without giving effect to the deduction of investment earnings on, or amounts on deposit in, any debt service reserve fund.

Reserve Policy. The term “Reserve Policy” means the municipal bond debt service reserve insurance policy issued by the Insurer guaranteeing certain payments into the Reserve Fund with respect to the 2026 Bonds as provided therein and subject to the limitation set forth therein.

Responsible Officer of the Trustee. The term “Responsible Officer of the Trustee” means any officer within the corporate trust services division (or any successor group or department of the Trustee) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee within the Office (or any successor corporate trust office) customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred at the Office because of

12 such person’s knowledge of any familiarity with the particular subject and having direct responsibility for the administration of this Indenture.

Revenue Fund. The term “Revenue Fund” means the Sewer Fund of the City and/or such other fund or account of the City in which Revenues are deposited.

Revenues. The term “Revenues” means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Wastewater System, including, without limiting the generality of the foregoing: (1) all income, rents, rates, fees, charges or other moneys derived by the City from the sale, furnishing and supplying of the water or other services, facilities and commodities sold, furnished or supplied through the facilities or in the conduct or operation of the business of the Wastewater System; (2) the proceeds of any stand-by or water availability charges and the proceeds of any development fees, connection charges or capacity charges collected by the City that are not, at the time of collection, restricted by law to the financing of capital improvements to the Wastewater System (any such charges that are so restricted being referred to herein as “Restricted Capital Charges”); (3) the earnings on and income derived from the investment of amounts described in clauses (1) and (2) above, and from Wastewater System reserves; but excluding: (w) customers’ deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the City; (x) any proceeds of taxes or assessments restricted by law to be used by the City to pay bonds or other obligations heretofore or hereafter issued; (y) revenues of any water system acquired through merger, consolidation or similar action to the extent the exclusion of such acquired water system is required pursuant to the terms of such merger, consolidation or similar action; and (z) the proceeds of any Restricted Capital Charges, notwithstanding that such proceeds may be deposited in or held within the Revenue Fund pending application to the capital improvements for which they were collected. “Revenues” also include all amounts transferred from the Rate Stabilization Fund to the Revenue Fund during any Fiscal Year in accordance with Section 5.09 and do not include any amounts transferred from the Revenue Fund to the Rate Stabilization Fund during any Fiscal Year in accordance with 5.01(b)(iv). Restricted Capital Charges on deposit in the Revenue Fund shall be accounted for in a separate subaccount thereof, shall not constitute Net Revenues, and shall not be pledged pursuant to Section 5.01.

S&P. The term “S&P” means S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, or any successor thereto.

Securities Depositories. The term “Securities Depositories” means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in a Written Request of the City delivered to the Trustee.

Separate Facilities. The term “Separate Facilities” means any capital items acquired on or after the date hereof and which were not financed from the proceeds of Bonds or Contracts of the City having a parity claim on the Revenue Fund or Net Revenues.

SWRCB. The term “SWRCB” means the State Water Resources Control Board, an administrative and regulatory agency of the State of California.

SWRCB Agreements. The term “SWRCB Agreements” means:

13 (i) the Installment Sale Agreement, dated as of June 10, 2015, between the City and the SWRCB, relating to the Manana Lane Sanitary Sewer Replacement Project, Clean Water State Revolving Fund Project No. C-06-8021-110, Agreement No. D15-01001, as amended from time to time; and
(ii) the Installment Sale Agreement, dated as of October 14, 2016, between the City and the SWRCB, relating to the Freedom Sanitation Trunk Sewer Line, Clean Water State Revolving Fund Project No. C-06-8011-110, Agreement No. D16-01017, as amended from time to time.

State. The term “State” means the State of California.

Supplemental Indenture. The term “Supplemental Indenture” means any indenture hereafter duly authorized and entered into between the City and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder.

Tax Certificate. The term “Tax Certificate” means the Tax Certificate dated the Closing Date, concerning certain matters pertaining to the use and investment of proceeds of the 2026 Bonds issued by the City on the date of issuance of the 2026 Bonds, including any and all exhibits attached thereto.

Term Bonds. The term “Term Bonds” means the 2026 Bonds maturing on May 1, 20__.

Trustee. The term “Trustee” means U.S. Bank Trust Company, National Association, a national banking association duly organized and existing under the laws of the United States of America, or its successor as Trustee hereunder as provided in Section 8.01.

Wastewater Service. The term “Wastewater Service” means the wastewater collection, treatment and disposal service made available or provided by the Wastewater System (including recycled storage and distribution facilities).

Wastewater System. The term “Wastewater System” means the whole and each and every part of the wastewater system (including the recycled storage and distribution system) of the City, including all real property and buildings whether owned or operated by the City or another party, including the portion thereof existing on the date hereof, and including all additions, betterments, extensions and improvements to such Wastewater System or any part thereof hereafter acquired or constructed, but not including any Separate Facilities.

Written Consent of the City; Written Order of the City; Written Request of the City; Written Requisition of the City. The terms “Written Consent of the City,” “Written Order of the City,” “Written Request of the City” and “Written Requisition of the City” mean, respectively, a written consent, order, request or requisition signed by or on behalf of the City by an Authorized Officer of the City or by any two persons who are specifically authorized by resolution of the City to sign or execute such a document on its behalf.
2026 Bonds. The term “2026 Bonds” means the City of Watsonville Wastewater Revenue Bonds, Series 2026 issued by the City and at any time Outstanding pursuant to the Indenture. 2026 Project. The term “2026 Project” means those Wastewater System capital improvements that are described in Exhibit B.

14 Section 1.02. Content of Certificates and Opinions. Every certificate or opinion provided for in the Indenture except the certificate of destruction provided for in Section 11.05 hereof, with respect to compliance with any provision hereof shall include: (a) a statement that the person making or giving such certificate or opinion has read such provision and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (c) a statement that, in the opinion of such person he or she has made or caused to be made such examination or investigation as is necessary to enable him or her to express an informed opinion with respect to the subject matter referred to in the instrument to which his or her signature is affixed; (d) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (e) a statement as to whether, in the opinion of such person, such provision has been complied with.

Any such certificate or opinion made or given by an officer of the City may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an Independent Certified Public Accountant or Independent Financial Consultant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an Independent Certified Public Accountant or Independent Financial Consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the City) upon a certificate or opinion of or representation by an officer of the City, unless such counsel or Independent Certified Public Accountant or Independent Financial Consultant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person’s certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the City, or the same counsel or Independent Certified Public Accountant or Independent Financial Consultant, as the case may be, need not certify to all of the matters required to be certified under any provision of the Indenture, but different officers, counsel or Independent Certified Public Accountants or Independent Financial Consultants may certify to different matters, respectively.

Section 1.03. Interpretation.
(a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to include the neuter, masculine or feminine gender, as appropriate.
(b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof.
(c) All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of the Indenture; the words “herein,” “hereof,” “hereby,” “hereunder” and other words of similar import refer to the Indenture as a whole and not to any particular Article, Section or subdivision hereof.

15 ARTICLE II
THE 2026 BONDS
Section 2.01. Authorization of 2026 Bonds. The City hereby authorizes the issuance hereunder from time to time of the 2026 Bonds, which shall constitute special obligations of the City, for the purposes of financing the 2026 Project. The 2026 Bonds are hereby designated the “City of Watsonville Wastewater Revenue Bonds, Series 2026” in the aggregate principal amount of $[PAR].

The Indenture constitutes a continuing agreement with the Owners from time to time of the 2026 Bonds to secure the full payment of the principal of and interest and premium (if any) on all the 2026 Bonds, subject to the covenants, provisions and conditions herein contained.

Section 2.02. Terms of the 2026 Bonds. The 2026 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof.

The 2026 Bonds shall mature on May 1 in each of the years and in the amounts set forth below and shall bear interest on each Interest Payment Date at the rates set forth below:

Maturity Date
(May 1) Principal Amount Interest Rate
___________________
* Term Bond.

Interest on the 2026 Bonds shall be payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check of the Trustee sent by first class mail on the applicable Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books (except that in the case of an Owner of one million dollars ($1,000,000) or more in principal amount, such payment may, at such Owner’s option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the Record Date.

16 Principal of and premium (if any) on any 2026 Bond shall be paid by check of the Trustee upon presentation and surrender thereof at maturity or upon the prior redemption thereof, at the Office of the Trustee. Both the principal of and interest and premium (if any) on the 2026 Bonds shall be payable in lawful money of the United States of America.

Each 2026 Bond shall be dated the date of initial delivery, and shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless: (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it shall bear interest from such Interest Payment Date; or (b) unless it is authenticated on or before April 15, 2027, in which event it shall bear interest from the date of initial delivery; provided, however, that if, as of the date of authentication of any 2026 Bond, interest thereon is in default, such 2026 Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Interest on the 2026 Bonds shall be calculated on the basis of a 360-day year composed of twelve 30-day months.

Section 2.03. Transfer of 2026 Bonds. Any 2026 Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2026 Bond at the Office of the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. The Trustee shall not be required to register the transfer of any 2026 Bond during the period in which the Trustee is selecting 2026 Bonds for redemption and any 2026 Bond that has been selected for redemption.

Whenever any 2026 Bond or 2026 Bonds shall be surrendered for transfer, the City shall execute and the Trustee shall authenticate and shall deliver a new 2026 Bond or 2026 Bonds of authorized denomination or denominations for a like aggregate principal amount of the same maturity. The Trustee shall require the 2026 Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2026 Bonds, the Trustee will cancel and destroy the 2026 Bonds that it has received.

Prior to any transfer of the 2026 Bonds outside the book-entry system (including, but not limited to, the initial transfer outside the book-entry system) the transferor shall provide or cause to be provided to the Trustee all information necessary to allow the Trustee to comply with any applicable tax reporting obligations, including without limitation any cost basis reporting obligations under Code Section 6045, as amended. The Trustee shall conclusively rely on the information provided to it and shall have no responsibility to verify or ensure the accuracy of such information.

Section 2.04. Exchange of 2026 Bonds. 2026 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of other authorized denominations of the same maturity. The Trustee shall not be required to exchange any 2026 Bond during the period in which the Trustee is selecting 2026 Bonds for redemption and any 2026 Bond that has been selected for redemption. The Trustee shall require the 2026 Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of 2026 Bonds, the Trustee will cancel and destroy the 2026 Bonds that it has received.

Section 2.05. Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the 2026 Bonds, which shall upon reasonable notice and at reasonable times be open to inspection during regular business hours by the City and the Owners; and, upon presentation for such purpose, the Trustee

17 shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the 2026 Bonds as hereinbefore provided.

The person in whose name any 2026 Bond shall be registered shall be deemed the Owner thereof for all purposes hereof, and payment of or on account of the interest on and principal and Redemption Price of by such 2026 Bonds shall be made only to or upon the order in writing of such registered Owner, which payments shall be valid and effectual to satisfy and discharge liability upon such 2026 Bond to the extent of the sum or sums so paid.

Section 2.06. Form and Execution of 2026 Bonds. The 2026 Bonds shall be in substantially the form set forth in Exhibit A hereto. The 2026 Bonds shall be executed in the name and on behalf of the City with the manual or facsimile signature of the City Manager or Administrative Services Director. The 2026 Bonds may carry a seal, and such seal may be in the form of a facsimile of the City’s seal and may be reproduced, imprinted or impressed on the 2026 Bonds. The 2026 Bonds shall then be delivered to the Trustee for authentication by it. In case any of the officers who shall have signed or attested any of the 2026 Bonds shall cease to be such officer or officers of the City before the 2026 Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the City, such 2026 Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the City as though those who signed and attested the same had continued to be such officers of the City, and also any 2026 Bonds may be signed and attested on behalf of the City by such persons as at the actual date of execution of such 2026 Bonds shall be the proper officers of the City although at the nominal date of such 2026 Bonds any such person shall not have been such officer of the City.

Only such of the 2026 Bonds as shall bear thereon a certificate of authentication substantially in the form set forth in Exhibit A hereto, manually or electronically executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of the Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the 2026 Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of the Indenture.

Section 2.07. 2026 Bonds Mutilated, Lost, Destroyed or Stolen. If any 2026 Bond shall become mutilated, the City, at the expense of the Owner of said 2026 Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new 2026 Bond of like tenor and authorized denomination in exchange and substitution for the 2026 Bonds so mutilated, but only upon surrender to the Trustee of the 2026 Bond so mutilated. Every mutilated 2026 Bond so surrendered to the Trustee shall be canceled by it and upon the Written Request of the City delivered to, or upon the order of, the City. If any 2026 Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given, the City, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new 2026 Bond of like tenor and authorized denomination in lieu of and in substitution for the 2026 Bond so lost, destroyed or stolen (or if any such 2026 Bond shall have matured or shall be about to mature, instead of issuing a substitute 2026 Bond, the Trustee may pay the same without surrender thereof). The City may require payment by the Owner of a sum not exceeding the actual cost of preparing each new 2026 Bond issued under this Section and of the expenses which may be incurred by the City and the Trustee in the premises. Any 2026 Bond issued under the provisions of this Section in lieu of any 2026 Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the 2026 Bond so alleged to be lost, destroyed, or

18 stolen be at any time enforceable by anyone, and shall be entitled to the benefits of the Indenture with all other 2026 Bonds secured by the Indenture. Notwithstanding any other provision of this Section, in lieu of delivering a new 2026 Bond for a 2026 Bond which has been mutilated, lost, destroyed or stolen and which has matured or has been selected for redemption, the Trustee may make payment of such 2026 Bond upon receipt of indemnity satisfactory to the Trustee.

Section 2.08. Book Entry System.
(a) Election of Book Entry System. Prior to the issuance of the 2026 Bonds, the City may provide that such 2026 Bonds shall be initially issued as book entry 2026 Bonds. If the City shall elect to deliver any 2026 Bonds in book entry form, then the City shall cause the delivery of a separate single fully registered bond (which may be typewritten) for each maturity date of such 2026 Bonds in an authorized denomination corresponding to that total principal amount of the 2026 Bonds designated to mature on such date. Upon initial issuance, the ownership of each such 2026 Bond shall be registered in the 2026 Bond Registration Books in the name of the Nominee, as nominee of the Depository, and ownership of the 2026 Bonds, or any portion thereof may not thereafter be transferred except as provided in Section 2.08(e).

With respect to book entry 2026 Bonds, the City and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book entry 2026 Bonds. Without limiting the immediately preceding sentence, the City and the Trustee shall have no responsibility or obligation with respect to: (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book entry 2026 Bonds; (ii) the delivery to any Participant or any other person, other than an Owner as shown in the 2026 Bond Registration Books, of any notice with respect to book entry 2026 Bonds, including any notice of redemption; (iii) the selection by the Depository and its Participants of the beneficial interests in book entry 2026 Bonds to be redeemed in the event that the City redeems the 2026 Bonds in part; or (iv) the payment by the Depository or any Participant or any other person, of any amount of principal of, premium, if any, or interest on book entry 2026 Bonds. The City and the Trustee may treat and consider the person in whose name each book entry 2026 Bond is registered in the 2026 Bond Registration Books as the absolute Owner of such book entry 2026 Bond for the purpose of payment of principal of, premium and interest on such 2026 Bond, for the purpose of giving notices of redemption and other matters with respect to such 2026 Bond, for the purpose of registering transfers with respect to such 2026 Bond, and for all other purposes whatsoever. The Trustee shall pay all principal of, premium, if any, and interest on the 2026 Bonds only to or upon the order of the respective Owner, as shown in the 2026 Bond Registration Books, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City’s obligations with respect to payment of principal of, premium, if any, and interest on the 2026 Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the 2026 Bond Registration Books, shall receive a 2026 Bond evidencing the obligation to make payments of principal of, premium, if any, and interest on the 2026 Bonds. Upon delivery by the Depository to the City and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in the Indenture shall refer to such nominee of the Depository.
(b) Delivery of Letter of Representations. In order to qualify the book entry 2026 Bonds for the Depository’s book entry system, the City and the Trustee (if required by the Depository) shall execute and deliver to the Depository a Letter of Representations. The execution

19 and delivery of a Letter of Representations shall not in any way impose upon the City or the Trustee any obligation whatsoever with respect to persons having interests in such book entry 2026 Bonds other than the Owners, as shown on the 2026 Bond Registration Books. By executing a Letter of Representations, the Trustee shall agree to take all action necessary at all times so that the Trustee will be in compliance with all representations of the Trustee in such Letter of Representations. In addition to the execution and delivery of a Letter of Representations, the City and the Trustee shall take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify book entry 2026 Bonds for the Depository’s book entry program. (c) Selection of Depository. In the event that: (i) the Depository determines not to continue to act as securities depository for book entry 2026 Bonds; or (ii) the City determines that continuation of the book entry system is not in the best interest of the beneficial owners of the 2026 Bonds or the City, then the City will discontinue the book entry system with the Depository. If the City determines to replace the Depository with another qualified securities depository, the City shall prepare or direct the preparation of a new single, separate, fully registered 2026 Bond for each of the maturity dates of such book entry 2026 Bonds, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in subsection (e) hereof. If the City fails to identify another qualified securities depository to replace the Depository, then the 2026 Bonds shall no longer be restricted to being registered in such 2026 Bond Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such 2026 Bonds shall designate, in accordance with the provisions of Sections 2.03 and 2.04 hereof. (d) Payments To Depository. Notwithstanding any other provision of the Indenture to the contrary, so long as all Outstanding 2026 Bonds are held in book entry form and registered in the name of the Nominee, all payments of principal of, redemption premium, if any, and interest on such 2026 Bond and all notices with respect to such 2026 Bond shall be made and given, respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions herein. (e) Transfer of 2026 Bonds to Substitute Depository.
(i) The 2026 Bonds shall be initially issued as provided in Section 2.01 hereof. Registered ownership of such 2026 Bonds, or any portions thereof, may not thereafter be transferred except:
(A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) of subsection (i) of this Section 2.08(e) (a “Substitute Depository”); provided that any successor of DTC or Substitute Depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the City that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository;

20 or (2) a determination by the City that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository. (ii) In the case of any transfer pursuant to clauses (A) or (B) of subsection (i) of this Section 2.08(e), upon receipt of all Outstanding 2026 Bonds by the Trustee, together with a Written Request of the City to the Trustee designating the Substitute Depository, a single new 2026 Bond, which the City shall prepare or cause to be prepared, shall be issued for each maturity of 2026 Bonds then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such Written Request of the City. In the case of any transfer pursuant to clause (C) of subsection (i) of this Section 2.08(e), upon receipt of all Outstanding 2026 Bonds by the Trustee, together with a Written Request of the City to the Trustee, new 2026 Bonds, which the City shall prepare or cause to be prepared, shall be issued in such denominations and registered in the names of such persons as are requested in such Written Request of the City, subject to the limitations of Section 2.01 hereof, provided that the Trustee shall not be required to deliver such new 2026 Bonds within a period of less than sixty (60) days from the date of receipt of such Written Request from the City.
(iii) In the case of a partial redemption or an advance refunding of any 2026 Bonds evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) shall make an appropriate notation on such 2026 Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee shall not be liable for such Depository’s failure to make such notations or errors in making such notations and the records of the Trustee as to the Outstanding principal amount of such 2026 Bonds shall be controlling. (iv) The City and the Trustee shall be entitled to treat the person in whose name any 2026 Bond is registered as the Owner thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the City; and the City and the Trustee shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the 2026 Bonds. Neither the City nor the Trustee shall have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any 2026 Bonds, and the Trustee may rely conclusively on its records as to the identity of the Owners of the 2026 Bonds.

ARTICLE III
ISSUANCE OF 2026 BONDS; APPLICATION OF PROCEEDS
Section 3.01. Issuance of the 2026 Bonds. At any time after the execution of the Indenture, the City may execute and the Trustee shall authenticate and, upon Written Request of the City, deliver the 2026 Bonds in the aggregate principal amount of $[PAR].

Section 3.02. Application of Proceeds of the 2026 Bonds. The proceeds of the sale of the 2026 Bonds in the amount of $________ (calculated as the par amount thereof, plus original issue premium in the amount of $________, less the discount of the original purchaser thereof in the amount of $_______, less the premium for the Insurance Policy in the amount of $________ paid by the original purchaser directly to the Insurer, and less the premium for the Reserve Policy in the

21 amount of $________ paid by the original purchaser directly to the Insurer) shall be delivered to the Trustee, who shall:
(a) transfer $________ to the Acquisition Fund; and
(b) deposit $________ into the Costs of Issuance Fund.

The Trustee may establish temporary funds or accounts in its records to record and facilitate such deposits.

Section 3.03. Establishment and Application of Costs of Issuance Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the “Costs of Issuance Fund.” The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee to pay the Costs of Issuance upon submission of Written Requisitions of the City stating the person to whom payment is to be made, the amount to be paid along with payment instructions, the purpose for which the obligation was incurred, that such payment is proper charge against said fund and that payment for such charge has not previously been made. Each such Written Requisition of the City shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. On the six month anniversary of the issuance of the 2026 Bonds, or upon the earlier Written Request of the City, all amounts remaining in the Costs of Issuance Fund shall be transferred by the Trustee to the Interest Account and the Costs of Issuance Fund shall be closed.

Investment earnings on amounts on deposit in the Costs of Issuance Fund shall be applied in accordance with Section 5.06 hereof.

Section 3.04. Validity of 2026 Bonds. The validity of the authorization and issuance of the 2026 Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the City or the Trustee with respect to any other agreement. The recital contained in the 2026 Bonds that the same are issued pursuant to the Constitution and laws of the State shall be conclusive evidence of the validity and of compliance with the provisions of law in their issuance.

Section 3.05. Acquisition Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the “Acquisition Fund.” The moneys in the Acquisition Fund shall be held by the Trustee in trust and applied to the payment of the costs of acquisition and construction of the 2026 Project and of expenses incidental thereto.

Before any payment is made from the Acquisition Fund by the Trustee, an Authorized Officer of the City shall cause to be filed with the Trustee a certificate of the City in the form set forth in Exhibit C.

Upon receipt of each such certificate, the Trustee will pay the amount that is set forth in such certificate as directed by the terms thereof or disburse funds to the City for such payment as directed by the City in such certificate. Each such certificate of the City shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. The Trustee need not make any such payment if it has received notice of any lien, right to lien, attachment upon or claim affecting the right to receive payment of any of the moneys to be so paid, which has not been released or will not be released simultaneously with such payment.

When the 2026 Project has been constructed and acquired in accordance with the Indenture, a statement of the City stating the fact and date of such acquisition, construction and acceptance and

22 stating that all of such costs of acquisition and incidental expenses have been determined and paid (or that all of such costs and expenses have been paid less specified claims which are subject to dispute and for which a retention in the Acquisition Fund is to be maintained in the full amount of such claims until such dispute is resolved), shall be delivered to the Trustee by an Authorized Officer of the City. Upon the receipt of such statement, the Trustee shall deposit any remaining balance in the Acquisition Fund which is not needed for Acquisition Fund purposes (but less the amount of any such retention, which amount shall be certified to the Trustee by the Authorized Officer of the City) in the Payment Fund for payment of 2026 Bonds in accordance herewith.

Section 3.06. Changes to the 2026 Project. The City may substitute other improvements for those listed as components of the 2026 Project in Exhibit B, but only if the City first files with the Trustee a statement of the City in the form attached as Exhibit D: (a) identifying the improvements to be substituted and the improvements to City facilities they replace in the 2026 Project; and (b) stating that the estimated costs of construction, acquisition and installation of the substituted improvements are not less than such costs for the improvements previously planned.

ARTICLE IV
REDEMPTION OF 2026 BONDS
Section 4.01. Terms of Redemption.
(a) The 2026 Bonds with stated maturities on or after May 1, 20__, shall be subject to redemption prior to their respective stated maturities, as a whole or in part on May 1, 20__, or any date thereafter, as directed by the City in a Written Request provided to the Trustee at least 30 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) and by lot within each maturity in integral multiples of $5,000, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the Redemption Date, without premium.
(b) The Term Bonds with stated maturities on May 1, 20__ are subject to mandatory sinking fund redemption in part (by lot) on May 1, 20__ and each May 1 thereafter, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule:

Redemption Date
(May 1)
Principal
Amount
* Maturity.

If some but not all of the Term Bonds are redeemed pursuant to subsection (a) above, the principal amount of the applicable Term Bonds to be redeemed pursuant to this subsection (b) on any subsequent May 1 will be reduced, by $5,000 or an integral multiple thereof, as designated by the

23 City in a Written Order of the City filed with the Trustee (which Written Order will include a revised sinking fund schedule); provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the applicable Term Bonds redeemed pursuant to subsection (a) above.

Section 4.02. Selection of 2026 Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2026 Bonds, the Trustee shall select the 2026 Bonds for redemption as a whole or in part among maturities on any date as directed by the City and by lot within each maturity in integral multiples of $5,000 in accordance with Section 4.01 hereof.

The Trustee will promptly notify the City in writing of the numbers of the 2026 Bonds or portions thereof so selected for redemption.

Section 4.03. Notice of Redemption. Notice of redemption shall be sent electronically or mailed by first class mail at least twenty (20) days but not more than sixty (60) days before any Redemption Date, to the respective Owners of any 2026 Bonds designated for redemption at their addresses appearing on the Registration Books, to the Securities Depositories and to the Information Services. Each notice of redemption shall state the date of the notice, the Redemption Date, the place or places of redemption, the Redemption Price, the maturities, CUSIP numbers, if any, and, in the case of 2026 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the Redemption Date there will become due and payable on each of said 2026 Bonds or parts thereof designated for redemption the Redemption Price thereof or of said specified portion of the principal thereof in the case of a 2026 Bond to be redeemed in part only, together with interest accrued thereon to the Redemption Date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such Redemption Date interest thereon shall cease to accrue, and shall require that such 2026 Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2026 Bond. Notice of redemption of 2026 Bonds shall be given by the Trustee, at the expense of the City, for and on behalf of the City.

With respect to any notice of optional redemption of 2026 Bonds, such notice may state that such redemption shall be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such 2026 Bonds to be redeemed and that, if such moneys shall not have been so received, said notice shall be of no force and effect and the Trustee shall not be required to redeem such 2026 Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption shall not be made, and the Trustee shall within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.

Section 4.04. Partial Redemption of 2026 Bonds. Upon surrender of any 2026 Bond redeemed in part only, the City shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the City, a new 2026 Bond or 2026 Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the 2026 Bonds surrendered and of the same interest rate and maturity.

Section 4.05. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued to the date fixed for redemption on, the 2026 Bonds (or portions thereof) so called for redemption being

24 held by the Trustee, on the Redemption Date designated in such notice, the 2026 Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the 2026 Bonds so called for redemption shall cease to accrue, said 2026 Bonds (or portions thereof) shall cease to be entitled to any benefit or security under the Indenture, and the Owners of said 2026 Bonds shall have no rights in respect thereof except to receive payment of the Redemption Price thereof. The Trustee shall, upon surrender for payment of any of the 2026 Bonds to be redeemed on their Redemption Dates, pay such 2026 Bonds at the Redemption Price.

All 2026 Bonds redeemed pursuant to the provisions of this Article shall be canceled and destroyed upon surrender thereof to the Trustee.

ARTICLE V
REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Pledge and Assignment; Revenue Fund.
(a) All of the Net Revenues, all amounts held in the Revenue Fund described in subsection (b) below, all amounts held in the Reserve Fund described in Section 5.07, and any other amounts (including proceeds of the sale of the 2026 Bonds) held in any fund or account established pursuant to the Indenture (except the Costs of Issuance Fund, the Rebate Fund and the Rate Stabilization Fund) are hereby irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the 2026 Bonds in accordance with their terms and the provisions of the Indenture, and the Net Revenues shall not be used for any other purpose while the 2026 Bonds remain Outstanding; provided that out of the Net Revenues there may be apportioned such sums for such purposes as are expressly permitted herein. Said pledge, together with the pledge created by all Contracts and other Bonds, shall constitute a first lien on and security interest on Net Revenues and, subject to application of Revenues and all amounts on deposit therein as permitted herein, the Revenue Fund and other funds and accounts created hereunder for the payment of the principal of and interest, and the premium, if any, on the 2026 Bonds and all Contracts and Debt Service on Bonds in accordance with the terms hereof, and shall attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act and shall be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice hereof. (b) In order to carry out and effectuate the pledge and lien contained herein, the City agrees and covenants that all Revenues shall be received by the City in trust hereunder and shall be deposited when and as received in the Revenue Fund, which fund the City agrees and covenants to maintain and to hold separate and apart from other funds so long as the 2026 Bonds and any Contracts or Debt Service on Bonds remain unpaid. Moneys in the Revenue Fund shall be used and applied by the City as provided herein. All moneys in the Revenue Fund shall be held in trust and shall be applied, used and withdrawn for the purposes set forth in this Section.

The City shall, from the moneys in the Revenue Fund, pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs become due and payable. All remaining moneys in the Revenue Fund shall be set aside by the City at the following times for the transfer to the following respective special funds in the following order of priority:

25 (i) Interest and Principal Payments. Not later than the Business Day prior to each Interest Payment Date, the City shall, from the moneys in the Revenue Fund, transfer to the Trustee for deposit in the Payment Fund or the Redemption Fund the payments of interest and principal or mandatory sinking fund payments, as applicable, on the 2026 Bonds due and payable on such Interest Payment Date. The City shall also, from the moneys in the Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or Contract. (ii) Reserve Funds. After making the payments, allocations or transfers provided for in subsection (i) above, the City shall, from the remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the Trustee for deposit into the Reserve Fund and to the applicable trustee for such other reserve funds and/or accounts, if any, as may have been established in connection with other Bonds or Contracts, that sum, if any, necessary to restore the Reserve Fund and such other reserve funds and/or accounts to an amount equal to the Reserve Requirement or the reserve requirement applicable to such other Bonds or Contracts, as applicable; provided, however that the City may provide for the Reserve Fund by means other than cash and Permitted Investments pursuant to this Indenture.
(iii) Subordinate Obligations. After making the payments, allocations or transfers provided for in subsections (i) and (ii) above, the City shall, from the remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any debt service on obligations which are payable from Net Revenues on a subordinate basis to Bonds and Contracts. (iv) Surplus. Moneys on deposit in the Revenue Fund on any date when the City reasonably expects such moneys will not be needed for the payment of Operation and Maintenance Costs or any of the purposes described in clauses (b)(i), (b)(ii) or (b)(iii) may be deposited in the Rate Stabilization Fund or expended by the City at any time for any purpose permitted by law.
(v) Investments. All moneys held by the City in the Revenue Fund shall be invested in Permitted Investments and the investment earnings thereon shall remain on deposit in such fund, except as otherwise provided herein.

Section 5.02. Allocation of Revenues. There is hereby established with the Trustee the Payment Fund, which the Trustee covenants to maintain and hold in trust separate and apart from other funds held by it so long as any principal of and interest on the 2026 Bonds remain unpaid.

Except as directed herein, all payments of interest and principal on the 2026 Bonds received by the Trustee pursuant to Section 5.01(b) shall be promptly deposited by the Trustee upon receipt thereof into the Payment Fund; except that all moneys received by the Trustee and required hereunder to be deposited in the Redemption Fund shall be promptly deposited therein. All payments of interest and principal on the 2026 Bonds deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. The Trustee shall also establish and hold an Interest Account and a Principal Account within the Payment Fund.

26 The Trustee shall transfer from the Payment Fund and deposit into the following respective accounts, the following amounts in the following order of priority and at the following times, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:
(a) Not later than the Business Day preceding each Interest Payment Date, the Trustee shall deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all 2026 Bonds then Outstanding. No deposit need be made into the Interest Account so long as there shall be in such fund moneys sufficient to pay the interest becoming due and payable on such date on all 2026 Bonds then Outstanding. (b) Not later than the Business Day preceding each date on which the principal of the 2026 Bonds shall become due and payable hereunder, the Trustee shall deposit in the Principal Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2026 Bonds coming due and payable on such date. No deposit need be made into the Principal Account so long as there shall be in such fund moneys sufficient to pay the principal becoming due and payable on such date on all 2026 Bonds then Outstanding.

Section 5.03. Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the 2026 Bonds as it shall become due and payable (including accrued interest on any 2026 Bonds purchased or accelerated prior to maturity pursuant to the Indenture).

Section 5.04. Application of Principal Account. All amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal amount of the 2026 Bonds at maturity, purchase or acceleration; provided, however, that at any time prior to selection for redemption of any such 2026 Bonds, upon written direction of the City, the Trustee shall apply such amounts to the purchase of 2026 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed pursuant to a Written Request of the City, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2026 Bonds.

Section 5.05. Application of Redemption Fund. There is hereby established with the Trustee a special fund designated as the “Redemption Fund.” All amounts in the Redemption Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the Redemption Price of the 2026 Bonds to be redeemed on any Redemption Date pursuant to Section 4.01; provided, however, that at any time prior to selection for redemption of any such 2026 Bonds, upon written direction of the City, the Trustee shall apply such amounts to the purchase of 2026 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed pursuant to a Written Request of the City, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2026 Bonds.

Section 5.06. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments.

Such investments shall be directed by the City pursuant to a Written Request of the City filed with

27 the Trustee at least two (2) Business Days in advance of the making of such investments. In the absence of any such directions from the City, the Trustee shall invest any such moneys in Permitted Investments described in clause (g) of the definition thereof; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a written direction from the City specifying a specific money market fund and, if no such written direction from the City is so received, the Trustee shall hold such moneys uninvested. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account.

All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the Reserve Fund to the extent the amount available and contained therein is less than the Reserve Requirement and thereafter in the Interest Account unless otherwise provided herein. For purposes of acquiring any investments hereunder, the Trustee may commingle funds (other than the Rebate Fund) held by it hereunder upon the Written Request of the City. The Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee shall incur no liability for losses arising from any investments made pursuant to this Section 5.06.

The City acknowledges that to the extent that regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The City further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request at no additional cost and other trade confirmations may be obtained from the applicable broker. The Trustee will furnish the City with periodic cash transaction statements which shall include detail for all investment transactions effected by the Trustee hereunder. Upon the City’s election, such statements will be delivered via the Trustee’s online service and upon electing such service, paper statements will be provided only upon request.

The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture.

The City shall invest, or cause to be invested, all moneys in any fund or accounts established with the Trustee as provided in the Tax Certificate.

For investment purposes, the Trustee may commingle the funds and accounts established hereunder, but shall account for each separately. In making any valuations of investments hereunder, the Trustee may utilize and rely on generally recognized pricing information services (including brokers and dealers in securities) that may be available to the Trustee, including those available through the Trustee accounting system.

Section 5.07. Reserve Fund.
(a) The Trustee shall establish a fund for the 2026 Bonds designated the “Reserve Fund.” The City will cause the Reserve Policy to be deposited in the Reserve Fund and the Trustee will draw upon the Reserve Policy in accordance with this Section 5.07. There will be maintained in the Reserve Fund the Reserve Policy in an amount equal to the Reserve Requirement, which will satisfy for all purposes the City’s obligation to fund the Reserve Fund in the amount of the Reserve Requirement with respect to the 2026 Bonds. The City shall have no obligation to

28 replace the Reserve Policy or to fund the Reserve Fund with cash if, at any time that the 2026 Bonds are Outstanding, any rating assigned to the Insurer is downgraded, suspended or withdrawn or amounts are not available under the Reserve Policy, other than in connection with a draw on the Reserve Policy. Amounts drawn under the Reserve Policy will be used solely to pay scheduled payments of principal of and interest on the 2026 Bonds. (b) [To come from Insurer]
Section 5.08. Rebate Fund.
(a) Establishment. The Trustee shall establish a fund for the 2026 Bonds designated the “Rebate Fund” when required in accordance herewith. Absent an Opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2026 Bonds will not be adversely affected, the City shall cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to this Section and the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the 2026 Bonds shall be governed by this Section and the Tax Certificate, unless and to the extent that the City delivers to the Trustee an Opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2026 Bonds will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained herein or in the Tax Certificate, the Trustee: (i) shall be deemed conclusively to have complied with the provisions thereof if it follows all Requests of the City; (ii) shall have no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate; (iii) may rely conclusively on the City’s calculations and determinations and certifications relating to rebate matters; and (iv) shall have no responsibility to independently make any calculations or determinations or to review the City’s calculations or determinations thereunder.
(i) Computation. Within 55 days of the end of each fifth Bond Year (as such term is defined in the Tax Certificate), the City shall calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the “1½% Penalty”) has been made), for this purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b) of the Treasury Regulations (the “Rebatable Arbitrage”). The City shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. (ii) Transfer. Within 55 days of the end of each fifth Bond Year, upon the Written Request of the City, an amount shall be deposited to the Rebate Fund by the Trustee from any Net Revenues legally available for such purpose (as specified by the City in the aforesaid Written Request), if and to the extent required so that the balance in the Rebate Fund shall equal the amount of Rebatable Arbitrage so calculated in accordance with clause (i) of this subsection (a). In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon Written Request of the City, the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Payment Fund.

29 (iii) Payment to the Treasury. The Trustee shall pay, as directed by Written Request of the City, to the United States Treasury, out of amounts in the Rebate Fund:
(A) Not later than 60 days after the end of: (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (B) Not later than 60 days after the payment of all of the 2026 Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section 1.148-3 of the Treasury Regulations.

In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the City shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this subsection (a) shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T (prepared by the City), or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the 2026 Bonds and the payments described in subsection (a) above being made may be withdrawn by the City and utilized in any manner by the City. (c) Survival of Defeasance. Notwithstanding anything in this Section to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance or payment in full of the 2026 Bonds.

Section 5.09. Application of Rate Stabilization Fund. There is hereby established a special fund designated as the “Rate Stabilization Fund” which shall be held by the City in trust hereunder, which fund the City agrees and covenants to maintain and to hold separate and apart from other funds so long as the 2026 Bonds remain outstanding. On the Closing Date, the City will deposit $________ into the Rate Stabilization Fund.

The City may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund from time to time and transfer such amounts to the Revenue Fund during or within 270 days after the end of a Fiscal Year for application in accordance with Section 5.01(b).

Amounts on deposit in the Rate Stabilization Fund shall not be pledged to, or constitute security for, the 2026 Bonds pursuant to Section 5.01 or otherwise, notwithstanding that amounts transferred therefrom to the Revenue Fund shall constitute Revenues as provided in the definition thereof in Section 1.01.

Section 5.10. Application of Funds and Accounts When No 2026 Bonds are Outstanding.

On the date on which all 2026 Bonds shall be retired hereunder or provision made therefor pursuant to Article X and after payment of all amounts due the Trustee hereunder, all moneys then on deposit in any of the funds or accounts (other than the Rebate Fund) established with the Trustee pursuant to

30 the Indenture shall be withdrawn by the Trustee and paid to the City for use by the City at any time for any purpose permitted by law.

ARTICLE VI

PARTICULAR COVENANTS
Section 6.01. Punctual Payment. The City shall punctually pay or cause to be paid the principal and interest to become due in respect of all of the 2026 Bonds, in strict conformity with the terms of the 2026 Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Net Revenues and other assets pledged for such payment as provided in the Indenture.

Section 6.02. Extension of Payment of 2026 Bonds. The City shall not directly or indirectly extend or assent to the extension of the maturity of any of the 2026 Bonds or the time of payment of any claims for interest by the purchase of such 2026 Bonds or by any other arrangement, and in case the maturity of any of the 2026 Bonds or the time of payment of any such claims for interest shall be extended, such 2026 Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the 2026 Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding 2026 Bonds, and such issuance shall not be deemed to constitute an extension of maturity of 2026 Bonds.

Section 6.03. Against Encumbrances. The City will not make any pledge of or place any lien on Net Revenues or the moneys in the Revenue Fund except as provided herein. The City may at any time, or from time to time, execute Contracts or issue Bonds as permitted herein. The City may also at any time, or from time to time, incur evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of and lien on Net Revenues and any moneys in the Revenue Fund as may from time to time be deposited therein, provided that such pledge and lien shall be subordinate in all respects to the pledge of and lien thereon provided herein.

Section 6.04. Power to Issue 2026 Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to law to issue the 2026 Bonds, to enter into the Indenture and to pledge and assign the Net Revenues and other assets purported to be pledged and assigned under the Indenture in the manner and to the extent provided in the Indenture. The 2026 Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the City in accordance with their terms, and the City shall and the Trustee may, at all times, subject to the provisions of Article VIII and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Net Revenues and other assets and all the rights of the 2026 Bond Owners under the Indenture against all claims and demands of all persons whomsoever.

Section 6.05. Accounting Records and Financial Statements. (a) The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of 2026 Bonds and all funds and accounts established by it pursuant to the Indenture. Such books of

31 record and account shall be available for inspection by the City upon reasonable prior notice during business hours and under reasonable circumstances.
(b) The City will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the Wastewater System, which records shall be available for inspection by the Trustee (which shall have no duty to inspect such records) at reasonable hours and under reasonable conditions.
(c) The City will prepare and file with the Trustee annually within two hundred seventy (270) days of each Fiscal Year (commencing with the Fiscal Year ending June 30, 2027) financial statements of the City for the preceding Fiscal Year prepared in accordance with Generally Accepted Accounting Principles, together with an Accountant’s Report thereon. The Trustee shall have no duty to review, verify or analyze such financial statements, and shall hold such financial statements solely as a repository for the benefit of the 2026 Bond Owners. The Trustee shall not be deemed to have notice of any information contained therein, or default or Event of Default which may be disclosed therein in any manner.

Section 6.06. Tax Covenants. Notwithstanding any other provision of the Indenture, absent an Opinion of Bond Counsel that the exclusion from gross income of the portion of interest on the 2026 Bonds will not be adversely affected for federal income tax purposes, the City covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the 2026 Bonds and specifically covenants, without limiting the generality of the foregoing, as follows:
(a) Private Activity. The City will take no action, refrain from taking any action and make no use of the proceeds of the 2026 Bonds or of any other moneys or property which would cause the 2026 Bonds to be “private activity bonds” within the meaning of Section 141 of the Code; (b) Arbitrage. The City will make no use of the proceeds of the 2026 Bonds or of any other amounts or property, regardless of the source, and will take no action and refrain from taking any action which will cause the 2026 Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code;
(c) Federal Guarantee. The City will make no use of the proceeds of the 2026 Bonds and will not take or omit to take any action that would cause the 2026 Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code; (d) Information Reporting. The City will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code necessary to preserve the exclusion of interest on the 2026 Bonds pursuant to Section 103(a) of the Code;
(e) Hedge Bonds. The City will make no use of the proceeds of the 2026 Bonds or any other amounts or property, regardless of the source, and will not take any action or refrain from taking any action that would cause the 2026 Bonds to be considered “hedge bonds” within the meaning of Section 149(g) of the Code unless the City takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the 2026 Bonds for federal income tax purposes; and

32 (f) Miscellaneous. The City will take no action and refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed by the City in connection with the issuance of the 2026 Bonds and will comply with the covenants and requirements stated therein and incorporated by reference herein.

This Section and the covenants set forth herein shall not be applicable to, and nothing contained herein shall be deemed to prevent the City issuing revenue bonds or causing the Trustee to execute and deliver contracts payable on a parity with the 2026 Bonds, the interest with respect to which has been determined by Bond Counsel to be subject to federal income taxation.

Section 6.07. Waiver of Laws. The City shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in the Indenture or in the 2026 Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the City to the extent permitted by law.

Section 6.08. Further Assurances. The City will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the 2026 Bonds of the rights and benefits provided in the Indenture.

Section 6.09. Budgets. On or prior to the fifteenth (15th) day of each Fiscal Year, the City shall certify to the Trustee that the amounts budgeted for payment of the principal of and interest on the 2026 Bonds are fully adequate for the payment of all such payments for such Fiscal Year. If the amounts so budgeted are not adequate for the payment of the principal of and interest on the 2026 Bonds due under the Indenture, the City will take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the City in the then ensuing Fiscal Year for the payment of the principal of and interest on the 2026 Bonds due under the Indenture and will notify the Trustee of the proceedings then taken or proposed to be taken by the City.

Section 6.10. Observance of Laws and Regulations. To the extent necessary to assure its performance hereunder, the City will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on the City by contract, or prescribed by any law of the United States of America, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the City, respectively, including its right to exist and carry on its business, to the end that such contracts, rights and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired.

Section 6.11. Compliance with Contracts. The City will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or adversely affect the ability of the City to pay principal of or interest on the 2026 Bonds; and the City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Wastewater System, to the extent that the City is a party thereto.

Section 6.12. Prosecution and Defense of Suits. The City shall promptly, upon request of the Trustee or any 2026 Bond Owner, from time to time take such action as may be necessary or

33 proper to remedy or cure any defect in or cloud upon the title to the Wastewater System or any part thereof, whether now existing or hereafter developing, shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee (including all of its employees, officers and directors) and every 2026 Bond Owner harmless from all loss, cost, damage and expense, including attorneys’ fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding.

The City shall defend against every suit, action or proceeding at any time brought against the Trustee (including all of its employees, officers and directors) or any 2026 Bond Owner upon any claim arising out of the receipt, application or disbursement of any of the payments of principal of or interest on the 2026 Bonds or involving the rights of the Trustee or any 2026 Bond Owner under the Indenture; provided that the Trustee or any 2026 Bond Owner at such party’s election may appear in and defend any such suit, action or proceeding. The City shall indemnify and hold harmless the Trustee and the 2026 Bond Owners against any and all liability claimed or asserted by any person, arising out of such receipt, application or disbursement, and shall indemnify and hold harmless the 2026 Bond Owners against any attorneys’ fees or other expenses which any of them may incur in connection with any litigation (including pre-litigation activities) to which any of them may become a party by reason of ownership of 2026 Bonds. The City shall promptly reimburse any 2026 Bond Owner in the full amount of any attorneys’ fees or other expenses which such Owner may incur in litigation or otherwise in order to enforce such party’s rights under the Indenture or the 2026 Bonds, provided that such litigation shall be concluded favorably to such party’s contentions therein.

Section 6.13. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of its obligations under the Continuing Disclosure Certificate to be executed and delivered by the City in connection with the issuance of the 2026 Bonds.

Notwithstanding any other provision of the Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Section. For purposes of this Section, “Beneficial Owner” means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any 2026 Bonds (including persons holding 2026 Bonds through nominees, depositories or other intermediaries).

Section 6.14. Additional Contracts and Bonds. The City may at any time execute any Contract or issue any Bonds, as the case may be, in accordance herewith; provided:
(a) The Net Revenues (exclusive of any amounts transferred from the Rate Stabilization Fund) for the most recent audited Fiscal Year or any consecutive twelve calendar month period during the eighteen calendar month period preceding the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on file with the City, shall have produced a sum equal to at least one hundred twenty percent (120%) of the Debt Service for such Fiscal Year or twelve month period, as applicable; and
(b) The Net Revenues (exclusive of any amounts transferred from the Rate Stabilization Fund) for the most recent audited Fiscal Year or any consecutive twelve calendar month period during the eighteen calendar month period preceding the date of the execution of such

34 Contract or the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year or twelve month period to increases or decreases in rates and charges for the Wastewater Service approved and in effect as of the date of calculation, as evidenced by a special report prepared by an Independent Certified Public Accountant or Independent Financial Consultant on file with the City, shall have produced a sum equal to at least one hundred twenty percent (120%) of the Debt Service for such Fiscal Year or twelve month period, as applicable, plus the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year or twelve month period, assuming that such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year or twelve month period, plus the Debt Service which would have accrued had such proposed additional Contract been executed or such proposed additional Bonds been issued at the beginning of such Fiscal Year or twelve month period.

Notwithstanding the foregoing, Contracts executed or Bonds issued to refund Bonds or Contracts may be delivered without satisfying the conditions set forth above if aggregate Debt Service after such Contracts are executed or Bonds are issued is not greater than aggregate Debt Service would have been prior to the execution of such Contracts or the issuance of such Bonds.

Section 6.15. Against Sale or Other Disposition of Property. So long as the Bonds are outstanding or any amounts are due and payable to the Insurer, the City will not enter into any agreement or lease which impairs the operation of the Wastewater System or any part thereof necessary to secure adequate Revenues for the payment of the principal of and interest on the 2026 Bonds, or which would otherwise impair the operation of the Wastewater System, except upon obtaining the prior written consent of the Insurer. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the Wastewater System, or any material or equipment which has become worn out, may be sold if such sale will not impair the ability of the City to pay the principal of and interest on the 2026 Bonds and if the proceeds of such sale are deposited in the Revenue Fund.

Nothing herein shall restrict the ability of the City to sell any portion of the Wastewater System if such portion is immediately repurchased by the City and if such arrangement cannot by its terms result in the purchaser of such portion of the Wastewater System exercising any remedy which would deprive the City of or otherwise interfere with its right to own and operate such portion of the Wastewater System.

Section 6.16. Against Competitive Facilities. To the extent that it can so legally obligate itself, the City covenants that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the City any municipal wastewater system that is competitive with the Wastewater System.

Section 6.17. Maintenance and Operation of the Wastewater System. The City will maintain and preserve the Wastewater System in good repair and working order at all times and will operate the Wastewater System in an efficient and economical manner and will pay all Operation and Maintenance Costs as they become due and payable.

Section 6.18. Payment of Claims. The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the

35 funds or accounts created hereunder or on any funds in the hands of the City pledged to pay the principal of or interest on the 2026 Bonds or to the Owners prior or superior to the lien under the Indenture.

Section 6.19. Insurance.
(a) The City will procure and maintain or cause to be procured and maintained insurance on the Wastewater System with responsible insurers in such amounts and against such risks (including accident to or destruction of the Wastewater System) as are usually covered in connection with facilities similar to the Wastewater System so long as such insurance is available from reputable insurance companies.

In the event of any damage to or destruction of the Wastewater System caused by the perils covered by such insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Wastewater System. The City shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, and shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Wastewater System shall be free and clear of all claims and liens.

If such Net Proceeds exceed the costs of such reconstruction, repair or replacement, then the excess Net Proceeds shall be applied by the City in any manner permitted by law. (b) The City will procure and maintain such other insurance which it shall deem advisable or necessary to protect its interests, which insurance shall afford protection in such amounts and against such risks as are usually covered in connection with municipal wastewater systems similar to the Wastewater System.
(c) Any insurance required to be maintained by paragraph (a) above and, if the City determines to procure and maintain insurance pursuant to paragraph (b) above, such insurance, may be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and manner usually maintained in connection with municipal wastewater systems similar to the Wastewater System and is, in the opinion of an accredited actuary, actuarially sound. (d) All policies of insurance required to be maintained herein shall provide that the Trustee be given thirty (30) days’ written notice of any intended cancellation thereof or reduction of coverage provided thereby.

Section 6.20. Payment of Taxes and Compliance with Governmental Regulations. The City will pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Wastewater System, or any part thereof or upon the Revenues when the same shall become due. The City will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Wastewater System, or any part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith.

Section 6.21. Amount of Rates and Charges. The City shall, to the fullest extent permitted by law, fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the

36 Wastewater Service which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during each Fiscal Year (i) Revenues for such Fiscal Year sufficient to make all deposits, transfers and payments required pursuant to this Indenture to be made in such Fiscal Year, including (A) payments of Operation and Maintenance Costs, and (B) all transfers required by Section 5.01(b)(i)-(iii), and (ii) Net Revenues equal to one hundred twenty percent (120%) of the Debt Service for such Fiscal Year. The City 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 Net Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this section. To the extent that the covenant with respect to rates and charges in connection with any Bonds or Contracts differs from the foregoing covenant, the City shall also comply with the covenant with respect to rates and charges in connection with such Bonds or Contracts.

Section 6.22. Collection of Rates and Charges. The City will have in effect at all times by-laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Wastewater Service and providing for the billing thereof and for a due date and a delinquency date for each bill.

Section 6.23. Eminent Domain Proceeds. If all or any part of the Wastewater System shall be taken by eminent domain proceedings, the Net Proceeds thereof shall be applied either to additions, betterments, extensions or improvements to the Wastewater System or, if the City elects not to apply such Net Proceeds to such capital items or if such Net Proceeds are not fully expended for such purposes, such Net Proceeds not required by the City for such purposes shall be deposited in the Revenue Fund.

Section 6.24. Enforcement of Contracts. The City will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with any contracts previously or hereafter entered into if such rescission or amendment would in any manner impair or adversely affect the ability of the City to pay principal of and interest on the 2026 Bonds.

ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES OF 2026 BOND OWNERS
Section 7.01. Events of Default. The following events shall be Events of Default hereunder:
(a) Default by the City in the due and punctual payment of the principal of any 2026 Bonds, the principal of any Bonds or the principal with respect to any Contract, when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise.
(b) Default by the City in the due and punctual payment of any installment of interest on any 2026 Bonds, any installment of interest on any Bond or any installment of interest with respect to any Contract, when and as the same shall become due and payable.

37 (c) Default by the City in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the 2026 Bonds, or required by any Bond or indenture relating thereto or by any Contract, if such default shall have continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the City by the Trustee or by the Owners of not less than a majority in aggregate principal amount of 2026 Bonds Outstanding, a majority in principal amount of such Bond outstanding, or a majority in principal amount outstanding with respect to such Contract, as applicable; provided, however, that if in the reasonable opinion of the City the default stated in the notice can be corrected, but not within such sixty (60) day period, and corrective action is instituted by the City within such sixty (60) day period and diligently pursued in good faith until the default is corrected, such default shall not be an Event of Default hereunder; provided, however, that such extended cure period shall not be longer than one hundred eighty (180) days from the delivery date of such default notice.
(d) The City shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or a court of competent jurisdiction shall approve a petition filed with or without the consent of the City seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the City or of the whole or any substantial part of its property. (e) Payment of the principal of any Bond or with respect to any Contract is accelerated in accordance with its terms.

Section 7.02. Remedies Upon Event of Default. If any Event of Default specified in Section 7.01(d) or (e) shall occur and be continuing, the Trustee shall, and for any other Event of Default, the Trustee may, and, at the written direction of the Owners of not less than a majority in aggregate principal amount of the 2026 Bonds at the time Outstanding and with the prior written consent of the Insurer, shall, in each case, upon notice in writing to the City, declare the principal of all of the 2026 Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration, the same shall become and shall be immediately due and payable, anything in the Indenture or in the 2026 Bonds contained to the contrary notwithstanding.

Nothing contained herein shall permit or require the Trustee to accelerate payments due under the Indenture if the City is not in default of its obligation hereunder.

Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the City shall deposit with the Trustee a sum sufficient to pay all the principal of and installments of interest on the 2026 Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective 2026 Bonds to the extent permitted by law, and the reasonable fees, disbursements and expenses of the Trustee, or shall deposit with the applicable trustee with respect to any Contract a sum sufficient to pay all the principal and installments of interest with respect to such Contract payment of which is overdue, with interest on such overdue principal at the rate borne by such Contract to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Contract, or shall deposit with the applicable trustee with respect to any Bond a sum sufficient to pay all the principal of and installment

38 of interest on such Bond payment of which is overdue, with interest on such overdue principal at the rate borne by such Bonds to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Bonds, and any and all other Events of Default actually known to a Responsible Officer of the Trustee or the applicable trustee with respect to such Contract or Bonds (other than in the payment of principal of and interest on the 2026 Bonds, payment of principal and interest with respect to such Contract or payment of principal and interest on such Bond, as applicable, due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then and in every such case the Trustee shall on behalf of the Owners of all of the 2026 Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon.

Section 7.03. Application of Revenues and Other Funds After Default. If an Event of Default shall occur and be continuing, all Revenues held or thereafter received by the Trustee and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (other than amounts held in the Rebate Fund) shall be applied in the following order:
(a) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the 2026 Bonds, Contracts or Bonds and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; (b) To the payment of Operation and Maintenance Costs; and (c) To the payment of the principal of and interest then due on the 2026 Bonds (upon presentation of the 2026 Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid), in accordance with the provisions of the Indenture, and to the payment of the principal and interest then due with respect to such Contract in accordance with the provisions thereof and the payment of the principal of and interest then due on such Bonds in accordance with the provisions thereof and of any indenture related thereto, in the following order of priority:

First: To the payment to the persons entitled thereto of all installments of interest then due on the 2026 Bonds, with respect to such Contract or on such Bonds, as applicable, in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and
Second: To the payment to the persons entitled thereto of the unpaid principal of any 2026 Bonds, principal with respect to such Contract or principal of any Bonds, as applicable, which shall have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate of eight percent (8%) per annum, and, if the amount available shall not be sufficient to pay in full all the 2026 Bonds, all amounts due under such Contract or all the Bonds, as applicable, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; and

39 Third: If there shall exist any remainder after the foregoing payments, such remainder shall be paid to the City.

Section 7.04. Trustee to Represent 2026 Bond Owners. The Trustee is hereby irrevocably appointed (and the successive respective Owners of the 2026 Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney in fact of the Owners of the 2026 Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the 2026 Bonds or the Indenture and applicable provisions of law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the 2026 Bond Owners, the Trustee in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the 2026 Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the 2026 Bonds or the Indenture or any law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Net Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the 2026 Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the 2026 Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Owners of such 2026 Bonds, subject to the provisions of the Indenture.

Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any 2026 Bond Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Bonds or the rights of any 2026 Bond Owner thereof, or to authorize the Trustee to vote in respect of the claim of any 2026 Bond Owner in any such proceeding without the approval of the 2026 Bond Owners so affected.

Section 7.05. 2026 Bond Owners’ Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the 2026 Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction to direct the method of conduct in all remedial proceedings taken by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee (which determination the Trustee has no duty to make) would be unjustly prejudicial to 2026 Bond Owners not parties to such direction.

Section 7.06. Suit by Owners. No Owner of any 2026 Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture with respect to such 2026 Bonds, unless: (a) such Owners shall have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of not less than fifty percent (50%) in aggregate principal amount of the 2026 Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners shall have

40 tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have failed to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) no direction inconsistent with such written request shall have been given to the Trustee during such sixty (60) day period by the Owners of a majority in aggregate principal amount of the 2026 Bonds then Outstanding.

Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of 2026 Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of 2026 Bonds shall have any right in any manner whatever by their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of 2026 Bonds, or to enforce any right under the 2026 Bonds, the Indenture, or applicable law with respect to the 2026 Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding 2026 Bonds, subject to the provisions of the Indenture.

Section 7.07. Absolute Obligation of the City. Nothing in this Section 7.07 or in any other provision of the Indenture or in the 2026 Bonds shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the 2026 Bonds to the respective Owners of the 2026 Bonds at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the Net Revenues and other assets herein pledged therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the 2026 Bonds.

Section 7.08. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners of the 2026 Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise.

Section 7.09. Control by the Insurer Upon Default. Anything in this Indenture to the contrary notwithstanding, so long as the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations under the Insurance Policy or the Reserve Policy, upon the occurrence and continuance of a default or an Event of Default: (a) the Insurer will be entitled to control and direct the enforcement of all rights and remedies granted to the holders of the 2026 Bonds or the Trustee for the benefit of the holders of the 2026 Bonds hereunder; (b) no default or Event of Default may be waived without the Insurer’s written consent; and (c) the Insurer will be deemed to be the sole owner of the 2026 Bonds for all purposes of this Indenture, including, without limitations, for purposes of exercising remedies and approving amendments.

Section 7.10. No Waiver of Default. No delay or omission of the Trustee or of any Owner of the 2026 Bonds to exercise any right or power arising upon the occurrence of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein.

41 ARTICLE VIII

THE TRUSTEE
Section 8.01. Duties, Immunities and Liabilities of Trustee. (a) The Trustee shall, prior to an Event of Default, and after the curing or waiving of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture, and no implied covenants or duties shall be read into the Indenture against the Trustee. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. (b) The City may remove the Trustee at any time upon thirty (30) days’ prior notice, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the 2026 Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and thereupon shall promptly appoint a successor Trustee by an instrument in writing.
(c) The Trustee may at any time resign by giving written notice of such resignation to the City and by giving the 2026 Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee by an instrument in writing. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty-five (45) days of giving notice of removal or notice of resignation as aforesaid, the retiring Trustee or any 2026 Bond Owner (on behalf of such 2026 Bond Owner and all other 2026 Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture shall signify its acceptance of such appointment by executing and delivering to the City and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all of the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the City or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all of the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and

42 conditions herein set forth. Upon request of the successor Trustee, the City shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the City shall mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts hereunder to each rating agency which is then rating the 2026 Bonds and to the 2026 Bond Owners at the addresses shown on the Registration Books. If the City fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the City. (e) Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a trust company, banking association or bank having the powers of a trust company, having a combined capital and surplus of at least Seventy Five Million Dollars ($75,000,000), and subject to supervision or examination for federal or state authority. If such bank, banking association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such trust company, banking association or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section.

Section 8.02. Merger or Consolidation. Any trust company, banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided that such trust company, banking association or bank shall be eligible under subsection (e) of Section 8.01, shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding.

Section 8.03. Liability of Trustee.
(a) The recitals of facts herein and in the 2026 Bonds shall be taken as statements of the City, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture or the 2026 Bonds, nor shall the Trustee incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the 2026 Bonds assigned to or imposed upon it.

The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the 2026 Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee may become the Owner of 2026 Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of 2026 Bond Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the 2026 Bonds then Outstanding.

43 (b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.
(c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority (or such other percentage provided for herein) in aggregate principal amount of the 2026 Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture.
(d) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture.
(e) The Trustee shall not be deemed to have knowledge of any default or Event of Default hereunder or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default hereunder unless and until a Responsible Officer of the Trustee shall have actual knowledge of such event or the Trustee shall have been notified in writing, in accordance with Section 11.07, of such event by the City or the Owners of not less than fifty percent (50%) of the 2026 Bonds then Outstanding. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance by the City of any of the terms, conditions, covenants or agreements herein or any of the documents executed in connection with the 2026 Bonds, or as to the existence of an Event of Default thereunder or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default thereunder. The Trustee shall not be responsible for the validity, effectiveness or priority of any collateral given to or held by it.
(f) No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of any of its rights or powers.
(g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture, including at the request, order or direction of any of the Owners pursuant to the Indenture, unless such Owners shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee hereunder shall be construed to impose a duty to exercise such power, right or remedy. (h) Whether or not herein expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article VIII.
(i) The Trustee shall have no responsibility or liability with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the 2026 Bonds. (j) The immunities extended to the Trustee also extend to its directors, officers, employees and agents.

44 (k) The Trustee may execute any of the trusts or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and shall not be answerable for the conduct of the same if appointed by it with reasonable care. (l) The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of delay in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Wastewater System, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.
(m) The Trustee shall have the right to accept and act upon instructions, including funds transfer instructions (“Instructions”) given pursuant to this Indenture and delivered using Electronic Means (“Electronic Means” shall mean the following communications methods: e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services hereunder); provided, however, that the City shall provide to the Trustee an incumbency certificate listing officers with the authority to provide such Instructions (“Authorized Officers”) and containing specimen signatures of such Authorized Officers, which incumbency certificate shall be amended by the City whenever a person is to be added or deleted from the listing. If the City elects to give the Trustee Instructions using Electronic Means and the Trustee in its discretion elects to act upon such Instructions, the Trustee’s understanding of such Instructions shall be deemed controlling. The City understands and agrees that the Trustee cannot determine the identity of the actual sender of such Instructions and that the Trustee shall conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to the Trustee have been sent by such Authorized Officer. The City shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Trustee and that the City and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the City. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Instructions notwithstanding the fact that such directions conflict or are inconsistent with a subsequent written instruction. The City agrees: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Trustee and that there may be more secure methods of transmitting Instructions than the method(s) selected by the City; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures.

45 (n) The Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions hereof.
(o) The permissive right of the Trustee to do things enumerated herein shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct.

Section 8.04. Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, requisition, request, consent, order, certificate, report, opinion, notes, direction, facsimile transmission, electronic mail or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith.

The Trustee may treat the Owners of the 2026 Bonds appearing in the Trustee’s Registration Books as the absolute owners of the 2026 Bonds for all purposes and the Trustee shall not be affected by any notice to the contrary.

Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Certificate, Request or Requisition of the City, and such Certificate, Request or Requisition shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Certificate, Request or Requisition, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable.

Section 8.05. Preservation and Inspection of Documents. All documents that are received by the Trustee under the provisions of the Indenture shall be retained in its possession during the term hereof in accordance with applicable document retention policies and shall be subject at all reasonable times to the inspection of the City and any 2026 Bond Owner, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions.

Section 8.06. Compensation and Indemnification. The City shall pay to the Trustee from time to time all reasonable compensation for all services rendered under the Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Indenture.

The City shall indemnify, defend and hold harmless the Trustee, its officers, employees, directors and agents from and against any loss, costs, claims, liability or expense (including fees and expenses of its attorneys and advisors) incurred without negligence or willful misconduct on its part, arising out of or in connection with the execution of the Indenture, acceptance or administration of this trust or any other document or transaction executed in connection herewith, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers hereunder. The rights of the Trustee and the obligations of the City

46 under this Section 8.06 shall survive removal or resignation of the Trustee hereunder or the discharge of the 2026 Bonds and the Indenture.

When the Trustee incurs expenses or renders services after the occurrence of an Event of Default, such expenses and the compensation for such services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law. Upon an Event of Default, and only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of and premium, if any, and interest on any 2026 Bond, upon the trust estate for the foregoing fees, charges and expenses incurred by it.

ARTICLE IX

MODIFICATION OR AMENDMENT OF THE INDENTURE
Section 9.01. Amendments Permitted.
(a) The Indenture and the rights and obligations of the City and of the Owners of the 2026 Bonds and of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto which will become binding upon the prior written consents of the Insurer, so long as the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations under the Insurance Policy or the Reserve Policy, and the Owners of a majority in aggregate principal amount of all 2026 Bonds then Outstanding, exclusive of 2026 Bonds disqualified as provided in Section 11.09 hereof, shall have been filed with the Trustee. No such modification or amendment shall: (1) extend the fixed maturity of any 2026 Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the rate of interest or the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each 2026 Bond so affected; or (2) reduce the aforesaid percentage of 2026 Bonds the consent of the Owners of which is required to affect any such modification or amendment, or permit the creation of any lien on the Net Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted herein, or deprive the Owners of the 2026 Bonds of the lien created by the Indenture on such Net Revenues and other assets except as permitted herein, without the consent of the Owners of all of the 2026 Bonds then Outstanding. It shall not be necessary for the consent of the 2026 Bond Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the City and the Trustee of any Supplemental Indenture pursuant to this subsection (a), the Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency and the Owners of the 2026 Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. (b) The Indenture and the rights and obligations of the City, the Trustee and the Owners of the 2026 Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into without the consent of any 2026 Bond Owners, if the Trustee shall receive an Opinion of Bond Counsel to the effect that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners of the Outstanding 2026 Bonds, including, without limitation, for any one or more of the following purposes:

47 (1) to add to the covenants and agreements of the City contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the 2026 Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the City;
(2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the City may deem necessary or desirable;
(3) to modify, amend or supplement the Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereunder in effect, and to add such other terms conditions and provisions as may be permitted by said act or similar federal statute; and
(4) to modify, amend or supplement the Indenture in such manner as to cause interest on the 2026 Bonds to remain excludable from gross income under the Code. (c) The Trustee may in its discretion, but shall not be obligated to, enter into any such Supplemental Indenture authorized by subsections (a) or (b) of this Section which materially adversely affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise. (d) Prior to the Trustee entering into any Supplemental Indenture hereunder, there shall be delivered to the Trustee an Opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of the Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion of interest on the 2026 Bonds from federal income taxation and from state income taxation.

Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, the Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the City, the Trustee and all Owners of 2026 Bonds Outstanding shall thereafter be determined, exercised and enforced thereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes.

Section 9.03. Endorsement of 2026 Bonds; Preparation of New 2026 Bonds. 2026 Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Trustee so determines shall, bear a notation by endorsement or otherwise in form approved by the City and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any 2026 Bonds Outstanding at the time of such execution and presentation of his or her 2026 Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation shall be made on such 2026 Bonds. If the Supplemental Indenture shall so provide, new 2026 Bonds so modified as to conform, in the opinion of the City and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the City and authenticated by the Trustee, and upon demand on the Owners of any 2026 Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any 2026

48 Bond Owner, for 2026 Bonds then Outstanding, upon surrender for cancellation of such 2026 Bonds, in equal aggregate principal amount of the same maturity.

Section 9.04. Amendment of Particular 2026 Bonds. The provisions of this Article shall not prevent any 2026 Bond Owner from accepting any amendment as to the particular 2026 Bonds held by such Owner.

ARTICLE X

DEFEASANCE
Section 10.01. Discharge of Indenture. The 2026 Bonds may be paid by the City in any of the following ways, provided that the City also pays or causes to be paid any other sums payable hereunder by the City:
(a) by paying or causing to be paid the principal of and interest and redemption premiums (if any) on the 2026 Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem all 2026 Bonds then Outstanding; or
(c) by delivering to the Trustee, for cancellation by it, all of the 2026 Bonds then Outstanding.

If the City shall also pay or cause to be paid all other sums payable hereunder by the City, then and in that case, at the election of the City (as evidenced by a Certificate of the City, filed with the Trustee, signifying the intention of the City to discharge all such indebtedness and the Indenture), and notwithstanding the fact that any 2026 Bonds shall not have been surrendered for payment, the Indenture and the pledge of Net Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the City under the Indenture shall cease, terminate, become void and be completely discharged and satisfied, except for the City’s obligations under Section 8.06. In such event, upon the Written Request of the City, the Trustee shall execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture which are not required for the payment or redemption of 2026 Bonds not theretofore surrendered for such payment or redemption to the City.

Section 10.02. Discharge of Liability on 2026 Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section

10.03) to pay or redeem any Outstanding 2026 Bonds (whether upon or prior to the maturity or the Redemption Date of such 2026 Bonds), provided that, if such Outstanding 2026 Bonds are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in Article IV or provisions satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the City in respect of such 2026 Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject however, to the provisions of Section 10.04.

49 The City may at any time surrender to the Trustee for cancellation by it any 2026 Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such 2026 Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.

Section 10.03. Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any 2026 Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and shall be:
(a) lawful money of the United States of America in an amount equal to the principal amount of such 2026 Bonds and all unpaid interest thereon to maturity, except that, in the case of 2026 Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provisions satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such 2026 Bonds and all unpaid interest and premium, if any, thereon to the Redemption Date; or
(b) Federal Securities the principal of and interest on which when due will, in the written opinion of an Independent Certified Public Accountant or Independent Financial Consultant filed with the City and the Trustee, provide money sufficient to pay the principal of and all unpaid interest to maturity, or to the Redemption Date (with premium, if any), as the case may be, on the 2026 Bonds to be paid or redeemed, as such principal, interest and premium, if any, become due, provided that in the case of 2026 Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that: (i) the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Written Request of the City) to apply such money to the payment of such principal, interest and premium, if any, with respect to such 2026 Bonds; and (ii) the City shall have delivered to the Trustee an Opinion of Bond Counsel addressed to the City and the Trustee to the effect that such 2026 Bonds have been discharged in accordance with the Indenture (which opinion may rely upon and assume the accuracy of the Independent Certified Public Accountant’s or Independent Financial Consultant’s opinion referred to above).

Section 10.04. Payment of 2026 Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any 2026 Bonds and remaining unclaimed for two (2) years after the principal of all of the 2026 Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in the Indenture), if such moneys were so held at such date, or two (2) years after the date of deposit of such moneys if deposited after said date when all of the 2026 Bonds became due and payable, shall be repaid to the City (without liability for interest) free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the City and the Trustee indemnifying the Trustee with respect to claims of Owners of 2026 Bonds which have not yet been paid, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the City as aforesaid, the Trustee shall at the written direction of the City (at the cost of the City) first mail to the Owners of 2026 Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the 2026 Bonds so payable

50 and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof.

ARTICLE XI

MISCELLANEOUS
Section 11.01. Liability of City Limited to Net Revenues. Notwithstanding anything in the Indenture or the 2026 Bonds, but subject to the priority of payment with respect to Operation and Maintenance Costs, the City shall not be required to advance any moneys derived from any source other than the Revenues, the Revenue Fund and other moneys pledged under the Indenture for any of the purposes mentioned in the Indenture, whether for the payment of the principal of or interest on the 2026 Bonds or for any other purpose of the Indenture. Nevertheless, the City may, but shall not be required to, advance for any of the purposes hereof any funds of the City which may be made available to it for such purposes.

The obligation of the City to pay interest and principal on the 2026 Bonds is a special obligation of the City payable solely from the Net Revenues, and does not constitute a debt of the City or of the State of California or of any political subdivision thereof (other than the City) in contravention of any constitutional or statutory debt limitation or restriction.

Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture either the City or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in the Indenture contained by or on behalf of the City or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not.

Section 11.03. Limitation of Rights to Parties and 2026 Bond Owners. Nothing in the Indenture or in the 2026 Bonds expressed or implied is intended or shall be construed to give to any person other than the City, the Trustee, the Owners of the 2026 Bonds or the Insurer, any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the City, the Trustee, the Owners of the 2026 Bonds and the Insurer.

Section 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in the Indenture any notice shall be required to be given by mail, such requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail.

Section 11.05. Destruction of 2026 Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee and the delivery to the City of any 2026 Bonds, the Trustee shall destroy such 2026 Bonds as may be allowed by law, and, upon the City’s request, deliver a certificate of such destruction to the City.

51 Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the 2026 Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in the Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of the Indenture, and the Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The City hereby declares that it would have entered into the Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the 2026 Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of the Indenture may be held illegal, invalid or unenforceable.

Section 11.07. Notices. Any notice to or demand upon the City or the Trustee shall be deemed to have been sufficiently given or served for all purposes by being sent by facsimile, electronic mail, overnight mail or courier, or by being deposited, first class mail, postage prepaid, in a post office letter box, addressed, as the case may be, to the City at City of Watsonville, 250 Main Street, Watsonville, California 95076, Attention: Administrative Services Director (or such other address as may have been filed in writing by the City with the Trustee), or to the Trustee at its Office.

Notwithstanding the foregoing provisions of this Section 11.07, the Trustee shall not be deemed to have received, and shall not be liable for failing to act upon the contents of, any notice unless and until the Trustee actually receives such notice.

Section 11.08. Evidence of Rights of 2026 Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by 2026 Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such 2026 Bond Owners in person or by an agent or agents duly appointed in writing.

Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of 2026 Bonds transferable by delivery, shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and the City if made in the manner provided in this Section.

The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer.

The Ownership of 2026 Bonds shall be proved by the Registration Books.

Any request, consent, or other instrument or writing of the Owner of any 2026 Bond shall bind every future Owner of the same 2026 Bond and the Owner of every 2026 Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the City in accordance therewith or reliance thereon.

Section 11.09. Disqualified 2026 Bonds. In determining whether the Owners of the requisite aggregate principal amount of 2026 Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, 2026 Bonds which are actually known by a Responsible Officer of the Trustee to be owned or held by or for the account of the City, or by any other obligor on the 2026 Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect

52 common control with, the City or any other obligor on the 2026 Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, unless all 2026 Bonds are so owned or held, in which case such 2026 Bonds shall not be disregarded and shall be deemed to be Outstanding. 2026 Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such 2026 Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the 2026 Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request, the City shall certify to the Trustee those 2026 Bonds that are disqualified pursuant to this Section 11.09 and the Trustee may conclusively rely on such certificate.

Section 11.10. Money Held for Particular 2026 Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular 2026 Bonds (or portions of 2026 Bonds in the case of registered 2026 Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the 2026 Bonds entitled thereto, subject, however, to the provisions of Section 10.04 hereof but without any liability for interest thereon.

Section 11.11. Funds and Accounts. Any fund or account required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of Section 6.05(a) and for the protection of the security of the 2026 Bonds and the rights of every Owner thereof.

Section 11.12. Waiver of Personal Liability. No member, officer, agent, employee, consultant or attorney of the City shall be individually or personally liable for the payment of the principal of or premium or interest on the 2026 Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent, employee, consultant or attorney from the performance of any official duty provided by law or by the Indenture.

Section 11.13. Execution in Several Counterparts. The Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the City and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument.

Section 11.14. CUSIP Numbers. Neither the Trustee nor the City shall be liable for any defect or inaccuracy in the CUSIP number that appears on any 2026 Bond or in any redemption notice. The Trustee may, in its discretion, include in any redemption notice a statement to the effect that the CUSIP numbers on the 2026 Bonds have been assigned by an independent service and are included in such notice solely for the convenience of the 2026 Bondholders and that neither the City nor the Trustee shall be liable for any inaccuracies in such numbers.

Section 11.15. Choice of Law. THE INDENTURE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.